ris client seminar oct 2010
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An Introduction to Brooks Macdonald Asset Management
September 2010
Market Update
October 2010
Market Update – 3 years in Local Currency
Market Update – 3 years adjusted for Sterling
Markets – Conflicting forces
Micro vs Macro
Inflation vs Deflation
Macro Economic Factors
High unemployment
Lower consumer spending
Public sector cuts
Banks deleveraging
US dual deficit
Higher personal taxation
Micro – Company Level Factors
Companies profitableLow debt levelsHigh earnings / dividend yieldsLow equity valuationsCompanies generating lots of cash• Merger & Acquisition (M&A)• Expansion• Higher dividends / share buybacks
Low equity allocations at present
Markets – opportunities
Defensive UK & International dividend paying stocks (value opportunities)
Asia Pacific and Emerging Markets
Gold?
Cash on deposit?
Banking shares?
Markets – Risks
Government Bonds (Gilts)
PIIGS ( Portugal, Italy, Ireland, Greece & Spain)
Consumer
Inflation – additional Quantitative Easing
Exchange Rates
US Dollar versus Sterling
Little value in Gilts – End of the Bull market in Gilts????
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14
UK 10yr Gilt Yield
Value in high yielding equities
0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00%
10yr Gilt Yield
FTSE 100 Index
IG Corporate Bond
Glaxo
BAE Systems
Vodafone
National Grid
Income Yield - Equities v Bonds
Asia can afford to spend
Source: IMF Financial stability report, Apr 09, CEIC, Nomura Global Economics
0
50
100
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200
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Luxe
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Aus
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Chi
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Indo
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ance UK
US
Bel
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Gre
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Italy
Japa
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Debt % of GDP Gross public debt-to-GDP ratios in 2010
OECD average
Why Asia Pacific/Emerging Markets?
Increased financial and political stabilityCurrent account surpluses/lower levels of debt (both government and individual)Young populationsGrowth of domestic demand, rather than just export-led economies, and continued growth of middle class/urbanisationDiversified region (e.g. Australia – commodities; Singapore – finance; South Korea – manufacturing)The progression of China from third world to 1st world economy and the benefits for the region as a whole (e.g. tourism in Taiwan)
Asset Allocation range (2004-2010)
BMAM Medium risk
Equity markets to remain volatile whilst market views polarised
Western governments weak
Double dip unlikely, slower growth likely
Outlook
Disclaimer
Brooks Macdonald Asset Management Limited are authorised and regulated by the Financial Services Authority.
This documentation may contain confidential or legally privileged information that is intended for the addressee only. Any views or opinions presented are solely those of the author and do not necessarily represent those of Brooks Macdonald. If you are not the intended recipient you are hereby notified that any disclosure, copying, distribution or reliance upon the contents of this documentation is strictly prohibited. If you have received this documentation in error, please notify the sender immediately , so that arrangements may be made for its proper delivery.
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