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SEDCO Capital Global Market View
2nd April 2015
OVERVIEW
The continued rise of the USD is still creating shocks around Global financial markets. Despite the fact that EM and commodities markets
are particularly under the scrutiny, the abundance of liquidity should still ensure investors will be rewarded for investing in risky assets
this year. But being selective will be paramount and our preference goes for European stocks as well as Asian stocks including China to a
lesser extent. Deflation, EUR decline and the perspective of the US Fed’s rate hike cycle will remain the major sources of global volatility
considering that some geopolitical tensions are easing. In 34 days there will be the UK general election and it is too tight to be called who
will win (Labour and the Conservative party both have 34% each in opinion polls). We therefore expect GBP to be under pressure during
this period. Europe continues to be the consensus destination and with good reasons. A simultaneous devaluation and liquidity boost by
China makes the country appealing for equity investors, however we still keep with a “wait and see” stance for now.
Equities
Commodities
Europe was generally the outperforming region within equities as
we also saw continued softness in America and other parts of EM.
Japan continues to see strong momentum and YTD is one of the
best performing markets at +10.3%. Asia as a region benefited
from the continued re-rating of the region as they become more
competitive (due to lower currencies vs. USD) and the
continuation of QE in Japan and the rate cuts in China.
Macro backdrop for commodities remains weak. YTD Metals precious and base - have been trading flat to negative mainly
due to sentiment on China. Oversupply of iron ore continues
to weaken steel prices. After falling below USD 50/bbl briefly
in mid-January, Brent Crude Oil could further exhibit near
term volatility due to Geo-political concerns. Soft commodity
prices are largely downward trending, particularly in Rice and
Wheat due to global oversupply.We would advise investors to
be underweight the asset class.
Income
Alternative Investments
Given the low inflationary environment, bond yields still and will
re-main relatively low. While value has appeared with a few local
currency EM paper. We remain underweight as we expect
benchmark yields to rise and provide volatility to income assets
over the course of 2015. June is still in our pipeline for the 1st Fed
rate hike despite the “negative” stance of last monthly labor
report as this mainly due to temporary effects linked to the bad
weather as in 2014.
Private Equity we have a clear bias for growth strategy, with
particular emphasis on the EM universe, driven by long-term
attractive trends in demographics, future economic growth
and Urbanization. This is definitely our preferred asset class
for investors, who want to support investments, which
attempt to tackle the structural challenges that the word is
facing (air pollution, clean water, agri culture and food quality,
etc).
Currencies
Alternative Investments
Markets are still preoccupied whether or not the US can continue
to grow at a healthy pace with the Federal Reserve normalizing
rates at the same time that the rest of the world is dealing with
deflationary risks, as well as the ECB starting the execution of their
quantitative easing program. The USD seems to be on a one-way
direction, but at the FOMC meeting, the Federal Reserve hinted
that they were a bit more concerned about the outlook and the
higher dollar, helping to put a break on currency moves. However,
we consider that the current weakness of the USD is temporary
and EUR and GBP can still go lower mainly because of the
differential in interest rates which should broaden in the coming
months.
Listed real estate US REITS have exhibited high volatility and
are highly sensitive to the possible start to the rate hike cycle.
We remain cautious near term and advise a market neutral
stance to portfolios.
Bernard Caralp
Kamran Butt
Chief Investment Officer
Head of Client Advisory
T: +966 12 690 6555
F: +966 12 690 6599
E: [email protected]
Global Market Indices
Region/sector
World
Index
Quote
MSCI AC
Day
Week
MTD
YTD
1Y
2Y
3Y
5Y
10Y
2011
2012
2013
0.1
(0.2)
(0.2)
6.0
9.8
15.3
14.1
9.6
6.5
(7.3)
16.1
22.8
DJIM World
3,921
(0.0)
(0.1)
(0.1)
7.8
11.5
15.2
13.2
10.1
7.7
(5.5)
13.1
21.3
MSCI
4,618
0.1
(0.0)
(0.0)
6.6
10.9
17.3
15.6
10.6
6.4
(5.5)
15.8
26.7
DJIM
(0.0)
0.1
0.1
8.1
12.1
16.7
14.3
11.0
7.8
(3.2)
12.7
24.4
Emerging Markets
MSCI
(0.1)
(1.9)
(1.9)
0.6
1.1
0.9
3.2
2.5
9.2
(18.4)
18.2
(2.6)
Saudi
TASI
8,802
0.7
(3.1)
2.0
3.1
7.0
14.3
12.6
6.7
0.6
(3.1)
6.0
25.5
0.29
(1.7)
5.6
5.6
23.9
26.7
(7.1)
(5.3)
(5.3)
(19.2)
94.7
(40.5)
(30.3)
120.88
(0.7)
(1.4)
(1.4)
(2.7)
(3.4)
(5.4)
(3.4)
(1.6)
#N/A
3.7
(0.8)
(1.0)
Gold
1,192.35
(1.1)
2.1
2.1
(0.8)
(2.7)
(16.1)
(11.5)
0.5
10.1
10.1
7.1
(28.3)
Silver
16.29
(1.1)
5.4
5.4
(16.4)
(16.1)
(29.6)
(20.2)
(2.5)
7.4
(9.9)
9.0
(35.8)
Brent Crude Spot
68.22
(1.1)
(1.1)
(1.1)
(38.4)
(38.7)
(20.8)
(14.6)
(2.5)
5.9
14.1
4.1
(1.0)
BP
39.98
(1.0)
1.7
1.7
(17.8)
(13.9)
(1.6)
(2.8)
(7.1)
(3.9)
(3.2)
(2.6)
16.7
Developed
USD 3 Month LIBOR
World Gov. Bond Index
Source: Bloomberg / Dow Jones Data as of 31st March 15
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