private & confidential. not for external circulation. … · single-country returns -30% -20%...

PRIVATE & CONFIDENTIAL. NOT FOR EXTERNAL CIRCULATION. CO. REG. NO. 200000231R



What to Expect from Markets in 2014

Wong Sui Jau General Manager

Fundsupermart.com


Brief Recap of 2013

• “Tapering”

• US Government shutdown, potential default

• China’s 3rd Plenary Session, reforms

• EM capital flows, currencies, monetary policy

• Headwinds for gold

• Japan and “Abenomics”


Market Performance (in SGD) Market Index 4Q 13 Return 2013 Return

USA S&P 500 10.6% 33.9% Japan Nikkei 225 6.4% 33.0%

Europe (Stoxx 600) Stoxx 600 8.4% 26.7% Global MSCI AC World 7.6% 24.3% Taiwan TWSE 5.1% 12.5%

Malaysia FBMKLCI 5.4% 6.3% Hong Kong HSI 2.6% 6.3%

Korea KOSPI 3.7% 5.5% China HSML 100 4.2% 4.3%

Asia ex-Japan MSCI AC Asia ex-Japan 3.9% 4.0% Australia S&P / ASX 200 -1.4% 2.3% Singapore FTSE STI 0.0% 0.0%

India BSE SENSEX 11.3% -0.2% Emerging Markets MSCI Emerging Markets 2.1% -1.8%

Russia RTSI$ 2.0% -2.6% Thailand SET -9.8% -10.0% Indonesia JCI -5.9% -19.2%

Brazil Bovespa -6.3% -24.2% Source: Bloomberg, iFAST Compilations, Returns in SGD terms excluding dividends


Regional market returns

29.6%

56.7%

17.4%

20.3%

0.7%

-5.0%

33.9%

33.0%

26.7%

24.3%

4.0%

-1.8%

-10% 0% 10% 20% 30% 40% 50% 60%

USA

Japan

Europe (Stoxx 600)

MSCI AC World

MSCI Asia ex Jap

MSCI Emerging Markets

2013 Returns

SGD Terms Local Currency Source: Bloomberg, returns excluding dividends


Single-country returns

-30%

-20%

-10%

0%

10%

20%

Taiw

an

Mal

aysi

a

Ho

ng

Kon

g

Kore

a

Ch

ina

(HSM

L10

0)*

Au

stra

lia

Sin

gap

ore

Ind

ia

Ch

ina

(CSI

30

0)

Ru

ssia

Thai

lan

d

Ind

on

esia

Bra

zil

YTD (as of 31 December 2013) Local Currency SGD

Source: Bloomberg, returns in SGD terms excluding dividends


Bond Market returns

7.3%

4.3%

-0.5% -1.4% -2.6% -3.4%

-6.0% -6.6% -8% -6% -4% -2% 0% 2% 4% 6% 8%

10%

US High Yield

Asian HY US IG Asian Bonds

Global Bonds

SG Gov Bonds

G7 Sovereign

Bonds

EM Debt

Bond Market Performance YTD (as of 31 December 2013)

Source: Bloomberg; returns in USD, except for SG Gov Bonds in SGD


Yield Changes

188.61

124.82

81 79.8 57.6 51.14

-42 -100

-50

0

50

100

150

200

250

EM Debt Asian Bonds SG Gov Bonds

Asian HY Global Bonds

US IG US High Yield

2013 Yield Changes (bps, as of 31 December 2013)

Source: Bloomberg; returns in USD, except for SG Gov Bonds in SGD


USD Appreciation

26.3%

21.4%

16.6%

13.0%

7.3%

7.0%

3.4%

2.7%

-1.0%

-2.8%

-5% 0% 5% 10% 15% 20% 25% 30%

IDR JPY

AUD INR

MYR THB SGD

TWD KRW CNY

USD Appreciation

YTD

4Q 2013

Source: Bloomberg, returns of USD against the various currencies


Top 10 Equity Funds

S/N Fund Market 2013

1 Legg Mason CM Opps Fund A Acc USD US Equities 70.6%

2 ING Inv MENA USD Middle East Equities 52.8%

3 United Global Healthcare Fund Global Healthcare 49.4%

4 Legg Mason Royce US Sm Cap Opp A USD US Small Caps 45.2%

5 Fidelity Germany A EUR Germany Equities 43.9%

6 FTIF-Franklin US Opp Fd A(acc) SGD US Equities 43.3%

7 Fidelity Italy A EUR Italy Equities 43.3%

8 Fidelity Iberia A EUR Spain Equities 43.2%

9 Legg Mason Clearbridge US Agg Growth Cl A USD US Equities 42.1%

10 Fidelity America A USD US Equities 40.2%

Source: Bloomberg, iFAST Compilations. Data as of 31 December 2013 in SGD terms, dividends reinvested


Top 10 Bond Funds

S/N Fund Market 2013

1 Parvest Conv Bond Europe EUR Europe Convertibles 18.1%

2 Fidelity European High Yield A EUR Europe High Yield 17.5%

3 Allianz US High Yield AM H2-RMB US High Yield 15.0%

4 Allianz US High Yield AM H2-GBP US High Yield 12.0%

5 Legg Mason WA US HY Bd Cl A USD (mdis) US High Yield 10.5%

6 Fidelity Euro Bond A EUR Europe Bonds 10.3%

7 NATIXIS IF Loomis Sayles Multisector Inc R/D USD Multi-sector Bonds 9.8%

8 Allianz US High Yield Cl AM USD US High Yield 9.6%

9 Eastspring Inv US High Yield Bd USD A US High Yield 9.0%

10 PIMCO High Yield Bond Cl E Acc USD Global High Yield 8.6%

Source: Bloomberg, iFAST Compilations. Data as of 31 December 2013 in SGD terms, dividends reinvested


What’s in store for 2014?


Optimism in 2014

We are optimistic on the global economy in 2014 because:

1) US economic growth will be accelerating

2) Europe will emerge from recession

3) Japan’s economy also improving

4) Strengthening developed economies to have positive spill

over effects on Asia ex Japan and emerging markets.

5) Inflation is still modest in developed world

6) US “tapering” will happen, but the pace will be gradual


Investment Themes for 2014

1) More new market highs, justified by record earnings

2) Capital growth over income

3) A lowering of return expectations

4) Cyclical sectors to outpace non-cyclicals

5) Continued headwinds for gold prices

6) More value in neglected markets as the gap between

developed and emerging markets have widened last year.


How are Valuations and Earnings?

P/E Year 2014 P/E Year 2015 Earnings Growth 2014 (%)

USA (S&P 500) 15.6 14.0 7.0

Europe (DJ Stoxx 600) 13.8 12.3 12.1

Japan (Nikkei 225) 20.3 17.8 1.1

Emerging Markets (MSCI EM)** 10.4 9.4 9.9

Asia ex-Japan (MSCI Asia ex-Japan) 11.0 9.9 11.5

Singapore (STI) 13.8 12.5 7.6

Hong Kong (HSI) 10.1 9.2 7.9

Taiwan (Taiwan Weighted) 14.6 13.0 13.4

South Korea (KOSPI) 9.3 8.2 26.4

China (HS Mainland Composite Index)+ 8.5 7.7 9.3

Malaysia (KLCI) 16.0 14.6 6.5

Thailand (SET Index) 11.4 10.1 16.9

India (SENSEX) 15.1 12.7 0.3

Indonesia (JCI) 12.8 10.9 15.1


Risks

• Developed market valuations are no longer that cheap

- The run up in developed markets means that upside potential in markets like

US may be lower compared to last year, and downside risks are now

increased.

• US economic recovery still fragile

- US recovery can still be derailed, and that would have negative implications

on global markets should it happen.

• Interest Rates

- While interest rates remain low, they are likely to move upwards as the

economic recovery gathers steam.


Implications for Investors

1) Overweight equities over bonds

2) Asia ex Japan equities are attractive

3) Developed markets still attractive, but lower potential upside

4) China is our favorite market.

5) Financials still look attractive

6) Be patient on South East Asian markets


How about Bonds?

• Bonds had a volatile year in 2013

• The current interest rate environment is very low for the majority of developed sovereign bonds

• Over the medium to long term, it can at best stay at the current level, but much more likely it will go up, particularly as the major developed countries recover and growth accelerates.

• Does this mean we are negative on bonds? … No!


How about Bonds?

• It is important to note that tapering expectations are factored into current yields

• Longer term yields are likely to be more stable in 2014 compared to 2013.

• Riskier segments high yield, Asia and emerging markets should continue to provide superior returns compared to traditional safe havens like global sovereign bonds.

• In particular, high yield is expected to be less sensitive to interest rate changes.

• Also, bonds remain a crucial part of most portfolios, forming the cushion of stability which allows investors to invest with confidence.


Portfolio Allocation 2014


Portfolio Allocation

Risk Profile Neutral Current (Equity

Overweight)

Conservative 10:90 20:80

Moderately Conservative

30:70 40:60

Balanced 50:50 60:40

Moderately Aggressive 70:30 80:20

Aggressive 90:10 90:10*


Equity Market Allocation

Core Equity Neutral Allocation Current Target

US 25.0% 22.5%

Europe 25.0% 22.5%

Japan 7.5% 5.0%

Asia ex Japan 27.5% 30.0%

Latin America 7.5% 10.0%

EEMEA 7.5% 10.0%

100.0% 100.0%


Fixed Income Allocation

Fixed Income Neutral Allocation Current Target

Cash / Money Market 0.0% 0.0%

Singapore / SGD Bias 30.0% 30.0%

Global Bonds 25.0% 15.0%

Asian Bonds 25.0% 25.0%

Emerging Market Debt 10.0% 15.0%

High Yield 10.0% 15.0%

100.0% 100.0%


Key Takeaways

• Developed markets outperformed in 2013 but the valuation gap has increased.

• We favour equities over bonds • Within equities, we favour Emerging Markets and Asia ex Japan over

developed markets. • For single country markets, we like China. • Continue to be cautious on gold. • Within bonds, we favor high yield bond funds. • However, short duration bond funds are a good low risk consideration

against inflation. • There will continue to be volatility in 2014, hence investors should have

a well diversified portfolio.


Disclaimer

This presentation is prepared by iFAST and the opinions expressed herein are subjected to change without notice. iFAST and/or its licensed financial adviser representatives may own or have positions in the funds of any of the asset management firms or fund houses mentioned or referred to in the presentation, or any unit trusts or Singapore Government Securities bonds related thereto, and may from time to time add or dispose of, or may be materially interested in any such unit trusts or Singapore Government Securities bonds. This presentation is not to be construed as an offer or solicitation for the subscription, purchase or sale of any funds. Investors may wish to seek advice from a financial adviser before purchasing units of any funds. In the event that an investor chooses not to seek advice from a financial adviser, he/she should consider whether the product in question is suitable for himself/ herself. No investment decision should be taken without first viewing a fund's prospectus. Any advice herein is made without any regard to the specific investment objectives, financial situation and particular needs of any specific person or group of persons. Past performance and any economic and market trends or forecast are not necessarily indicative of the future or likely performance of the funds or the manager. The value of units in any funds, and any income accruing to the units from any funds may fall as well as rise. Please see our website for further information.

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