InsightsInvestment opportunitiesOutlook 2014

Julius Baer Research / Publication date: 27 November 2013Please find important legal information at the end of this publication.

ImprintPublication date

Current prices

Editorial

Content

Overview

Outlook 2014

Next Generation

Economics

Currencies

Bonds

Equities

Commodities

Rating Target Price ISIN

Spot 3m 12m

Spot 3m 12m

Rating Issuers

Value 12m

Price 12m

2012 2013E 2014E 2012 2013E 2014E

2012 2013E 2014E 2012 2013E 2014E

Asset class Focus on ... Avoid ...

Outlook 2014

Recoupling

Growth stampede and savings glut

Long cycles coming to an end

Just when economists and investors have become used to changes in growth patterns, the harbingers of a new era are on their way

What has changed?

Recoupling

Chart 1: Recoupling – shrinking growth differential

More balanced, but watch out for currency crises

Especially for those econ-omies with extreme current account imbalances, curren-cy crises are on the cards in 2014

What happened to inflation fears? Chart 2: External imbalances in selected emerging and advanced economies

Chart 3: Global output gap*

Chart 4: Equity risk premium – in favour of equities vs. bonds

Chart 5: Global equities – no bargain, but not expensive either

Outlook 2014

Solid growth, tame inflation: Good for stocks?

After all the years of owning bonds and gold as a preferred asset mix, the pain trade in 2014 may yet again be buying shares

Going against the grain

Where are the opportunities?

Thematic opportunities

Currencies:

Equities:

Bonds:

healthcare sector:

Some biotechnology compa-nies have made tremen - dous progress with ‘orphan drugs’, i.e. treatment of rare diseases

Chart 6: M&A trend will be continued in 2014

Next Generation

E-commerce and its impact on the logistics industry

New technology applications and changing shopping behaviour are key drivers of e-commerce

The internet evolution

Changing shopping patterns

E-substitution and logistics

Chart 1: Global mobile commerce, 2011–2017E

The dynamics of e-sub- stitution bring fundamental changes to the logistics industry

Strong B2C parcel volumes

Chart 2: UPS’s domestic volume mix shifts from B2B to B2C

Chart 3: Annual parcel volume growth vs. annual global real GDP growth, 2007–2012

Economics

Global recovery is becoming more synchronised

Convergence on the map

Disinflation allows lavish monetary policy to continue

Chart 1: Surging cyclical synchronicity indicator*

Chart 2: Deflation index** still positive for the USA and Europe

A benign inflation backdrop allows a continuation of lavish monetary policy

Currencies

Dollar support from yield advantage close to peak

Peaking US yield advantage

A broadening global eco-nomic recovery will at least cap any further widen-ing of the USD-EUR yield differential

Chart 1: USD-EUR yield differential

Chart 2: USD is richly valued

Emerging market currency stress

Bonds

Anxiously waiting for the central banks’ first move

Ample liquidity provision

Liquidity provision will remain generous in the shorter term

Yield curve to steepen

Chart 1: In the short term, central bank liquidity provision will keep rising

Chart 2: US yield curve could steepen even more in 2014

Controlling the risk

Euro yield convergence

Chart 3: Banking union will foster more convergence among EU banks

Chart 4: Convertible bonds were the most profitable segment in 2013

The European banking union will lead to more yield convergence in 2014

Convertibles stay in demand

Equities

No year-end rally but constructive markets into 2014

No year-end rally expected

No correction expected

Chart 1: S&P 500 seasonal patterns

Chart 2: Total return decomposition

Outlook 2014

Equity markets in 2014 are driven rather by earn-ings, not P/E expansion

WPP

Stock data

Price target: GBp 1500 Closing price: GBp 1355

Financials 2011 2012 2013E 2014E

Performance 1m 3m 12m

amazon.com

Stock data

Price target: USD 395 Closing price: USD 376.64

Financials 2011 2012 2013E 2014E

Performance 1m 3m 12m

Nobel Biocare

Stock data

Price target: CHF 10 Closing price: CHF 13.45

Financials 2011 2012 2013E 2014E

Performance 1m 3m 12m

Commodities

Year three of the fading supercycle

Themes for 2014 Chart 1: North American crude oil production

Chart 2: Chinese gold demand

We see increasing signs of slowing Chinese gold investment demand

Unnoticed Canadian oil boom

Important legal informationThis publication has been produced by Bank Julius Baer & Co. Ltd., Zurich, which is authorised and regulated by the Swiss Financial Market Supervisory Authority (FINMA). The information and opinions expressed in this publication were produced as of the date of writing and are subject to change without notice.

IMPRINT

Christian Gattiker, Head of ResearchBritta Simon, Equity Research,David A. Meier, Economist, David Kohl, Head of Currency Research,Christoph Riniker, Head of Strategy Research, Markus Allenspach, Head of Fixed Income Research, Bruno Winiger, Equity Research, Lilian Montero, Equity Research,Patrik Lang, Head of Equity Research, Norbert Rücker, Head of Commodity Research,

APPENDIXAnalyst certification

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vest

men

t gr

ade

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Non

-inve

stm

ent

grad

e

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