Will markets witness a repeat of 2014 & 2015? | Century Financial

1. Will markets witness a repeat of 2014 & 2015? by Century Financial in Investment Insights The product and investment ideas do not consider the risk profile and financial position of the recipient and may not be suitable for everyone. Trading in financial markets and use of margin involves a significant risk of loss, which can exceed deposits. Please read the complete disclaimer carefully. At its latest FOMC meeting on 16 June 2021, US Federal Reserve stunned the markets by its surprisingly hawkish tilt where 7 members were expecting a rate hike in 2022 and 11 members were in favor of 2 rate hikes in 2023. With rate hikes penciled in sooner than expected, markets expect the Federal reserve will move closer to talking about tapering. A move like this would tame inflation and slow economic growth, thus resulting in a flattening yield curve. If long-term growth falls, it will lead to subdued long-term yields, whereas short-term yields will stay firm as Fed is withdrawing the monetary stimulus. Markets are already discounting a Fed taper by the beginning of next year. Following the Fed taper in Dec 2013 and ahead of the rate hike in Dec 2015, 2/10-year spread flattened by 143bps. This time around, the signal from the Fed has kicked o a sequence, which has already shaved 18 bps off the curve. But history suggests there is still a long way to go! Back in 2014 & 2015 when the yield curve flattened, the US Dollar rallied against most of its counterparts while commodities which are denominated in Dollar took a beating. With the strength in Dollar, US assets seemed more attractive than the emerging and developed counterparts and this resulted in the outperformance of US stock markets. Besides, last time the treasury yields flattened, Health care, Tech, Consumer Discretionary, Real estate sectors outperformed the market, while industrials, materials energy and financial sectors underperformed. Historical Performance of major instruments in 2014-15 ahead of the rate hike! Currency 2014-2015 Returns % 23% Dollar INDEX -18% AUD/USD -21% EUR/USD

2. 15% USD/JPY -10% GBP/USD -49% ZAR/USD COMMODITIES 2014-2015 Returns % -11% GOLD -29% SILVER -23% PALLADIUM -36% PLATINUM -67% BRENT CRUDE OIL -37% COPPER Date: 14/07/2021 Source: Bloomberg 2014-2015 Returns % Indices US MARKETS 30% US NASDAQ 100 INDEX 12% US SPX 500 4% US SPX MID 400 -3% US SMALL CAP OTHER MARKETS 57% GERMANY TECH 30 26% INDIA 50 INDEX* 12% NETHERLANDS SOUTH AFRICA (TOP 40) INDEX 11% 9% FRANCE 40 INDEX 6% EUROPE 50 INDEX 12% GERMANY 30 INDEX -3% SPAIN INDEX -1% AUSTRALIA 200 INDEX -2% CANADA 60 -7% UK FTSE 100 INDEX -16% BRAZIL INDEX Date: 14/07/2021 Source: Bloomberg

3. 2014-2015 Returns % Sectors S&P 500 HEALTH CARE INDEX 31% 26% S&P 500 INFO TECH INDEX S&P 500 REAL ESTATE INDEX 28% S&P 500 CONS DISCRETIONARY INDEX 19% S&P 500 CONS STAPLES INDEX 18% 15% S&P 500 UTILITIES INDEX S&P 500 FINANCIALS INDEX 11% S&P 500 INDUSTRIALS INDEX 4% -5% S&P 500 MATERIALS INDEX -31% S&P 500 ENERGY INDEX Date: 14/07/2021 Source: Bloomberg *India-50 rallied significantly in 2014 primarily on account of optimism surrounding the win of Prime Minister Narendra Modi. If history does repeat itself, which looks likely, the Dollar could rally alongside defensive & growth stocks while cyclical stocks and commodities could underperform. Meanwhile, with the US Federal Reserve likely to be relatively more hawkish than its emerging and developed counterparts, US assets are likely to remain more attractive. Investors looking to capitalize on the flattening of the yield curve can consider the following trades: Pair Trades Indices 2014-2015 Returns % 60% German tech 30 vs Spain 35 24%* US Fang Plus vs Russell 19% Nasdaq 100 vs South Africa 40 14% Netherlands 25 vs Spain 35 13% Euro 50 vs UK 100 8% SPX 500 vs SPX mid-cap 400 Share Baskets 2014-2015 Returns % 44% ** Collaborative tech vs Canada 60

4. 21.4%** Big Tech + Mobile Payment vs SPX Midcap 400 Date: 14/07/2021 Source: Bloomberg Exchange Trade Funds ETFs 2014-2015 Returns % 31% VANGUARD HEALTH CARE ETF 27% INVESCO QQQ TRUST SERIES 1 19% ISHARES US REAL ESTATE ETF 17% CONSUMER DISCRECTIONARY SPDR FUND 13% ISHARES US UTILITIES ETF Date: 14/07/2021 Source: Bloomberg *The returns have been calculated from Launch date of US Fang Plus - 22nd Sep 2014 **Share baskets have been back tested on the current constituent weights and hence the results are subject to backfill bias and selection bias. Besides, data for select stocks like Docusign, Zoom video, Square, Paypal among others was not available since the start as they were not listed in 2014-15. For example, Docusign was listed in the year 2018. In such instances, for the days prior to listing, the weightage of Docusign has been distributed among the other stocks on the basis of their individual weights. Disclaimer: Past Performance doesn’t guarantee future returns. It is important to note that Trading pairs is not a risk-free strategy. The difficulty comes when prices of the two securities move contrary to the positions taken resulting in losses. Thus, it is important to adhere to strict risk management rules when dealing with such adverse situations. Individual stocks in the basket are subject to both weightage recalculation & recomposition risk. As a result, certain stocks may be added or removed from the basket as per the platform provider purview without any advance notification. This may be specific to any individual stock or due to some sector specific event. Consequently, share basket performance may significantly deviate from the one specified below. Risks and Assumptions for Back-tested trading strategies The risks and assumptions listed here are not intended to be an exhaustive summary of all the risks and assumptions involved. The strategy might suffer from look-ahead bias which occurs due to the use of information or data in a study or simulation that would not have been known or available during the period being analyzed. This can lead to inaccurate results in the study or simulation.

5. Future price movements may not be exactly the same as the historical price movements and this could lead to variation in performance. Testing can sometimes lead to over-optimization. This is a condition where performance results are tuned so high to the past they are no longer as accurate in the future. The model assumes no slippages in trading. Slippage refers to the difference between the expected price of a trade and the price at which the trade is actually executed. Drawdowns in actual trading can be higher than the tested system and losses could be significant in the event of leverage. Unforeseen events can lead to variation in performance from the tested trading strategy. The tested result has been computed with price feeds available from Bloomberg. The testing environment has not considered transaction or any other costs. Trading indicators used for the purpose of testing has been provided by Bloomberg. The strategy might suffer from data mining fallacy, selection bias and backfill bias. Data Source: Bloomberg Date: 14/07/2021 Arun Leslie John Chief Market Analyst Disclaimer:Century Financial Consultancy LLC (“CFC”) is Limited Liability Company incorporated under the Laws of UAE and is duly licensed and regulated by the Emirates Securities and Commodities Authority of UAE (SCA).This document is a marketing material and is for informational purposes only and must not be construed to be an advice to invest or otherwise in any investment or financial product. CFC does not guarantee as to adequacy, accuracy, completeness or reliability of any information or data contained herein and under no circumstances whatsoever none of such information or data be construed as an advice or trading strategy or recommendation to deal (Buy/Sell) in any investment or financial product. CFC is not responsible or liable for any result, gain or loss, based on this information, in whole or in part. Please carefully read disclaimer mentioned below/next page/next frame. PLEASE READ THE FOLLOWING TERMS AND CONDITIONS OF ACCESS FOR THE PUBLICATION BEFORE THE USE THEREOF. By use of the publication and continuing to access the publication, you accept these terms and conditions and undertake to be bound by the acceptance. CFC reserves the right to amend, remove, or add to the publication and Disclaimer at any time without any prior notice to you. Such modifications may be effective immediately or otherwise. Accordingly, please continue to review this Disclaimer whenever accessing, or using the publication. Your access of, and use of the publication, after modifications to the Disclaimer will constitute your acceptance of the terms and conditions of use of the publication, as modified. If, at any time, you do not wish to accept the content of this Disclaimer, you may not access, or use the publication. Any terms and conditions proposed by you which are in addition to or which conflict with this Disclaimer are expressly rejected by CFC and shall be of no force or effect. No information as given herein by CFC in this publication should be construed as an offer, recommendation or solicitation to purchase or dispose of any securities/financial instruments/products or to enter in any transaction or adopt any hedging, trading or investment strategy. The data/information contained in the publication is not

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