THE OF THE GLOBAL ECONOMY

Global Macro & Market Outlook Fourth Quarter 2019 PARTNERSHIP CONTENTS

Global Macro & Market Outlook INVESTMENT CHOICE Introduction 2 The Key macro risks 6 PRUDENCE Summary of asset views 7 Developed Markets Outlook 10 US 10 Canada 14 London & Capital’s approach to investing Europe 16 UK 19 is the same as our approach to our clients. Emerging Markets (EM) 22 22 We listen and observe. We ensure we have India 24 a complete understanding and then invest The World at a Glance 26 accordingly to provide financial stability and Fixed Income 28 investment returns. No hunches, just learning Government bonds 28 Corporate investment grade bonds 31 from homework and history. Financials 34 Corporate high yield 36 EM IG and HY debt 37 Call us on +44 (0)207 396 3200 Equities 36 or visit londonandcapital.com Overview 36 Our positioning 38

Alternatives 42 Overview 42 Our positioning 45

FX 47

1 It is most evident in the astounding appetite for the safest of assets: government bonds. In , where figures this week showed that the INTRODUCTION economy is shrinking, interest rates are negative all the way from overnight deposits to 30 year bonds!) Investors who buy and hold bonds to maturity On the back of the will make a guaranteed cash loss. In Switzerland negative yields extend screeching handbrake all the way to 50 year bonds. Even in indebted and crisis-prone Italy, a 10 year bond gets you only 1.5%. In America the curve is inverted (rates turn by major Central on 10 year bonds are lower than on 3 month bills), a rare occurrence that could be a harbinger of recession. Banks, financial Angst is evident elsewhere, too: Pau Morilla-Giner markets are showing - Over half of the world's bond Fear of a weaker Chief Investment markets are trading below Officer signs of extreme the Federal Reserve (Fed) global economy confusion: while funds rate. that turns equity markets still seems to be - Gold is at a six-year high. Copper prices, a proxy for in 'insurance policy' mode, bond industrial health, are recessionary down sharply. markets have moved to price in a amid an extended - Despite Iran’s seizure of oil higher likelihood of recession. tankers in the Gulf, oil prices trade shock is have sunk to $60 a barrel. - Organisation for Economic challenging the Co-operation and Development’s (OECD) idea that the composite of leading indicators fell in June for the 18th Fed is set for consecutive month (the longest stretch of weakness since the just a 'mid-cycle ). - China’s auto sales fell again adjustment to in July (the 5.3% year-on-year decline is the 13th negative policy' reading in the past 14 months).

2 3 The fear of a weaker global - Car sales fell 2.0% in July on The main danger is that of a economy that turns recessionary top of a 1.3% slump in June profit recession in the US. The We are heading amid an extended trade shock (and have now declined in three past decade has been great for is challenging the idea that the of the past four months). companies, with record profit for a prolonged Fed is set for just a “mid-cycle margins due to lower corporate - Existing home sales dropped adjustment to policy”. The latest tax rates, low cost of capital and 1.7% in June even with much stagnation, central bank action will also very moderate wage growth, the lower mortgage rates — they play a key role in expanding the issue now is not that margins fall have been flat or down in driven as much universe of negative-yielding debt, off a cliff (we will not have inflation three of the past four months, as investment mandates require all of a sudden), but that further and have declined by 11% at by political managers to buy government improvement in margins is off table an annual rate over this bonds. As yields fall, so managers and they are going one way: down. time frame. uncertainty buy more in order to stay balanced versus their respective fixed-income Conclusion: The private sector In Europe, the ECB was confronted as underlying benchmarks. This only expands the in the US has so much debt that with slowing economic growth, tide of negative-yielding debt, and lowering the cost of credit will not uncertain politics and wobbly fundamentals places downward pressure on other cause the kind of demand reaction markets, and so it reliably came global sovereigns with positive that historical standards suggest. to the rescue with new stimulus yields such as Australia, Canada measures and a deferral of the start and the US. to any normalisation of interest rates. A low-growth, low-inflation The coming Fed rate cuts will keep The main environment, along with a negative the economy ticking for a while, deposit rate and ample central but will do little to reactivate the danger is that bank liquidity, bears a striking economy and avoid the upcoming resemblance to post-bubble . significant slowdown. Even before of a profit Long live QE! the Fed did a thing, the yield on the 10 year Notes fell by 1.30%, recession in To sum up, we are heading for a which helped drag down a gamut prolonged stagnation, driven as of borrowing costs priced off the the US much by political uncertainty as Treasury curve, but there has underlying fundamentals. been no lift for the auto and housing sector:

4 5 KEY MACRO RISKS HEADING: SUMMARY Here are some of the main risks, and our views: - The global co-operation that - In Italy an increase in OF OUR ASSET VIEWS helped resolve the 2008 crisis market-unfriendly headlines has dissipated with Trump’s could result in more market London & Capital uses a - Our VALUATION monitor has fracturing of global multilateral turbulence, undermining proprietary system to develop been in RED for a few quarters institutions. Nationalist investor confidence in the forward-looking views across now: after years of financial passions have already been Eurozone. assets: repression, few listed assets are stirred and it will not take much - Our MACRO monitor is flashing below historical averages. - As the Brexit deadline to reach AMBER, as weaker US cyclical to unleash a firestorm. - Our SENTIMENT monitor is in a deal approaches, concerns growth combines with subdued AMBER: there is still plenty of - The risks of a significant US will likely build that a no-deal readings in other Developed cash on the sidelines (a bullish slow-down are increasing as outcome — and associated UK Markets. There is risk that the indicator), but the start of the the economy is likely to face a and EU market turbulence — monitor turns to RED by late year rally is bound to lose number of hurdles: the end of could become a reality. next year. the fiscal impulse, the impact of momentum. the trade war, a more cautious - Our FISCAL POLICY monitor On the back of the monitors, financial backdrop and a is flashing GREEN, as populist our current Asset Allocation general global economic slow- fiscal stances spread across views can be summarised in the down. The economic expansion the globe. following way: that began following the depths - Our MONETARY POLICY - CASH - Overweight of the crisis in 2008 and 2009 is monitor is flashing GREEN, - Higher Cash positions are long in the tooth. as Central Banks have deserved. A portion of this changed tack and returned to - A significant strengthening cash should be in Gold, which accommodative stances. in financial capital adequacy is gathering momentum as (which means banks are - Our EARNINGS monitor is the strongest currency in the stronger than they have been flashing RED as embedded world. in many years) masks a rise in expectations of global - Short maturity, high quality other corporate debt. More corporate earnings remain bonds are attractive as a safe problematic, the quality of quite optimistic. Corporate haven. today’s higher debt balances is profit margins are at record worse. highs, so there is scope for disappointment on that front.

6 7 FIXED INCOME - Neutral - Reduction in non-financial MONITORS PREVIOUS NOW corporate High Yield allocation, in favour of Investment Grade and higher quality bonds. - Core exposure to financial bond MACRO space still warranted. Within financial bonds, it’s advisable to move down the risk curve. - While friendlier to bonds than equities, at some point the MONETARY POLICY macro/policy environment will separate good bonds from bad bonds. EQUITIES – Underweight FISCAL POLICY - High quality equities well positioned to capture returns in the last innings of the bull market, while being resilient on the way down. VALUATIONS ALTERNATIVES – Neutral - Truly uncorrelated alternative strategies will continue to complement the rest of portfolio. EARNINGS - Important to avoid leverage and illiquidity.

SENTIMENT

8 9 This effective lower bound can be seen as zero rates, as first muted post- DEVELOPED financial crash and of course already breached in Europe and Japan. Real-TimeReal−Time Estimates Estimates of r* and u*of real interest rates and natural rate of unemployment

FOMC Blue Chip CBO FOMC Blue Chip CBO

MARKETS OUTLOOK r* − Neutral Real Rate of Interest u* − Natural Rate of Unemployment Percent US Economic Outlook

- The Fed remains on a gradual rate cut path

- Persistently low inflation remains a key concern for the Fed - Recession risk is still relatively low as consumers just keep on spending

The Federal Open Market Committee (FOMC) delivered another 0.25% cut in September following the expected rate cut at their July meeting. The statement, the split rate cut vote and the accompanying forward-

looking rate path (the infamous dot plot) sowed some confusion, with Chairman Powell again hinting that the move was "intended to insure against downside risks". The use of the term “insurance” has led to 2012 2014 2016 2018 speculation that the Fed may not pursue a long-term easing strategy. Source: FOMC Has the Fed really shifted away from their dovish tilt? To some extent

they are less dovish than earlier this year, but the direction is still for Note: The Federal Open Market Committee (FOMC) data are quarterly, extend through June 2019, and gradual easing. In fact, the Fed has restated its concerns about slowing are projections of longer−term normal. The Blue Chip data are biannual, extend through June 2019, and are projections for 6 to 10 years in the future. The Congressional Budget Office (CBO) data are biannual growth and its fears that inflation remains below the 2% target. They and extend through January 2019. For the left panel, the projections are for 10 years in the future; the right are rightly looking at a wide swathe of inflation data, including market- panel shows the natural rate projection for the current quarter at the time of the projection. The neutral real interest rate is the 3−month Treasury bill rate projection (CBO) or the federal funds rate projection based expectations that all point to prices remaining below target for a prolonged period. Our base case for further easing over the next 12 months remains intact given the broadbased global economic slow- We re-iterate our view from the down and significant concerns over trade conflicts across multiple fronts. This view is also supported by clues the Fed has given about its past quarter that the US economy is longer-term bias in the recent Jackson Hole speech. This maps out the challenges the Fed faces given the continual drop in both the natural rate of unemployment and the neutral real rate of interest, which, combined slowing but the risk of an immediate with persistently low inflation, implies that "interest rates will run, on average, significantly closer to their effective lower bound". recession remains low

10 11 We re-iterate our view from the past quarter that the US economy is What is propping up the economy? slowing but the risk of an immediate recession remains low, even though It’s the consumer (accounting for Our base case the Treasury market is signalling a one-in-three chance of a recession. We almost 70% of GDP), buoyed by are about to enter the 124th month of expansion, setting a new record, a relatively strong labour market, for further easing and the main downside risk is still from the trade conflict damaging global decent wage growth and higher supply chains and creating uncertainty for businesses and consumers real income. The risks centre over the next 12 alike. The negative consequences are apparent as spending on equipment upon job growth slowing and real has ground to a halt whilst investment in structures (i.e. new plants and wage growth being squeezed, months remains renovation of older ones) contracted. Business intention surveys remain but on examining the underlying gloomy. An early trade resolution could be beneficial but a lot will depend trends neither are seen as an intact given the on what type of new trading arrangements are in place. Separately, from imminent risk. Nevertheless, history business spending, the housing market provides little comfort, having has taught us that a consumer broadbased contributed negatively for eight out of the past nine quarters. Even with a contraction is not a necessary supportive backdrop it is unlikely to reverse the gradual decline. precondition for a recession and we global economic must remain wary of the slowing trends across many sectors within Consumers just keep spending slow-down the economy. ercent change ercent change and significant 4. 1. earoveryear change in retai saes right scae) . concerns over . .

1. trade conflicts

. .

1. onthy change in retai scaes eft scae) . .

. 1. 4.

. 1. 1 11 1 1 14 1 1 1 1

Source: OEF

12 13 Canada Economic Outlook The complicated policy backdrop is highlighted by the headline-grabbing 3.7% Q2 GDP growth rate that obviously surprised on the upside. However, - Growth downgrade to c.1.25% closer scrutiny shows that domestic demand actually contracted by 0.7% - Bank of Canada on hold at present but monetary policy is set to as consumer spending slowed markedly (just +0.5%) whilst business become looser investment fell a whopping 16.2%, reversing the unexpected Q1 jump. There were two temporary factors that boosted growth in Q2: exports surged over The Bank of Canada (BoC) has kept interest rates on hold through this 13% whilst residential investment rose 5.5% after five successive quarterly year, in stark contrast to other major Central Banks as the economy declines. The export performance is unsustainable given the global growth surprised on the upside in the second quarter whilst inflation edged and trade backdrop, never mind the impact of a stronger currency. Housing above their 2% target. However, this should not distract from the is still expected to be a small drag on growth, hampered by tightening bank underlying concerns that are maintaining the dovish bias from earlier in lending standards and relatively high debt service costs. Both of these the year. The latest statement from the BoC (September 4th) sums up underlying forces will continue to act as a constraint for consumers generally. their dilemma: “Canada’s economy is operating close to potential and It is a sobering thought for policy-makers in Canada that consumers (unlike inflation is on target. However, escalating trade conflicts and related their US counterparts) have seen debt levels rise over the past few years in uncertainty are taking a toll on the global and Canadian economies". conjunction with rising servicing costs. This is a major risk to longer-term We had not expected the BoC to follow the Fed but it will become growth expectations that could be accentuated by a breakdown in global increasingly difficult for them to ignore the global loosening trend, and trade. There are also considerable risks from a slow-down in employment it is likely that domestic developments will allow a change in stance growth and a resultant squeeze on income. and loosening in coming months. The next meeting is scheduled for Canada: ea G 30th October, coinciding with an update to official growth and inflation Canada Real GDP Growth Rates projections; by then they’ll hope to have greater clarity on trade too. %, q/q annualiied 6

4 We had not expected the BoC to

follow the Fed but it will become 2 0

increasingly difficult for them to -2

ignore the global loosening trend -4

-6

-8

-10 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Source: OEF 14 15 The inflation backdrop has been European Economic sell-off in core bond markets after The challenge for the incoming slightly confusing as there was a Outlook the initial rally. A difficult handover President will be to maintain the mid-year rise in the BoC’s preferred awaits Christine Lagarde. consensus and hold the looser inflation measures to over 2%. - The ECB unveils a second stance. Any evidence of a shift away What did the ECB deliver? It There were some one-off variables bazooka – will it succeed? will be viewed negatively. In this that have begun to fade, allowing was a multi-faceted package context, the economic and price - Pressure for fiscal loosening prices to ease back to target. The including a rate cut and broader backdrop will clearly be critical. intensifies pressure for a shift in policy is likely measures. On that basis it is rather difficult to intensify as inflationary pressures - Persistent inflation undershoot I. The deposit rate was cut to understand why some ECB continue to ease, which should with sluggish growth seems to deeper into negative territory, members object to further monetary allow a 0.25% cut by year-end and be the European norm down a further 0.10% to loosening unless they wish to see further loosening in 2020 as growth -0.5%. Additionally, forward deflation becoming endemic within moves below potential. The outgoing ECB President Mr. guidance shifted from calendar- the Eurozone. The growth projection Draghi delivered on his speech year dependant to inflation- remains an anaemic 1.25% in in Sintra earlier this year in which dependant, i.e. “until the 2019 and just 1% next year, with The challenge he had conceded the need for inflation outlook converges inflation at the lower end of the further monetary loosening, close to but just below 2%” . 1-1.5% range. Apart from consumer for the incoming highlighting deepening concern II. QE (asset purchases) will restart demand, almost all other sectors over growth and inflation. The at €20 billion per month from (business investment, industrial President will breadth of the ECB Bazooka November onwards, of which sector, exports and housing) are 2 (first one was in 2012 in the €5 billion will involve corporate either weakening or are already be to maintain midst of the Euro sovereign debt bond purchases. However, the contracting. crisis) was surprising given the 33% sovereign limit was not There are now daily calls for fiscal public objections from the more raised, which places a 9-month the consensus loosening from all across the Euro conservative northern ECB Council limit to QE, but this is likely to zone and of course President members. The split within the be raised by the close of this and hold the Draghi also called for affirmative ECB has now been laid bare by year. action. On the face of it the budget fairly swift criticism from Central looser stance. III. A tiered reserves system will balance (the Euro zone budget Bank heads in Germany, Austria, exempt some reserve deposits deficit is under 1%) provides plenty Netherlands and a mild rebuke by Any shift away from negative rates and should of room for manoeuvre. However, France. This disagreement and help European banks. this is deceptive as Germany is the the call for fiscal policy to step up will be viewed one major country with significant would suggest that the ECB feels IV. The TLTRO III was lengthened room for loosening, with a budget that it is now at or very close to the to 3-year maturities whilst negatively surplus of c.1% of GDP and gross limits of its policy tools and this removing the 0.10% spread government debt of under 60% has been reflected via a meaningful over the deposit rate.

16 17 (likely to decline towards 50%). In comparison, both France and Italy have UK Economic Outlook We are often asked by clients current budget deficits close to 3%, whilst the Spanish deficit is c.2%. about “project fear” (the post-Brexit The gross debt level In Italy is already above 130% of GDP and is above - Is there life beyond Brexit? economic collapse) as we have 90% (but below 100%) in France and Spain. Yes, there is a clarion call for - Austerity ends with a 1-year escaped the recession that has fiscal support but where will it come from and how will it be financed? The fiscal giveaway been predicted for such a long conclusion has to be that debt levels will have to rise as governments enact time. We concur and understand tax cuts and spending increases, and Central Banks will have to finance - Consumer demand remains that without doubt, the significant this through QE to prevent a damaging rise in bond yields. A brave new QE relatively strong but this is the support through lower interest world awaits. only good news rates, higher BoE asset purchases, greater housing support and a Chart 4: Fiscal Policy – Is there room for manoeuvre? A new leader and a new significant currency devaluation uropean ebtG atios direction – the hope has turned all helped in keeping recession discouragingly into further division at bay. Luckily the global growth 14 (political, social and economic) outlook also improved markedly. 1 and we still have no idea whether An imminent recession is certainly the UK is exiting on October 31st 1 not in sight, but the unbalanced with or without a deal. Or we nature of the economy is becoming may have the drama extended ever more entrenched. External through to January 31st 2020. But and domestic uncertainties are 4 in any case, the day of reckoning increasing, leading to expectations is near. In the interim we have for muted growth of 1-1.5% to decide how to invest in UK but with risks to the downside. 1 1 1 1 financial assets and what type of Consumers have been the risks should we take? There are mainstay of growth, performing G F I some broad conclusions we can ahead of expectations. The low reach: monetary policy will remain unemployment rate, lower inflation, Source: LCAM/OEF supportive for a prolonged period higher wage growth and resultant given the significant uncertainties, higher real disposable income have public spending has been raised all been extremely supportive and by c.£20 billion in 2020/21, growth are likely to remain so into next year is below potential and inflation is as well. There is some constraint edging below target. from a slowing housing market as the level of mortgage approvals, transactions and house prices have all levelled off. A period of subdued growth is most likely.

18 19 UK Year-on-Year Departmental Spending - Loosened is that, come what may, public : Current spending by departments spending will rise partly due to year in rea terms generous revisions to borrowing projections by the Office Budget Responsibility (OBR) but also 4 largely due to the shift in political ambitions. With the budget deficit below 2% of GDP there is certainly room for fiscal easing, but we will 1 do well to remember that the debt/ GDP ratio is still above 80%.

1

4 111 11 141 11 11 1 Source: OEF ource : ford conomics reasury Away from household spending, confidence levels in manufacturing fell below 50, the lowest level since July 2016, as both external and domestic orders fell at the fastest pace in over four years. The construction Purchasing Managers Index (PMI) also fell, and service sector confidence has stagnated. All of this is clearly negative news. The economy also continues to be hampered by weak capital investment and the fading positive contribution from net exports. Business investment intentions are at their lowest since 2010 and – rather worryingly – businesses are now stating that the global outlook is as concerning to them as Brexit now.

The new Chancellor announced a significant 4.1% 1-year increase in departmental spending, building on the rise last year. This would represent a big step-up and go some way to reversing the cuts seen over several years. But the secondary impact of declines cannot simply be undone so quickly. The charade of the toing and froing in Parliament continues to interfere with any meaningful implementation of a fiscal boost. What is clear

20 21 The trade issue has added to the general woes within the domestic economy which has seen growth slow to just over 6%. Although this is EMERGING consistent with the government’s own projections, it has led to significant fiscal support and looser monetary policy. Nevertheless, the economy continues to weaken, with manufacturing confidence waning, investment MARKETS OUTLOOK slowing, consumption relatively weak and exports being hit by slowing - EM (Emerging Market) growth is weakening, partially due to ongoing global demand. trade conflict - Chinese policy easing to continue in response to slowing growth On the fiscal front, the focus has been on tax cuts rather than the normal - Indian policy easing underway as growth unexpectedly slows pump-priming into infrastructure projects. Given the excess capacity in many sectors, it is not surprising that this took the backseat. The tax burden needs to be lowered to accelerate the rebalancing of the economy Our EM economic analysis is driven by an examination of key sovereign towards consumer demand. However, it has become apparent that tax cuts risk indicators such as reliance on external debt, foreign direct are not having the desired impact. It now seems likely that there will be a investment flows, government deficits and debt levels, importance of further dual effort to prop up the economy: greater allowance for provinces external sector verses domestic growth and possibility of policy support. to issue bonds to finance infrastructure projects; and additional tax cuts for This analysis suggests that we should remain selective in our risk both consumers and companies. The budget deficit is set to rise to over apportioning. There is a disparate outlook across EM economies, with 6% from 4.7% in 2018, but with the overall government debt level relatively countries such as Argentina and Venezuela amongst the most volatile. low there is plenty room for manoeuvre. China Key Cyclical Indicators Chinese domestic % year The China-US trade saga seems 18 like a long-running soap opera Value added industry real) growth has but with one key difference – it 16 Retail sales real) Fixed asset investment nominal) matters to the global economy. The 14 inevitably slowed thrusts and counterthrusts matter 12 as the two largest economies have as confidence managed to undermine global 10

industrial confidence and trade 8 has waned and flows. Chinese domestic growth 6 has inevitably slowed as confidence real activity has has waned and real activity has 4 followed suit. followed suit 2 0 2014 2015 2016 2017 2018 2019

Source: OEF

22 23 On the monetary front, the People’s India The focus for further reforms will Bank of China (PBoC) has (as be on the on the key areas we The looser expected) been quite aggressive, P.M. Modi’s re-election with a highlighted last quarter, aimed at with multiple cuts in the RRR strong mandate for his ruling BJP improving efficiency and raising monetary stance (Reserve Requirement Ratio) party has not acted as catalyst productivity across both the public and more easing already hinted for a breakout in growth. To the and private sectors. The changes is justified as at by the State Council. In early contrary there was a worrying are gradually being unveiled September, there was a further slow-down in Q2 as GDP growth across four areas: land auction core inflation blanket cut (0.50% RRR cut) and a eased from 5.8% in Q1 to a reform, making auctions far more targeted cut of 1.00% for some City rather meagre yearly rate of 5%. transparent; regulatory changes has eased and commercial banks. In addition, it is All major components slowed, in the labour market creating also likely to actively use targeted with private consumption and more jobs; pressing ahead with is likely to move medium-term lending to ensure investment particular standouts. privatisation; and measures to that there is sufficient liquidity for It is increasingly apparent that the boost industry and exports. below the companies and households. More catalogue of changes to reform controversial is the weakening in banking, tighter lending criteria, tax The Reserve Bank of India (RBI) has mid-range of the RMB in recent months, which changes and de-monetisation have turned dovish and should reduce may well accelerate in the event of combined to sap confidence. Of interest rates by a further 0.50% the target the trade war intensifying. These course, most of the changes are over the next quarter. In addition, it measures should help in keeping of fundamental importance to the is likely to take measures to reduce GDP growth close to 6.0%. A long-term health of the economy. credit constraints and improve more favourable trade outcome In the short-term it is unlikely that liquidity across the bond market. could boost growth to 6.25%, but the growth profile will be boosted The looser monetary stance is it is unlikely to lead to a speedy given the global backdrop, but justified as core inflation has eased recovery, particularly as there are the medium-term growth potential and is likely to move below the mid- natural constraints, with potential is likely to be raised as the range of the target. output lower. government gradually moves ahead on a number of fronts.

24 25 THE WORLD AT A GLANCE UK - Is there life beyond Brexit? - Austerity ends with a 1-year fiscal giveaway - Consumer demand remains relatively strong but this is the only good news

Canada Europe - Growth downgrade to - The ECB unveils a second c.1.25% bazooka – will it succeed? - Bank of Canada on hold at - Pressure for fiscal loosening present but monetary policy intensifies is set to become looser - Persistent inflation undershoot with sluggish growth seems to be the European norm US - The Fed remains on a gradual rate cut path Emerging Markets - Persistently low inflation - EM (Emerging Market) growth remains a key concern for is weakening, partially due to the Fed ongoing trade conflict - Recession risk is still relatively - Chinese policy easing to low as consumers just keep continue in response to on spending slowing growth - Indian policy easing underway as growth unexpectedly slows

26 27 It is pretty clear that central bank This year’s Jackson Hole challenges are mounting, but what symposium focussed on the FIXED INCOME does this mean for government challenges faced by Central Banks bonds as they set the backdrop a decade on from the great financial for all financial assets including crash. A few of the key points GOVERNMENT BONDS equities? raised by Chairman Jerome Powell London & Capital positioning have already been mentioned in the US Outlook with regard to the - Duration lowered for the first time in a year lower natural rate of unemployment - Lower government bond allocation following an overweight position Historically, and the falling neutral real rate inverted yield of interest. A paper provided by Portfolio duration was raised at the end of 2018 in anticipation of Alan. M. Taylor and Oscar Jorda slower economic growth and lower inflation. We expected this change curves were highlights the 30-year drop in the in underlying economic fundamentals to be the catalyst for a shift neutral interest rate across the in monetary policy, and this has of course now arrived. This shift in a sure signal major economies that accelerated emphasis - in tandem with the ongoing trade conflict - has provided post-2008. Apart from the secular significant support to government bonds, resulting in benchmark 10- of tougher decline in inflation (actual and year bond yields plummeting across the board; US 10-year treasuries expectations), they also point to fell below 1.5%, German Bunds are in record negative territory and economic the continual weakness in GDP UK Gilts fell to 0.4%. Almost without exception, yield curves have growth (i.e. below potential), the inverted, signalling the increasing probability of recession across the desire to impose fiscal austerity major economies. Historically, inverted yield curves (10-year minus times, but the and – critically – demographic short-end yields) were a sure signal of tougher economic times, but trends (ageing population) that the situation today is complicated by the presence of QE (Central bank situation today is have suppressed interest rates. It is asset purchases) pushing longer-dated yields lower artificially and the difficult to argue that any of these continuance of the regime of low or even negative interest rates. This complicated long-term trends will be reversed, may mean that the inversion is more a reflection of slower growth and which implies that interest rates are low rates rather than predictor of recession. by the presence set to remain at or even fall below Looking ahead, it may well be that bazooka 2. Further yield drops are of QE what Central Bankers like to term investor positioning coupled with still likely, but it is better to be more the effective lower bound (ELB). continued economic and political cautious on duration going forward, In this context, it is not surprising uncertainty may yet push yields largely due to the extended nature that we have the persistence of lower, but the chance of higher of the rally and significant investor negative official interest rates and volatility is now more likely, as positioning, which may well make government bond yields. But there seen by the sell-off in developed the market more vulnerable. remains a significant concern given sovereign bond markets post ECB the renewed phase of monetary

28 29 loosening, which may yet ultimately fear that has gripped investors for fail to either boost growth or years, which is that the developed raise inflation expectations on economies will inevitably mimic CORPORATE a sustainable basis. There may Japan, with ever lower interest be short periods of respite when rates, low growth and low inflation it may appear that growth and (the new norm). INVESTMENT GRADE prices are picking up, and this will London & Capital positioning inevitably lead to bouts of elevated Clearly the pace at which - The higher credit quality across LCAM portfolios over the past 9 volatility in government bonds. The sovereign yields have dropped months is maintained underlying issue, which will remain would suggest that there may - Adding selective BBB exposure in deleveraging companies in focus, is how the economies be a period of stability now, but will move to a higher growth plane the ongoing uncertainties around Rationale for overweight with higher inflation unless there is longer-term trade policy, Brexit, a dramatic shift in momentum in political instability, lack of policy Lower government bond yields have driven corporate bond yields lower, either productivity and/or capital consensus in the Eurozone and the but credit spreads have also narrowed through the course of the year, expenditure. onset of the US Presidential cycle reflecting the improving credit fundamentals. Positive factors include (to list some key issues) all add to sluggish economic growth, supportive corporate leverage and interest As a result, fiscal policy will ongoing concerns and support for cover, good cash flow, high cash balances and low refinancing risks, increasingly come into focus, government bonds. particularly for higher grade corporate bonds (A-AA). as has already been seen in the There continue to be fears in many quarters about rising corporate leverage US and recently in the UK. The and potential refinancing risks, but it is important to stress that generally outgoing ECB President, Mr. It may appear higher-rated companies have been actively prolonging the maturity of their Draghi, and incoming Christine outstanding debt over the past few years. The table below highlights the rise Lagarde are both looking for a that growth and in duration of outstanding US corporate bonds (including the BBB sector). fiscal response in Europe as they feel the ECB’s monetary response prices are picking Benchmark duration rising over time is reaching its limits. However, our fear is that in the absence up, and this will September 2019 September 2011 of continual Central Bank asset US Corporate Bonds 7.7 years 6.75 years purchases, looser fiscal policy may inevitably lead to 7.7 years 7.1 years well exacerbate the underlying US BBB Bonds economic malaise if bond yields bouts of elevated Multiverse 7.0 years 5.9 years rise significantly, choking off growth Multiverse – Global bond market and leading to another leg down in inflation expectations. There are no volatility Source: Bloomberg Barclays Indices easy options and we revert to the

30 31 We have seen a wide swathe yields are a positive for corporate We are also retaining selective BBB Risks of companies (including Apple, debt, but this does not mean that exposure as a number of global Microsoft, Kraft-Heinz, Disney, all is rosy; a slower economy and companies undertake significant The primary risk is an abrupt end Vodafone and European utilities) lower earnings will still be a threat. deleveraging to climb back up the to the economic expansion, in turn carrying out successful liability Taking into account various factors, rating scale. Over the past few threatening corporate prospects. management exercises involving we retain the bias towards higher months we have seen companies A damaging rise in credit risk (i.e. retiring or reducing shorter- grade corporates, with a focus such as GE, AT&T, GM, Verizon a significant widening in credit dated maturities and deliberately on strong cash flow companies and Caterpillar all beginning spreads) would be a danger, extending longer at the lower including regulated industries. to deleverage significantly. As particularly for the lower end of the prevailing interest rates. In the examples, GE is well on its way investment grade spectrum. These background, the net supply of to reducing leverage (Net Debt/ lower rated IG bonds have faced a corporate bonds is set to fall next We retain the EBITDA) from c.4x to 2.5x, AT&T is more challenging environment and year, following on from the decline also moving in a similar direction. selectivity will be crucial. We remain this year. bias towards This deleveraging is also coinciding underweight sectors such as retail, with a lengthening in maturities. energy and consumer cyclical. Concerns over refinancing risks higher grade We have managed to lock-in merge with wider concerns over price levels that implied a credit the growth of the corporate debt corporates, downgrade in some cases. We are market post-financial crash, as looking for other companies who companies took advantage of low are set to deleverage. rates. As an aside, investors do with a focus tend to overlook the fact that one Overall, we will retain our bias to of the reasons for low rates and on strong cash hold higher grade investment grade QE was to provide an incentive bonds and limit our BBB exposure, for companies to fill the gap flow companies as it would not be a surprise that left by deleveraging banks and some companies suffer credit consumers. If companies had also including downgrades given the size of the cut back, a prolonged depression BBB universe. may well have been on the cards. regulated As a result, corporate debt levels increased to c.50% of GDP, which industries is well above previous peaks. The fear for many commentators has been focussed on the impact of higher interest rates, but at least for the next few years this should be less of a concern. Lower rates/

32 33 The detailed LCAM Bank Credit but switch to either daily, monthly, Review (available separately) covers quarterly or 5-years. Therefore, the FINANCIALS the banking universe within LCAM duration remains constrained. In portfolios, showing that across the the case of US bank preference board banks have strong balance (AT1) issues, a number of banks STRATEGIC VALUE PLAY - sheets, significant capital buffers, are either calling partially or are large liquid asset pools providing letting bonds continue with little STRATEGIC OVERWEIGHT a further buffer against market price volatility given the favourable volatility and diversified funding structure (for investors) of these London & Capital positioning sources. All of these provide the bond securities. - Strategic overweight has been reduced in AT1 debt, US preference rationale for our positive slant. shares and European contingent convertible bonds The banks have managed to Risks - Increased exposure to senior bonds survive the money laundering The risk here is of a significant stock Rationale for scandal in terms of pricing, but it market correction and a worsening overweight We are has led to management changes in underlying economic conditions, and tightening of regulations. We especially for the higher-beta LCAM strategies have been maintaining acknowledge that further allegations subordinated universe. However, overweight subordinated bank may yet emerge and we will remain in our judgement these should not and insurance bonds for almost a strategic vigilant. However, as a comfort be viewed as akin to 2008 or 2010 eight years, and although we are we have seen that the bolstering but rather a source of more normal maintaining a strategic medium- medium-term of balance sheets and the greater price volatility. It is also important to term holding, there has been a diversification in funding sources note that AT1 debt legally includes change to our strategy this year. holding but has led to greater stability. capital triggers and coupon First, we have the reduced the deferral language. We have seen The markets have also matured in significant overweight allocation to banks remaining highly capitalised there has been their response to banks failing to subordinated bonds. Second, we within the severe bank stress tests call bonds on the first call date. A have switched to senior TLAC (total carried out by the regulators, but a change to number of European banks have loss absorbing capacity bonds). nonetheless it is important in bear in issued new AT1 paper as they pre- Our focus on the G-SIFIs (global mind the legal aspects and the fact our strategy fund ahead of call dates, particularly systemically important financial that prices can drop significantly. institutions), national champions this year Nordea and Barclays. It is important and major insurance companies to note that a non-call does not remains in place. carry the same stigma as before as banks in most cases have excess capital. In addition, call dates do not revert to becoming perpetual

34 35 CORPORATE HIGH EM INVESTMENT GRADE YIELD – SELECTIVE AND AND HIGH YIELD DEBT – UNDERWEIGHT SELECTIVE OVERWEIGHT London & Capital positioning London & Capital positioning - Strategic underweight in high yield, given valuations and risk - Selective exposure to India, China and hard currency debt of recession - No local currency debt exposure, despite the sharp falls in - Selective exposure in sectors with improving credit metrics recent months Rationale for selective positions Clients’ portfolios have benefitted from the selective approach to EM Generically the high yield sector incentive for issuers to call. As these Internal growth debt with the overweight in India is still supported by reasonable bonds are subordinated to senior and China. We expect to maintain leverage and interest cover, high bonds, they provide higher yields. dynamics in this overweight in sovereign, cash balances and relatively low quasi-sovereign and large-cap refinancing risks. Clearly this China and India Risks corporate bonds. does not mean that a scatter gun approach can be taken to allocation, A further significant correction in look reasonable as detailed due diligence on sectors stocks and a sharp rise in sovereign Rationale for selective and individual credits are still vital. bond yields are two key market- overweight and credit We have taken an overweight related risks. In terms of stocks, Internal growth dynamics in China position within hybrid bonds issued a 10-15% correction would be dynamics are and India look reasonable and by utilities and global corporates. viewed as the norm, i.e. not a bear credit dynamics are supportive. These hybrids have call dates market correction, and would lead supportive and generally coupon step-ups to heightened HY price volatility. in the event of a non-call which is This is unlikely to lead to a major Risks clearly advantageous for investors. shakeout or a shift higher in default An outright trade/currency war However, a non-call is also less rates. The key risk to high yield is clearly a risk particularly, for likely as these instruments would is a recession (which is not our the higher beta emerging market subsequently carry a 100% credit base case), which would trigger economies. However, our selective weighting, leading to an increase in a significant jump in implied and exposure should shield the portfolio. leverage and providing a fairly strong observed default rates.

36 37 However, sustainability of equity market performance over the next 12 months will be determined by earnings. The market is assuming that, after EQUITIES virtually no earnings growth in the first half of 2019, the second half of the year will show a return to growth. OUTLOOK The chart below shows the movement in earnings expectations alongside After a very strong first half of 2019, from a depressed December 2018 the move in global equities. level, equity markets have moved in a sideways direction during the third ERI Equity performance quarter. Stock market volatility has risen again. After the future expected benefits from reductions in interest rates were factored into asset prices in the second quarter of 2019, trade uncertainties coupled with a weakening economic environment are now causing more angst for investors. Currently, cautious positioning and crowding out of bonds (given low yields) have reinvigorated equity markets.

Global risk appetite

6

5

4

3

2 Source: Citi (ERI = Earnings Revision Index) 1

0 Two key observations are noteworthy. First, market returns are historically -1 positively correlated with the move in earnings expectations; and second, -2 the current rise in markets but fall in expectations is peculiar. -3 -4 This anomaly is unlikely to persist. Earnings need to improve or the global -5 stock market will become very vulnerable. JUL 17 JUL 18 JUL 19 JAN 17 JAN 18 JAN 19 SEP 17 SEP 18 SEP 19 NOV 17 NOV 18 MAY 17 MAY 18 MAY 19 MAR 17 MAR 18 MAR 19 Currently, cautious positioning Source: Credit Suisse and crowding out of bonds have reinvigorated equity markets

38 39 Our Positioning The problem is that returns tend to revert; and given the abnormally high level of returns over the last ten years, the prognosis for equity returns over 2019 year-to-date has been an excellent period of performance for the next ten years is not good. London & Capital equity solutions. S&P Total Returns Above Base Rates Our view remains that the reward for taking equity market risk is not attractive enough currently, and defensive, high-quality, equity income remains an attractive safe haven in a challenging equity market backdrop.

In fact, the warning signs for equities are flashing – “caution”.

FACTOR ASSESSMENT INTEREST RATE CYCLE DANGER! CYCLE MATURITY DANGER! VALUATION DANGER! MEAN REVERSION DANGER! SENTIMENT UNCLEAR

Perhaps the most concerning dynamic is the risk of mean reversion in Source – L&C, Bloomberg Data equity returns - based on ten year excess returns. The S&P 500 has only once delivered excess ten year returns above the current level, and that The graph shows that, when the excess return of equities (over base was during the dot-com boom in the late 1990s. interest rates) has exceeded more than 1 standard deviation* above their long-term average, the returns over the next 10 years have averaged S&P Total Returns Above Base Rates -0.24% per annum. By contrast, when equities’ excess return has fallen more than one standard deviation below their long-term average, the average return over the next ten years was 8.19% per annum.

Until the risks reduce and/or the expected equity returns look more attractive, our strategy will be to remain cautious on equities. For our clients’ portfolios we are maintaining a low asset allocation weighting, focusing on high quality equities with strong financial metrics and dividends that are both above market average and growing.

Source – L&C, Bloomberg Data

40 41 Industry assets continue to consolidate, according to data from HFR, as the huge wave of institutional investment over the last ten years has plateaued. ALTERNATIVE An interesting development over the past few months has been the growth of passive trackers into the industry, as it seems nothing is out of bounds when it comes to wrapping up investments into diversified products with INVESTMENTS little discernment between underlying constituents or enough (in our view) consideration for the liquidity implications. The recent launch from Aberdeen Standard Investments (partnered with HFR) of a monthly tracker of 500 OVERVIEW underlying funds follows hot on the heels of a ASI UCITS hedge fund tracker With traditional assets remaining near their highs, the hedge fund launched earlier this year, which has already raised $650 million, investing industry has continued to benefit by running with positive levels of in 180 strategies. It remains to be seen if such passive exposure will deliver correlation and beta to overall markets. An interesting differentiator over the required exposure and diversification when it counts. the summer was seen in Macro/CTA (commodity trading) strategies, Hedge fund net asset flow which captured the significant rallies seen in global bonds and gold as edge fund fows Guide to ternatives well as the downward trend in Pound Sterling. This exposure provided iions good diversification benefits in August against equity market volatility.

However, after five years of disappointing returns from trend-following 1 strategies, we doubt the extent to which this has featured in hedge fund 1 investor portfolios. The extended nature of such trends (as well as equity funds’ exposure to factor risks such as growth and momentum) meant

that the sell-off in rates and the equity market rotation has made life difficult for some strategies in September. YTD 2019: At the strategy level, directional value strategies, arbitrage and -$17.8bn 1 long-short equity funds have been multi-strategy funds edged higher. the strongest performing group of As mentioned above, trend- 1

managers, gaining close to 7.5% following has been the strongest

returns for the year (according to strategy for 2019, but volatility 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

HFRX). Among event-driven funds, of returns has increased of late 2001 Source: HFRI, J.P. Morgan credit and distressed managers and we would be wary of adding have benefitted from a pro-risk exposure at this point. We remain stance while merger arbitrage is of the view that the best approach reported as being slightly negative is a highly selective one leading to for the year (contrary to the steady concentrated manager selection, returns we have seen from our providing diversifying sources of M&A-focused fund). Among relative return.

42 43 Flows into broader Alternatives have picked up following a slow start to the Our Positioning London & Capital hedge funds year, but it still looks as though higher valuations combined with fears of are positioned to be broadly slowing growth may have tempered investor appetite somewhat. Flows into uncorrelated to markets, although We are complementing client private assets for the year could be the lowest since 2014/15. Nevertheless, the existing set of managers tend portfolios with a highly select we believe the hunt for yield will continue to drive money towards private to have a variable net exposure, number of upper quartile liquid debt and less correlated real assets in infrastructure and renewables, areas with the ability to add risk if they hedge fund strategies with a we also favour. The charts below indicate that demand for infrastructure feel global slowdown fears have strong, long-term track record of assets remain robust (figures to mid-year) and significant capital remains on become overdone. However, we alpha generation. The idea is to the side-lines, waiting to be invested. still feel confident we can deliver provide diversifying sources of meaningful value for clients into any return, capturing attractive further market volatility. Aggregate capital raised, billions USD Billions USD alphas away from traditional $100 $250 long-only strategies. $94 - Equity long-short strategies: $221 $90 We have concentrated our

$80 $77 $200 exposure around a leading $184

$70 $68 $169 To provide equity long-short manager with e $61 $153 tu r a growth bias and variable net $60 $150 diversifying market exposure. The current $49

astru c $50 $111 $43 $43 $106 $107 defensiveness being applied to Inf r $100 $40 $89 $78 sources of portfolio construction means $73 $30 $68 that we believe the strategy $20 $50 return, capturing can deliver true alpha through $10 volatile or sideways markets,

$0 $0 attractive alphas as exhibited in 2018. This was '13 '14 '15 '16 '17 '18 '19 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 reflected by a decent return during the volatile month of Source: Preqin, J.P. Morgan away from August, although the recent traditional long- rotation away from growth equities has been a more only strategies difficult environment for the strategy.

44 45 - Global macro strategies: In terms of Alternative Income Macro strategies have the strategies, we continue to FX potential to benefit from global recommend a broad mix of funds The US Dollar made broad gains through the third quarter, supported macroeconomic policies and and investment trusts which by a summer of geopolitical and economic uncertainties that dampened the effect these have on rates, provide steady, high single-digit the global risk environment. Although the US Federal Reserve cut fixed income and FX. We are yields in a relatively uncorrelated rates for the first time in ten years, it was against a backdrop of most expressing this through a manner. We prefer asset-backed other developed market central banks threatening to take similar or developed markets strategy strategies across short-duration more aggressive action. Therefore the Fed decision did little to test the with a relative value approach, private debt, leasing and renewable resilience of the Dollar. The US maintains its rate advantage and still and an EM-focused strategy energy, and we are analysing enjoys relatively stronger economic conditions, with growth in the rest of utilising a combination of debt, new opportunities in royalty the world decelerating at a faster pace. For investors this has made US rates and FX. stream income. assets and the Dollar the default “least dirty shirt” versus the UK, Europe - Event-driven: arbitrage In Private Equity we have and Japan. In addition, there is also growing evidence Dollar strength is strategies across both hard introduced a select number of at least partially owed to tighter liquidity conditions on the back of the and soft catalyst event-driven idiosyncratic funds and direct widening US fiscal deficit. plays are enjoying a rich investments involved in disruptive In the short-term the direction and opportunity set and some areas such as tech, biotech and volatility of Sterling is conditional complex situations, which longevity. We prefer this over Dollar strength on Brexit developments. Boris provides for added alpha, as a scattergun approach when Johnson’s initial policy approach well as volatility, providing good valuations are high across the is at least and temporary suspension of trading opportunities. A recent industry. Parliament raised the odds of a widening of M&A deal spreads partially owed to hard exit. However, following a gives us a positive outlook for series of defeats in Parliament and the strategy going forward, and tighter liquidity legislation to force an extension, the our fund manager of choice has probability implied by bookmaker been taking advantage of the conditions on odds of Brexit without a withdrawal backdrop to add positions. agreement this year has fallen back the back of the to c.20%. In our view this is too low and should be closer to 40% widening US given the high degree of uncertainty and the persuasions of the UK fiscal deficit government. In the short term, our belief is Sterling will move lower from present levels versus the US

46 47 Dollar, with the Brexit risk premium The outlook for the Euro, In our Q1 and Q2 updates we economic conditions and renewed rising in the coming weeks and particularly against the US Dollar, outlined how the conditions for US trade war uncertainties, the Fed the possibility of a general election remains challenging. Growth Dollar weakness against Sterling have completed their monetary increasing. Concurrently, the US and inflation expectations for the and other developed market policy U-turn. At the start of Dollar should stay supported by a Euro Wzone over the next 18 currencies may be emerging after the year, Federal Open Market cautious global risk environment months have already been revised a period of cyclical strength, with Committee (FOMC) forecasts and the relative growth and significantly lower, and with ongoing structural pressures from fiscal and indicated two rate hikes in 2019, yield advantage. However, our risks to the downside. In order trade deficits coming back into whereas the most recent updates expectation of further downside is to offset these trends, the ECB focus. After a period of US excepti suggest two rate cuts before year tempered by the significant short has re-started its asset purchase onalism, growth and monetary end. The market has moved market position accumulated in programme and taken rates to policy differentials in favour of the aggressively to price rate cuts, with Sterling, plus the already historically -0.5%, which should keep pressure US looked set to narrow and there Fed fund futures (a measure of the low valuation, which opens the risk on the Euro through the remainder were tentative signs of a change market’s expectations for the Fed of a sharp move higher if we do see of 2019. in trend. Additionally, in the UK, funds rate) for December 2019 Sterling-friendly news flow. downside risks to the Pound were climbing 0.2% in the first quarter receding, as the probability of a and a further 0.5% in the second. Over the medium-term, once If investment hard disorderly exit from the EU the Brexit process is concluded, moved lower. Although we did not necessarily the prospects for Sterling could believe fading exceptionalism materially improve. Clearly the flows into the UK In many respects these scenarios would translate into immediate and type of Brexit will determine the have played out as expected, US significant US Dollar weakness, strength and resilience of any are sufficiently economic data has softened and we have been surprised by how relief rally, because it will shape growth momentum has faded. resilient the Dollar has been to immediate economic and policy unlocked, it Second quarter US GDP growth these challenges. For instance, conditions, but for many investors is tracking c.1.5%, notably lower despite declining fears of a hard any resolution regardless of the could lead to than the 2.2% and 3.2% quarter-on Brexit in the first quarter this year outcome will be viewed as the -quarter realised in Q4 2018 and and the improving differentials, point at which the worst for Sterling a meaningful Q1 2019, and leading indicators the Pound was only briefly an is over and therefore a strategic suggest no rival in the second outperformer before US Dollar opportunity for international strengthening in half of the year. Economic data strength re-emerged. US Dollar investors to buy UK assets. If has consistently disappointed support has been a function of investment flows into the UK are the Pound into relative to expectations, and whilst two main factors: first, the re- sufficiently unlocked, it could lead weakness has been most obvious escalation of the US-China trade to a meaningful strengthening in the 2020 in manufacturing, fears of a spill disputes in early May; and second, Pound into 2020. over into non-manufacturing have the synchronised global nature increased. In response to weaker of the slowdown in growth and

48 49 dovishness of central bank policy. difficult to see how a recovery can Revisions to growth and policy now take place before the new have been more significant in the October Brexit deadline. In light US, largely due to the higher base, of these developments we have but as has often been the case in reintroduced a small US Dollar the past, when global conditions exposure to UK client portfolios. deteriorate the US Dollar benefits from deleveraging and safe haven flows. Although the US advantage A scenario of has narrowed, it has maintained an advantage; against a backdrop synchronised of weakness globally, US assets remain relatively more attractive. global growth Recognising the recent resilience of the Dollar, a persistent change in upswing would trend would likely require resolution of the US-China trade dispute and also be Dollar a more aggressive Federal Reserve (i.e. return to QE). A scenario negative, but at of synchronised global growth upswing would also be Dollar negative, but at present this is a present this is diminishing prospect. a diminishing The outlook for Sterling remains conditional on Brexit, and recent prospect developments have resulted in a downgrading of expectations. Fresh political uncertainty with a change in Prime Minster, European elections results and extended negotiations not only increase the probability of a hard EU exit, but also leave a cloud over UK economy. Significant Sterling weakness may be limited by already low valuations, but it is

50 51 About London & Capital

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Disclaimer: London and Capital Asset Management 143286, is authorised and regulated by the Financial Conduct Authority, 12 Endeavour Square, London, E20 1JN. This document does not represent primary research; it provides the views of the London & Capital investment team examining the fundamental background, economic outlook and possible effect on asset markets. This document is not an invitation to subscribe and is by way of information only. Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be solely relied on in making an investment or other decision. If you are considering investing, you should consult your London & Capital adviser. The views expressed herein are those at the time of publication and are subject to change. Correct at time of going to press. © London and Capital Asset Management Limited. All rights reserved.

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