Global Weekly 22.05.09

Private Banking

Global Weekly: Decoupling is Back

Weekly Update Investment Advisory Centre

Publication Date: Friday, 22 May 2009

Macro:

Tactical Allocation by Asset Class

Last Week’s Focus (May 18 – 22): Obama’s Administration is shifting priorities towards cost-efficient health care reforms. US citizens have shown the current Administration increasing approval since December (Survey Research Center); consumer sentiment also surged in May. The labour market remains unsupportive to growth, with jobless claims at high levels (631k). The Fed’s range forecasts were trimmed down (-1.65% in 2009 and a return to +2.5% in 2010); the unemployment rate is also expected to peak at 9.4%in H2). The Congress in India’s winning streak opened an area of reform and political stability, thus departing from the weak coalition government of the past. This Week’s Focus (May 25 – 29): Despite a sharper recession (example -10% in Q- GDP in Taiwan and Singapore), the emerging economies, EM stock and bond markets outperformed those of the developed economies by a large margin, auguring expectations of a decoupling in the recovery. Home data will dominate next week. No change of Tactical Allocation by the ABN AMRO PC Investment Committee May 15th 2009: Recent moves (May 7th) :

Conservative

Strat

Tact

Money markets

10%

13%

Bonds

70%

70%

Equities

10%

8%

Alternatives

10%

9%

Growth

Strat

Tact

•

Increase Emerging Market bonds by selling government / supragovernment guaranteed bonds.

Money markets

10%

12%

Bonds

20%

20%

Add commodity investments toward a ‘Neutral’ exposure (2% in Conservative, 2% in Balanced, 4% in Growth) in index-linked instruments. Avoid single commodity exposure.

Equities

50%

47%

Alternatives

20%

•

Bond Markets

F. Hedge Funds Real Estate Commodities

5% 3% 2%

+3% -2% -1% 7% 0% 2%

Balanced

Strat

Tact

Money markets

10%

13%

Bonds

40%

40%

Equities

40%

38%

Alternatives

10%

+2% -3%

Diff +3% -2%

9%

F. Hedge Funds Real Estate Commodities

5% 3% 2%

F. Hedge Funds Real Estate Commodities

Diff

-1% 7% 0% 2%

+2% -3%

Diff +2% -3%

21% 10% 6% 4%

+1% 14% 3% 4%

+4% -3%

Government Bond yields

Last Week’s Highlights (May 18 – 22): The central banks in developed economies are committed to low policy rates; their emerging country counterparts may, however, wind cuts down in the coming months as these economies face larger price pass-throughs from rising commodity prices and previous declines in exchange rates. This Week’s Focus (May 25 – 29): Buying credit bonds remains an easy Bond Portfolio strategy. Government Bond yields are doomed to trading higher this week with new US Treasury supply of 2-, 5- and 7-years. Continue to avoid buying government bonds and keep duration of 3.5 years. Corporate Credit: The credit rally started early this year, well before stocks bottomed and before any end in sight to the recession; this was based on value and on the global investor base switching to the relative safety of fixed income. Corporate credits and Emerging Markets continued to perform well this week. Investors cheer the positive perspective of better economic conditions and are buying Credit and EM bonds. Flows totalled in EM funds USD 14bln in April.

Yield

10-2yr

2-yr

10-yr

UST

Spread

238

0.85

3.23

EGB

212

1.32

3.44

Gilts

248

1.07

3.55

106

0.35

1.41

JGB EMBI+

475

iTraxx Euro 5yr

131

Central Bank Watch Central Bank

Current

Date

Exp

Fed

0-.25%

24/06

Unch.

ECB

1.00%

04/06

Unch

Bank of England 0.50%

04/06

Unch

Graph: 10-year Bund

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Private Banking

Global Weekly: Decoupling is Back

Weekly Update Investment Advisory Centre

Publication Date: Friday, 22 May 2009

Equity:

Corporate Earnings Calendar

Last Week’s Highlights (May 18 - 22): Markets started off on a positive note, but at the end of week the mood turned sour. Weaker US housing market numbers, but especially the comments from S&P to put the UK government debt on a negative watch, put markets under pressure.

25/05

This Week’s Focus (May 25 – 29): We maintain our prudent

Stock Indices

investment strategy and have already taken a number steps towards gradually adding risk to portfolios. Our direction is very clear; the

-

26/05

-

27/05

Staples

28/05

BAM, Ahold, HJ Heinz, Man

29/05

Genentech, Arcandor, Tiffany & Co

Index

Level

P/E‘09 D/Yield

%YTD

S&P500

888.3

14.5

3.2

-1.7

timing and size of the steps is more complex. We have yet to go to

DJEuroStoxx

2420.9

19.1

5.9

-1.1

‘Neutral’ for Equities, partly because the latest rally has been both

Nikkei225

9225.8

-

2.1

4.1

very quick and steep - too rapid to measure improvement in

FTSE100

4346.6

27.3

4.8

-2.0

fundamentals. Markets have moved into an overbought territory. Our

AEX

259.4

8.1

5.2

5.5

strategy is focused on quality stocks. In this upswing, cyclicals have outperformed more strongly than in past recovery phases. Moreover, it is - to some extent - also driven by a strong recovery of ‘bombedout’, relatively low-quality stocks. We are not convinced that it will really be sustainable in the medium-term; we would therefore recommend that clients with these stocks in their portfolios perhaps use the recent strength to rebalance their portfolios by switching these into the quality, high cash-balance stocks.

Important Recommendation Changes Company DBS Group Incitec Pivot Vestas Wind Utd Overseas Bnk Mitsui & Co Nestle JP Morgan Zurich Financial

From Sell Hold Buy Sell Sell Buy/RL Buy Buy

To Buy Buy Hold Buy Buy Buy Buy/RL Buy/RL

Currency Forecasts Q2 / update 17/04/09

FX & Commodity: Last Week’s FX Highlights (May 18 - 22): Risk appetite had some market impact this week which is now waning. On Thursday, in illiquid trade, the S&P rating outlook on the UK was reset to ‘Negative’, affecting the markets and boosting investor fears for an equal move regarding the US government debt. The USD was badly hurt, while the GBP traded sideways as GBP sentiment improved further.

Jun 09

Sep 09

EUR/USD

1.2500

1.2000

Mar 10 1.1500

USD/JPY

102.00

105.00

115.00

GBP/USD

1.4535

1.4118

1.4375

Graph: US Dollar Index Daily (BBG)

This Week’s FX Focus (May 25 – 29): The focus will likely shift more towards fundamentals as risk appetite alone will unlikely be enough to push the growth currencies AUD and NZD much higher after the large rally seen since March. For overall USD sentiment, we continue to focus on important US data releases such as GDP, consumer confidence and housing data next week and employment data the week after. US data could start becoming USD-supportive but impact could be limited if fears regarding the US fiscal outlook persist. Last Week’s Commodity Highlights (May 18 - 22): Risk-taking was back on centre-stage, supported by a positive tone on equity markets and less weak data releases. As a result, most commodity prices rebounded as oil inventories fell ahead of the driving season. This Week’s Commodity Focus (May 25 – 29): US Memorial Day marks the start of the US driving (and holiday) season (peak gasoline demand). The OPEC meeting in Vienna on May 28th will also be closely watched. We reckon that the upward pressure on oil prices will likely continue in the short-term and may stay close to the top of our USD 30-60 range.

Commodity prices (Reuters) Gold (spot) WTI Brent crude (spot) Copper 24h LME Wheat soft Sep 09 fut.

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Latest

Last week

950.85

913.25

60.41

56.64

4564.00

4775.00

625.25

596.75

Private Banking

Global Weekly: Decoupling is Back Publication Date: Friday, 22 May 2009

Weekly Update Investment Advisory Centre

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