1 / 29

Climate change

Climate change. Tristan Hanson. Investment Outlook June 2009. Strategy Conclusions ( Feb 2009 ). Uncertainty is unavoidable “Safe haven” assets offer low or negative prospective real returns Risk-assets are offering high compensation for risk by historical standards

wray
Download Presentation

Climate change

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Climate change Tristan Hanson Investment Outlook June 2009

  2. Strategy Conclusions (Feb 2009) • Uncertainty is unavoidable • “Safe haven” assets offer low or negative prospective real returns • Risk-assets are offering highcompensation for risk by historical standards • Important distinction between types of risk: liquidity; volatility; fundamental • Global policy stimulus efforts are unprecedented: $2.5trn fiscal boost • Close to the end-game in the banking crisis? Decent odds “news” perceived as less bad over 2009 and risk-assets rally

  3. MSCI World GBP Ashburton Replica Sterling Asset Management Fund JP Morgan Global GBI 02-Feb-09 02-Mar-09 16-Mar-09 30-Mar-09 13-Apr-09 27-Apr-09 16-Feb-09 11-May-09 25-May-09 Rollercoaster ride for equities since last briefing 115 110 105 100 95 90 85 80

  4. Key points • Equities – further upside potential • Government bonds (US/Europe) -oversold and no longer overvalued • Sterling preferred currency major Macro views • Global economy poised for recovery • Long-term structural growth concerns remain • Inflation fears overdone

  5. 1880 1900 1960 1920 1940 1980 2000 Source: BCA Research The glass is still half empty

  6. The glass is still half empty AAI Investor Survey: % Bulls, 13 week average EUPHORIA 80% 70% 60% 50% 40% 30% PESSIMISM 20% Jun-02 Jun-99 Jun-96 Jun-05 Jun-08 Jun-90 Jun-93 Source: Bloomberg

  7. 40% 35% 30% 25% 20% 15% 10% 5% 0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 1989 The glass is still half empty US Money Market Funds / stock market capitalisation Source: Ned Davis Research, Bloomberg

  8. Pessimism reflected in depressed valuations US: cyclically-adjusted PE ratio 40 35 30 25 20 15 10 5 Mar-75 Mar-90 Mar-95 Mar-00 Mar-70 Mar-80 Mar-85 Mar-50 Mar-55 Mar-65 Mar-60 Mar-05 Source: Ashburton, S&P

  9. US PE ratio (12mf EPS) 28 26 24 22 20 18 16 14 12 10 Jun-95 Jun-97 Jun-99 Jun-01 Jun-03 Jun-05 Jun-89 Jun-91 Jun-93 Jun-07 S&P 500 PE ratio using 12 month forward EPS Source: Factset

  10. 1948-49 1990-91 1957-58 1960-61 2001 1973-75 1969-70 1981-82 1980 Sharper recovery 2007-2009 (MA forecast) Deeper recession Consensus expectation is a weak recovery Strength of recovery versus severity of preceding recession 10 9 8 7 1953-54 6 5 4 3 2 1 0 5 7 1 2 3 4 6 8 9 Negative growth in recession (relative to versus trend) Source: Macroeconomic Advisers

  11. Earnings expectations are very depressed World Earnings Revisions Balance Net Earnings Revisions %, (Up -Down) / Total, 3MMA 20 10 0 -10 -20 -30 -40 87 89 91 93 95 97 99 01 03 05 07 09 Source: Nomura, IBES

  12. Asian outperformance expected to continue Asia ex-Japan relative to MSCI World 150 140 130 120 110 100 90 Mar-08 Jun-08 Mar-07 Mar-09 Jun-07 Dec-07 Sep-08 Dec-08 Sep-07 Dec-06 Source: Bloomberg

  13. Government bonds: oversold US 10yr Treasury Yield - 8 week change 1.2 0.7 0.2 -0.3 -0.8 -1.3 -1.8 -2.3 Jan-98 Jan-00 Jan-02 Jan-04 Jan-96 Jan-08 Jan-94 Jan-06 Jan-90 Jan-92

  14. US government bonds: no longer so overvalued US 10yr yield & 10yr average Fed Funds rate 9 10yr Treasury yield 8 Fed Funds rate (10yr average) 7 6 % 5 4 3 2 May-92 May-96 May-00 May-04 May-08

  15. Yield curves are extremely steep US yield curve: 10yr-2yr 3.0 2.5 2.0 1.5 % 1.0 0.5 0.0 -0.5 -1.0 Jan-98 Jan-04 Jan-95 Jan-01 Jan-86 Jan-92 Jan-89 Jan-07

  16. German 30yr bunds attractive given macro risks 5.0 4.5 % 4.0 3.5 Value opportunity: yields are higher than during a global boom 3.0 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-03 Jan-04

  17. Fear #1: increased government issuance • Like all forecasts, predictions of government finances are subject to bias

  18. 1400 US Household Borrowing ($bn annualised quarterly rate) 1200 1000 800 600 400 200 0 First post-WW2 contraction in household borrowing! -200 -400 Mar-90 Mar-95 Mar-00 Mar-80 Mar-85 Mar-05 Fear #2: “printing money” & inflation • Central banks are filling the hole left by the private sector

  19. Fear #2: “printing money” & inflation • Central banks are filling the hole left by the private sector 20 16 12 8 4 US$ bn 0 -4 -8 US: net change in consumer credit ($bn, 3m avg) -12 -16 Dec-88 Dec-93 Dec-98 Dec-03 Dec-08 Source: Bloomberg

  20. 8.5% Fear #2: “printing money” & inflation • Central banks are filling the hole left by the private sector 120% 100% US M2 (% YoY) 80% US Monetary Base (% YoY) 60% 40% 20% 0% May-07 May-08 May-06 Nov-07 Nov-08 Nov-06

  21. Sterling – positive trend GBP: real effective exchange rate (100 = 2005) 130 EXPENSIVE 100 CHEAP 70 Jan-79 Jan-84 Jan-89 Jan-94 Jan-09 Jan-99 Jan-04 Jan-64 Jan-69 Jan-74 Source: BIS

  22. US$ - prone to swings in sentiment, but downward trend US$ vs US equities 1500 90 88 1400 86 1300 84 1200 US equities 82 1100 US$ index S&P 500 Index US$ Index 80 1000 78 900 76 800 74 700 72 600 70 Jan-08 Source: Bloomberg

  23. Taiwan dollar: long-term valuation case + catalyst Asian FX performance vs US$ (100=Sep 1994) 105 100 Asian Basket 95 TWD 90 Sep 1994=100 85 80 75 70 Sep-94 Sep-99 Sep-04 Source: Bloomberg

  24. Taiwan: current account 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 -2,000 Mar-94 Mar-99 Mar-04 Mar-09 Taiwan dollar: long-term valuation case + catalyst Taiwan: foreign exchange reserves TW$ m US$ bn 350 300 250 200 150 100 50 0 Mar-94 Mar-99 Mar-04 Mar-09 Source: Bloomberg

  25. Ashburton Investment Strategy

  26. Investment Strategy Replica Asset Management Source: Ashburton - as at 4 June 2009

  27. Investment StrategyReplica Asset Management – currency overlay Source: Ashburton

  28. Investment Process Two ways to beat the market*: • Predict the “news” better • Short-term forecasting is pointless • Focus on understanding medium-term structural trends (2)Predict the reaction to “news” better • Sentiment, positioning, consensus views • Valuations • Technical analysis/trend analysis What is important is not the “news”, but how the “news” differs from what was expected • Diversification: reduce risk but also augment returns *adapted from Woody Brock’s work (www.sedinc.com)

More Related