Global Market Outlook - Standard Chartered Market... · we were surprised to see Europe as a whole avoid a technical ... DJ UBS Commodities ... probabilities that we highlighted in

This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank

The EU Spanish banking recapitalisation plan and the outcome of

both Greek elections and the Fed FOMC meeting have not significantly altered the balance of risks. We continue to believe further monetary easing, particularly in Europe, is likely.

We have tweaked our VIP investment strategy to VVIP, which stands for seeking Value, taking advantage of bouts of Volatility, recognising medium term Inflation risks and getting Paid

Europe remains the key risk • There is a sense of déjà-vu in Europe – structural concerns remain

in place and will need to be resolved at some point. • Economic data continues to disappoint, most strikingly so in the US,

though we continue to expect improvements in household balance sheets to eventually support demand.

Investment strategy implications

• Cash: Retain 12m Underweight Returns are likely to remain very low as we expect more monetary easing over the coming months, particularly in Europe

• Bonds: Retain 12m Underweight Return short-term tactical view on EM HY back to Overweight Maintain 12m Overweight on US & Asia corporate credit Risk-reward for G3 government bonds looks very unattractive

• Equities: Retain 12m Overweight, use volatility to add Valuations remain cheap relative to history and bonds Overweight US, China, Korea. Prefer UK, Germany in Europe Oil majors, US tech, US & Euro staples are preferred sectors

• Gold: Retain 12m Overweight Retains role as traditional hedge against eventual reflation

• Commodities: Retain 12m Neutral Oil increasingly attractive , but vulnerable until the economy definitively turns up Copper increasingly attractive as China recovers, inventories fall

• Alternatives: Retain 12m Neutral Low, and falling, correlations with equities cause us to retain preference for volatility and commodity-linked strategies

• Currencies: EUR strength likely to be temporary Any EUR bounce may be temporary as risk of ECB action rises Maintain preference for Asia ex-Japan FX on 6-12m basis

Contents Market performance Pg 2 Economic and monetary outlook Pg 2

Investment strategy Pg 5

Fixed income Pg 6

Equities Pg 7

Commodities Pg 8

Alternative strategies Pg 9

Foreign exchange Pg 10

Conclusion Pg 11

Asset allocation summary Pg 12

Economic & market calendar Pg 13

3-12 month market outlook Pg 14

Disclaimer Pg 15

S&P500 has been driven by economic surprises S&P 500 3 month change and the US Economic Surprise Index

Source: Bloomberg, Standard Chartered

Steve Brice Chief Investment Strategist Rob Aspin, CFA Head, Equity Investment Strategy Manpreet Gill Head, FICC Investment Strategy Suren Chelliah Investment Strategist

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Asset allocation summary July 2012 12-mth Cash UW Fixed Income UW Equity OW Commodities N Gold OW Alternatives N

Note: OW = Overweight, N = Neutral, UW = Underweight. Source: Standard Chartered

This reflects the views of the Wealth Management Group July 2012

Global Market Outlook


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We have generally seen a shift towards a more ‘risk on’ environment. • Equities have rebounded strongly from oversold levels, continued

concerns about the situation in Europe notwithstanding. • Corporate high yield bonds have resumed their trend

outperformance against G3 sovereign debt. • Commodities have also rebounded off their lows, although the

headline index (Dow Jones-UBS) has yet to break out of its multi-month downtrend.

• The USD has weakened from its highs while Asian currencies have generally come off their lows. The main exception to the latter is the Indian rupee which continues to be hurt by stagflationary concerns which are inhibiting a proactive monetary response to slower growth.

Economies continue to disappoint Economic surprises remain in negative territory across the three major regions of the US, Europe and China.

• In the US, the disappointments have increased. The view that this is largely a payback from the strong weather-related first quarter remains the central scenario. However, the longer the data disappoints, the more investors are likely to question the sustainability of the economic expansion.

• A key concern has been the deterioration in the labour market data and weak income growth. However, we continue to believe the improvement in household balance sheets should allow consumers to partially give in to pent-up demand and thus allow the US economy to continue expanding in 2012 and into 2013.

• One risk to be cognisant of is the huge fiscal tightening that is currently programmed in Jan 2013. We believe this will be significantly watered down after the Presidential elections are out of the way. Meanwhile, US Federal Reserve chairman Bernanke has made clear that, should the US economy falter, he will be ready to provide additional stimulus to support the economy.

• In Europe, the data continues to deteriorate. Two months ago, we were surprised to see Europe as a whole avoid a technical recession. Q1 GDP data showed stagnation rather than contraction with the core economies expanding significantly, offsetting the sharp contraction being seen in the peripheral countries.

• However, in more recent times, the weakness has spread to the core with German confidence indices weakening sharply. This suggests a move into recession is likely to have been only delayed.

• In China, there is scope for more optimism. Economic surprises remain negative, but significantly less so than a month ago.

Asset Performance (USD)*

* For the period 21 May 2012 to 20 June 2012 Source: Bloomberg, Standard Chartered

US/Europe economic data disappointment increasing, China stabilising Economic Surprise Indices


US consumer credit rebounding, new orders strong US Manufacturing ISM new orders’ index and consumer credit


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• Meanwhile, the authorities have accelerated the pace of monetary and fiscal policy easing in recent weeks. This suggests that the economy could start recovering in the second half of the year.

• It is important to stress the authorities are much more worried about the quality of growth than they were historically. This, and the strength of the local labour market, suggests the stimulus will be much less dramatic than in 2008-9. This is positive from a long-term perspective, but means that the impact on global GDP will be less significant this time around.

• As far as inflation is concerned, disinflation remains the short term global trend. Clearly, the western economies are faced with the need for significant deleveraging which is a disinflationary force. We believe that the monetary authorities are committed to avoiding deflation and this is one of the reasons that we expect further monetary stimulus in the months ahead.

Developments in Europe remain worrying While a Spanish banking recapitalisation plan is in progress and the Greek elections have been successfully negotiated – and risk assets have rallied on reduced fears of a near term break-up of the single currency – there is also a strong sense of déjà-vu. What is clear is nothing has been resolved. There are three key structural concerns:

• Banks are still under huge pressure to shed assets or raise capital. In the current environment, only the former is a realistic proposition and this will likely constrain the economy for many months to come.

• Spanish government bond yields are still too high for their finances to be sustainable over the long term.

• Countries are still being forced to impose fiscal austerity that has thus far been self-defeating as it undermines economic activity and thus the government’s ability to raise revenue.

For Europe to move away from the cycle of riot, followed by policy response, market rally and then riot again, three things need to be put in place:

1) A credible, well thought out banking sector recapitalisation program across Europe – The Spanish recapitalisation program is generally viewed as being credible to the extent that the size of recapitalisation is seen as sufficient to handle a stress situation. However, details have yet to be released on how it is going to be funded which could have serious consequences if it reduces the rights of other Spanish bond holders in the event of a default.

2) The ECB needs to ring-fence sovereign bond markets by capping yields below 6%. We share the view that Spain and Italy have sustainable public finances at more appropriate funding costs. Above 6%, their situation gradually deteriorates. Unfortunately, the ECB has been reluctant with the last purchases being conducted in January. The ECB’s unwillingness to do this is the major difference between Europe and the US, where the fundamentals are actually worse from both government debt- and deficit-to-GDP ratio perspectives.

Weak global growth impacting China trade China Export and Import %y/y 3mma


Spanish yields unsustainable in the long run Spanish and Italian bond yields


The Fed has been more active than the ECB Central bank government bond holdings


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3) A new balance has to be struck between growth and putting fiscal finances on a sounder footing in the peripheral countries.

The G20 summit on June 20th gave some signals that a more proactive approach to the crisis is getting increasing consideration. European officials outlined their aim to move towards potentially allowing the bailout funds to buy sovereign debts of troubled European nations, deposit insurance and, more generally, a gradual move towards greater fiscal integration. If implemented and credible, this would clearly be a positive to arrest the speed of deposit flight from troubled peripherals, which has been a major destabilising force for their financials and sovereigns so far. However, as is normally the case, there was a lack of detail on how such plans might work. As such, we are likely still some months (at least) from such proposals being implemented. Therefore, we see little reason to become significantly more upbeat on the situation in Europe for the time being.

Summary of the economic scenarios Given the above developments, we retain the economic scenarios and probabilities that we highlighted in the April Global Market Outlook.

• Strong growth (10%): In this scenario, the improvement in US household balance sheets leads to a significant acceleration in US growth towards trend on a sustained basis which produces a significant lift to global economic activity. Meanwhile, Europe addresses the three key issues highlighted above, which takes the brakes off European growth and China continues to stimulate the economy such that we see growth move back towards 9%. While this is clearly not impossible, we believe it is a low probability outcome.

• Muddle through (70%). This is our central scenario. Policy makers continue to do enough to avoid a move into a global recession, but are generally reactive. As such, the US economy continues to grow around 2% with any negative shocks being countered by stimulatory policies. In Europe, the process of waiting for a market panic before a policy response continues – we may well be approaching such a response now. Europe experiences a full year recession this year and only a modest rebound (if any) in 2013. China, meanwhile, continues with its current policy of stimulating the economy while focusing on the quality of long term growth and the efficiency of any investment. The result is a U-shaped recovery with H2 growth significantly stronger than in H1 and the recovery continues into 2013.

• Global recession (20%). There is clearly the risk that a policy mistake or an external shock pushes the global economy into recession. We revised the probability of such an outcome down to 20% from 30% in late March and we are comfortable that the risks have not increased in the past 3 months.

Small uptick in Euro money market stress EONIA-OIS spread in Europe


Weak surveys suggest recession only delayed Germany ZEW and IFO Surveys


Muddle through likely to continue over the next 12 months

Scenarios Probability Strong Growth 10%

Muddle Through 70% Global Recession 20%

Source: Standard Chartered

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Investment Strategy highlights We have tweaked our headline investment strategy to VVIP (from VIP):

• Value: search for it • Volatility: be prepared for, and make use of, it • Inflation: do not under-estimate its impact • Pay: favour investments yielding a regular return

We propose the following strategies for each area: Value: search for opportunities to raise exposure to attractively valued risk seeking assets such as:

• Global equities • High yield bonds • Asian local currency debt

Volatility: be prepared for it

• Use volatility to your advantage by averaging into undervalued asset classes (equities and corporate credit).

• Ensure portfolios remain diversified on the assumption that correlations, which increased in the recent sell-off, will normalise over time.

• Include alternative assets into your portfolio – we like a combination of volatility funds and commodity trading adviser funds.

Inflation: do not under-estimate its impact

• Equities are our primary hedge against inflation. Dividend yields are now above 10-year bond yields in the US, Germany and Japan. This suggests equities – which protect you against inflation over the long run – are hugely undervalued versus government bonds – which do not.

• Gold is also a traditional hedge for high inflation/money printing. The challenge with gold is that, partially because it generates no cash flows to investors, it is difficult to value. We continue to believe that holding some gold in a portfolio is optimal, but that it should be viewed as an insurance policy against significant inflation in the coming years.

Pay: favour investments yielding a regular return

• US and Asia high yield bonds • High dividend yielding equities • Investments that take advantage of rising volatility in different asset

classes, such as FX and equities Higher risk strategies For investors looking to selectively add risk to their portfolios, there are three areas that could be considered averaging into:

• China equities • Russia equities • Asia local currency government bonds.

Average positive daily returns slowly rising MSCI World Index Average Daily Performance Jan 2010 - Present


We continue to expect muddle-through growth


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SCB Forecast2011 2012 2013

US 1.7 2.0 2.5Europe 1.4 -0.8 1.3China 9.2 8.1 8.7

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Investment Strategy


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• Fixed income – Retain UW G3 government bonds while remaining OW US and Asia corporate credit

We remain Overweight investment grade and high yield corporate bonds on a 12m view, preferring the US and Asia regionally. Our decision to tactically reduce risk short-term in EM HY has worked well over the past two months, but we believe wider spreads today offer an opportunity to close this view. We also continue to prefer Asia local currency bonds. Relatively muted spread widening over the past few months, despite rising volatility in other asset classes, have illustrated the case for maintaining an Overweight on corporate bonds, in our view: (a) An extended period of low interest rates means the search for yield is

likely to persist, providing underlying support for the asset class on any signs of spread widening. High yield bonds, for example, still offer a greater-than-historical-average yield pickup over G3 government bonds while offering levels of volatility that have been almost as low as higher quality, investment grade bonds on a year-to-date basis.

(b) Valuations continue to be compelling both relative to history and to expected default rates.

Two months ago, we had chosen to tactically reduce our short-term view on Emerging Market High Yield (EM HY) to neutral in view of the increasingly difficult environment for risky assets. This view has worked out well given the rise in risk aversion over the past couple of months. However, we have now crossed two key policy risk events (Greek elections and the Fed FOMC) and spreads are wider. Based on these two factors, we now close this view and return to an EM HY overweight on both a tactical and 12m horizon. Averaging into Asian local currency debt continues to be an attractive opportunity, in our view. We recognise renewed Europe-related concerns could cause this attractive entry level to become even more attractive, but we believe a strategy of averaging in is the best way to manage this uncertainty and seek a good entry point for a positive 12 month view.

Finally, we remain Underweight G3 government bonds. In addition to valuation concerns, the risk-reward simply does not appear attractive. A scenario where US Treasury yields mimic the path of Japanese Government Bonds would mean a potential upside of around 7%, while a return to a 1990-2012 average level would mean potential downside of over 30%. This also illustrates why we prefer to keep duration short in USD bond portfolios. Conclusion: We remain Overweight US and Asia corporate credit on both a tactical and a 12m basis. Asian local currency debt remains an attractive candidate for averaging in. G3 government debt, however, continues to offer a poor risk-reward trade-off, in our opinion.

Wider credit spreads offer entry opportunity US Corp HY Spread OAS

Source: Barclay Capital, Bloomberg, Standard Chartered

Asian local currency beginning to bounce BarCap Asia local currency total return


Risk-reward unattractive for US Treasuries UST 10Yr Yield 2010 - 2012


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• Equities – Retain Overweight Our views are unchanged. We remain overweight Equities on a 12-month basis. While valuations have risen in the past month, they are still cheap relative to historical valuations and government bond yields. We are constructive on equities and would use short-term weakness to add exposure to this asset class. Asset allocation stance:

• Overweight Global equities. While there are significant uncertainties as to how the macro backdrop is going to play out, valuations are cheap both on a historical and (particularly) a relative basis. Dividend yields are in excess of government bond yields in the US, Germany and Japan. Given we believe deflation will be avoided, long term investors who are underweight equities should consider starting to average into equities.

• Theme: Preference for high dividend yielding equities. A significant proportion of equity returns have historically come from dividends and high dividend equities generally outperform in a slow growth environment.

• Regional: Overweight US equities. While the economy has been weakening in recent times, we view the economy as being more resilient than most believe. In addition, the Fed has made very clear that it is willing to provide additional stimulus if the economy shows further signs of weakness. Sector-wise, we like US Staples, Technology and the Oil majors, most of which will benefit from growth in the emerging markets.

• We remain neutral on Asia ex-Japan, but are overweight China and Korea on the back of easing monetary policy in China. Korea is well-geared to the recoveries in both China and US, whose economies are likely to outperform in the months ahead.

• Retain Europe underweight. Germany and UK are our preferred markets in Europe. Germany is the market that is most likely to benefit from EUR weakness while the UK benefits from having a more proactive central bank. From a sector perspective, we prefer energy and industrials.

Sector Overweights: • Sector: Information Technology (US and South Korea)

o We continue to like the tech sector. While it has outperformed year to date, valuations remain attractive, with many of these tech companies benefitting from increased penetration of their products in emerging markets.

• Sector: Staples (US and selectively across EU)

o We favour Staples in the US and EU. While these sectors generally trade at a premium to the market, their components have significant brand franchise appeal which cannot be readily replicated.

China policy easing positive for growth, markets China required reserve ratio and PBoC rates


China policy easing positive for growth, markets S&P 500 dividend yields v. Consumer Price Index


Equities cheap relative to bonds Equity dividend yield – 10yr bond yield (%)


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o They also offer steady cash flows and high return on capital, with many also offering excellent exposure to the EM consumers.

• Sector: Oil Majors

o Our fundamental outlook on the sector remains constructive, although the recent weakness in oil prices may undermine performance in the near term.

o The oil majors sector offers excellent exposure to EM, and in many cases also a good dividend yield as well.

• Sector: Gold miners o We continue to believe gold mining sector should be

included in a diversified equity portfolio. o We see incremental demand coming from Emerging

market central banks where gold reserves are still relatively low as a proportion of total reserves.

o Gold can be a safe-haven in times of volatility. Therefore, it is prudent to have exposure as a mid-to-long term hedge.

Sector Underweights:

• Sector: US and EU Financials o With renewed focus by policy makers to contain the Euro

area debt crisis, we are likely to see incremental measures that may be positive for US and EU financials.

o We, however, remain underweight on US and EU financial sectors given structural deleveraging underway in the developed world.

o We prefer to trade them on a short-term basis rather than follow a buy and hold strategy.

Conclusion: We have become even more constructive on equities after the sell-off in Q2. Given where valuations are, and with the European Central Bank expected to become more pro-active in the months ahead, we would use any short-term weakness to increase our exposure to equities.

• Commodities – Retained Gold OW, Non-gold N

From a longer term perspective, the fundamental factors supporting gold prices (central bank purchases, high debt levels in major economies and fears of higher long-term inflation) remain intact. Any ECB response to the continuing crisis in Europe will be important to gold’s outlook, although it is important to note that this should support the USD against the EUR, reducing the impact on gold prices in USD terms. Fed policy will also be important in this regard. The significant build up in crude oil inventories and increased OPEC production in the last couple of months have more than countered fears of growing geo-political risks in the Middle East. We expect oil prices to recover gradually on the back of improving signs of growth in China, expectation of

N America, Asia the largest oil consumers Oil Consumption by region

Source: BP, Bloomberg, Standard Chartered

OPEC increasing production significantly, but spare capacity is declining OPEC crude oil production per day vs OPEC crude oil surplus production capacity


Commodities sub-sector performance over the last month (USD)* DJ UBS commodity Indices

* For the period 21 May 2012 to 20 June 2012 Source: Bloomberg, Standard Chartered

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easing monetary policy not only in China, but also in the Euro area, Japan and the UK into H2 2012 and the fact that prices are now approaching budget break-even levels for many oil producers. The emergence of further risks to supply arising from tensions in Syria and Sudan and ongoing Iran-related negotiations are likely to lead to a return of a higher geopolitical risk premium in oil prices. We also note the declining capacity by OPEC to mitigate any shortage of supplies. We continue to expect higher oil prices by year-end. Copper prices are expected to gradually start rising in H2 2012 led by the implementation of fiscal stimulus measures in China, declining inventories both at the LME and in China and the possibility of further monetary policy easing. Low supply is also likely to support prices in H2 2012. Conclusion: We prefer oil as a hedge against geo-political risks and gold as a hedge against long-term inflation/currency debasement. We are increasingly positive on copper as China recovers and inventories fall.

• Alternative strategies – Retained Neutral We maintain our Neutral view towards alternative strategies, together with our focus on volatility-linked strategies and commodity trading strategies. The policy or event-driven nature of most asset markets means that uncertainty is likely to continue to dominate the investing environment for some more time to come. We believe alternative strategies can help both in terms of managing volatility of portfolios during periods of heightened uncertainty, but also strategies that tend to perform relatively independent of broad market direction can help ensure investors manage volatility. Our preference continues to be for volatility-linked strategies and commodity trading advisors. This directly helps manage portfolio volatility.

We continue to like commodity trading strategies partly for their lack of correlation with other major asset classes over time. In particular, both 1 and 3 year correlations with global equities are now moving closer to zero, which makes this strategy very attractive as a source of portfolio diversification. As we’ve mentioned before, the fact that this strategy has a track record of delivering results in a variety of investing environments also adds to its attractiveness at this point in time.

Conclusion: We continue to believe volatility-linked and commodity trading strategies should help manage volatility of portfolios, especially during periods of heightened uncertainty. CTAs’ low (and falling) correlations, in particular, make this strategy interesting as a source of portfolio diversification. When suitable, investors should maintain a Neutral allocation with a focus on these two strategies.

ECB easing should support gold, especially in EUR terms US Fed and ECB balance sheet assets


Copper inventories slowly beginning to ease Global refined copper inventories


Macro/CTA has low correlation with equities 3Yr Correlation with Equities


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Higher volatility dominated major currencies given the uncertainty in global financial markets approaching the Greek elections on June 17 and the US Fed meeting on June 20. Though the outcome of both events provided some relief, there was no joy as markets turned their attention back to the Euro area debt crisis and the situation in Spain. USD – In the short term, the USD is likely to be supported by continued risk aversion given rising uncertainty in Europe. However, once the ECB undertakes a significant stimulus, the USD is likely to experience a more mixed performance, strengthening versus the EUR, but weakening versus pro-cyclical commodity and Asia ex-Japan currencies. EUR – Optimism that global policymakers stand ready to announce a coordinated stimulus should the global economy deteriorate further provided support to the EUR just prior to the G20 meeting on June 18. The covering of record short positions is likely to support the bounce in the EUR short term. However, the rally is likely to be short-lived as attention returns to the underlying weakness in the Euro area (Greek debt sustainability and Spanish banking system health) and the threat of contagion (especially to Italy). Finally, we continue to believe that the best way to address the challenges in the Euro area is via a massive ECB stimulus. While this would be good for risk appetite, it is unlikely to be good for the EUR. JPY – Having disappointed the markets, which were expecting some sort of modified quantitative easing by the Bank of Japan (BoJ), the JPY rallied against the USD. The JPY is expected to remain strong given our view that further easing by the BoJ will continue to be dwarfed by that of the Fed. In addition, a steady economic recovery in Japan is likely to provide further support for the JPY. The restarting of Japan’s nuclear power plants is also likely to alleviate the pressure on the balance of payments through lower energy imports. GBP – The announcement by the Bank of England (BoE) and UK’s Treasury to implement joint efforts to provide liquidity to the banking system is likely to provide some fuel to the current GBP rally. However, this is expected to be short lived as we approach July 5, when the BoE holds its monetary policy meeting. The BoE is expected to announce an expansion to its quantitative easing program that could be sizable. AUD – In the short term developments in Europe are going to be critical for the AUD. However, we would expect the AUD to appreciate in the second half of the year as we see risk appetite return on the back of further stimulus in Europe and economic recovery in China. We take the view that the rate cutting cycle in Australia is largely priced in.

USD downside likely to be limited near-term DXY and ADXY Indices


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SGD – We expect the SGD to remain well supported with a bias towards gradual strength. High levels of inflation together with strong economic fundamentals are likely to push the SGD into, and keep it within, the stronger half of the SGD policy band. Conclusion: We expect the bounce in the EUR to be temporary as the market returns its focus to near-record high Spanish debt yields and the fact that any policy response is likely to involve a significant expansion in the ECB’s balance sheet. We reiterate that Asian currencies remain attractive at current valuations and relatively stronger fundamentals. We suggest investors to take opportunities to average in or gain exposure in Asian local currency assets.

Uncertainties abound, but we sense that Europe is once again coming to a situation where significant action is likely from policymakers including the ECB. Historically, any such monetary stimulus has been

very positive for risky assets. Meanwhile, absent a Euro area implosion, we believe that the US and

Chinese economies are more resilient than they are given credit for. As such, we reiterate our view that weakness in global equities (particularly high dividend equities and equities in the US, China, Korea

and Russia), US and Asia high yield bonds and Asia local currency government debt offer an opportunity for those who are under-invested

to increase their exposures.

SGD NEER likely to trade in the upper part of the policy band MAS SGD NEER policy band (estimate)


107

109

111

113

115

117

119

121

123

125

Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12

Inde

x

Conclusion


12

Asset Allocation Summary


All figures are in percentages Currency : USD

Asset Class Region View vs. SAA Conservative Moderate Moderately Aggressive Aggressive

Cash & Cash Equivalents USD Cash UW 22 0 0 0

IG Developed World UW 27 15 0 0

IG Emerging World UW 5 8 0 0

HY Developed World OW 0 7 6 0

HY Emerging World OW 5 7 11 5

North America OW 6 11 16 20

Europe UW 4 7 11 16

Japan N 0 2 3 4

Asia ex-Japan N 7 12 20 28

Other EM OW 4 6 8 12

Commodities ex-Gold N 5 10 10 5

Gold OW 5 5 5 5

Hedge FoF/CTAs N 10 10 10 5

Summary View vs. SAA

Cash UW 22 0 0 0

Fixed Income UW 37 37 17 5

Equity OW 21 38 58 80

Commodities OW 10 15 15 10

Alternatives N 10 10 10 5

Tactical Asset Allocation - July 2012 (12M)

Investment Grade

High Yield

Developed Market Equity

Emerging Market Equity

Commodities

All figures are in percentages Currency : USD

Asset Class Region Conservative Moderate Moderately Aggressive Aggressive

Cash & Cash Equivalents USD Cash 25 5 5 5

IG Developed World 30 20 0 0

IG Emerging World 5 10 5 0

HY Developed World 0 5 5 0

HY Emerging World 5 5 10 5

North America 5 8 13 18

Europe 5 8 12 18

Japan 0 2 3 4

Asia ex-Japan 7 12 20 28

Other EM 3 5 7 12

Commodities 5 10 10 5

Hedge FoF/CTAs 10 10 10 5

Emerging Market Equity

Strategic Asset Allocation 2012 (Global)

Investment Grade

High Yield

Developed Market Equity


13

Economic & Market Calendar

22 June 2012


Next Week: June 25 - June 29 This Week: June 18 - June 22Event Period Expected Prior Event Period Actual Prior

MO

N

US Chicago Fed Nat Activity Index MAY -- 0.11 HK Unemployment Rate SA MAY 3.20% 3.30%US New Home Sales MoM MAY 0.70% 3.30% IN Reverse Repo Rate 18-Jun 7.00% 7.00%US Dallas Fed Manf. Activity JUN 0.0 -5.1 IN CPI YoY MAY 10.36% 10.36%SI CPI (YoY) MAY 5.10% 5.40%

TA Industrial Production (YoY) MAY -2.30% -2.33%

TUE

US Consumer Confidence JUN 64.0 64.9 EC ZEW Survey (Econ. Sentiment) JUN -20.1 -2.4US Richmond Fed Manufact. Index JUN 5 4 UK CPI (YoY) MAY 4.30% 0.03JN Small Business Confidence JUN -- 47.2 GE ZEW Survey (Econ. Sentiment) JUN -16.90% 10.80%SK SK Consumer Confidence JUN -- 105 US Housing Starts MOM% MAY -4.80% 2.60%

CHConference Board China May Leading

Economic IndexSI Industrial Production YoY MAY 6.10% -0.30%

HK Exports YoY% MAY -- 5.60%HK Imports YoY% MAY -- 5.00%

WED

GE Consumer Price Index (YoY) JUN P 1.90% 1.90% JN Merchnds Trade Balance Total MAY -907.3B -520.3BUS Durable Goods Orders MAY 0.50% 0.00% JN Adjusted Merchnds Trade Bal. MAY -657.2B -480.2BUS Durables Ex Transportation MAY 0.80% -0.90% JN All Industry Activity Index (MoM) APR 0.10% -0.30%US Cap Goods Orders Nondef Ex Air MAY -- -1.90% UK Jobless Claims Change MAY 8.1K -13.7KUS Cap Goods Ship Nondef Ex Air MAY -- -1.40% UK Bank of England Minutes

TW Export Orders YoY MAY -3.04% -3.52%

THU

R

JN Markit/JMMA Manufacturing PMI JUN -- 50.7 US FOMC Rate Decision Jun-12 0.25% 0.25%GE Unemployment Rate (s.a) JUN 6.70% 6.70% US Initial Jobless Claims Jun-12 387K 386KUK GDP (YoY) 1Q F -0.10% -0.10% US Markit US PMI Preliminary JUN 52.9 53.9EC Euro-Zone Consumer Confidence JUN F -- -19.6 US Philadelphia Fed JUN -16.6 -5.8EC Euro-Zone Economic Confidence JUN -- 90.6 TW Benchmark Interest Rate 28-Jun 1.88% 1.88%EC Euro-Zone Indust. Confidence JUN -12.0 -11.3 EC PMI Composite JUN A 46.0 46.0EC Euro-zone Services Confidence JUN -- -4.9 EC PMI Manufacturing JUN A 44.8 45.1US Core PCE QoQ 1Q T 2.10% 2.10% EC PMI Services JUN A 46.8 46.7US Initial Jobless Claims 23-Jun -- 386K EC Euro-Zone Consumer Confidence JUN A -19.6 -19.3US Kansas City Fed Manf. Activity JUN -- 9 UK Retail Sales Ex Auto Fuel(YoY) MAY 3.00% -0.30%TH Mfg. Production Index ISIC NSA (YoY) MAY 2.50 0.54 UK Retail Sales w /Auto Fuel (YoY) MAY 2.40% -0.10%

GE PMI Manufacturing JUN A 44.7 45.2GE PMI Services JUN A 50.3 51.8HK CPI - Composite Index (YoY) MAY 4.30% 4.70%

FRI

US Chicago Purchasing Manager JUN 53.7 52.7 CH HSBC Flash China Manufacturing PMI JUN 48.1 48.4US U. of Michigan Confidence JUN F 74.1 74.1 MA CPI YoY MAY -- 1.90%JN Natl CPI YoY MAY 0.20% 0.40% GE IFO - Business Climate JUN -- 106.9

JN Industrial Production YOY% MAY P 6.70% 12.90% GE IFO - Current Assessment JUN -- 113.3SI M2 Money Supply (YoY) MAY -- 6.40% GE IFO - Expectations JUN -- 100.9

TW Unemployment Rate MAY 4.25% 4.19%

Previous data are for the preceding period unless otherw ise indicatedData are % change on preivous period unless otherw ise indicated Data are % change on preivous period unless otherw ise indicatedp- preliminary data, f- f inal data, sa - seasonally adjusted p- preliminary data, f- f inal data, sa - seasonally adjustedYoY - year on year, MoM - month-on-month YoY - year on year, MoM - month-on-month


14

3 -12 Month Market Outlook

Central bank policy rates Spot Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013

US 0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 - Europe 1.00 0.75 0.75 0.75 0.75 0.75 - UK 0.50 0.50 0.50 0.50 0.50 0.50 - Japan 0.10 0.10 0.10 0.10 0.10 0.10 - Australia 3.50 3.00 3.00 3.00 3.00 3.25 - China 6.31 6.06 5.81 5.81 6.06 6.31 - Taiwan 1.88 1.88 1.88 2.00 2.13 2.25 - Malaysia 3.00 3.00 3.00 3.00 3.25 3.25 - Indonesia 5.75 5.75 5.75 5.75 5.75 6.00 - South Korea 3.25 3.25 3.25 3.25 3.50 3.50 - India 8.00 8.00 8.00 7.75 7.75 7.75 - Philippines 4.00 4.00 4.00 4.00 4.00 4.25 - Thailand 3.00 3.00 3.00 3.00 3.00 3.25 -

Forex

Spot Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 EUR/USD 1.26 1.18 1.22 1.25 1.25 1.28 1.30 GBP/USD 1.56 1.52 1.55 1.58 1.62 1.64 1.63 USD/JPY 80.09 79.00 82.00 83.00 84.00 85.00 85.00 USD/CAD 1.03 1.05 1.02 1.03 1.00 0.98 0.98 USD/CHF 0.96 1.02 0.98 0.96 0.97 1.02 1.00 AUD/USD 1.00 0.96 0.99 1.01 1.03 1.05 1.07 NZD/USD 0.79 0.70 0.75 0.78 0.82 0.84 0.86 USD/CNY 6.36 6.36 6.31 6.29 6.27 6.23 6.19 USD/SGD 1.28 1.28 1.25 1.23 1.24 1.22 1.20 USD/MYR 3.19 3.20 3.10 3.05 3.15 3.10 3.00 USD/IDR 9482 9,600 9,300 9,100 9,300 9,200 9,000 USD/KRW 1158 1,170 1,140 1,120 1,100 1,080 1,060 USD/TWD 29.89 29.60 29.00 28.70 28.50 28.30 28.50 USD/INR 56.31 57.50 55.50 55.00 57.50 56.00 55.00 USD/THB 31.81 31.50 31.10 30.60 31.40 31.00 30.60 USD/PHP 42.38 43.25 42.50 41.50 42.50 42.00 41.00

Commodities Spot Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013

Gold 1566.40 1,700 1,750 1,900 1,900 1,900 1,900 Silver 27.01 32 33 35 35 35 35 WTI Crude Oil 78.51 110 116 116 115 120 121 Copper 7341.00 8,300 9,000 10,000 10,000 10,000 10,000 Aluminium 1870.00 2,150 2,200 2,400 2,400 2,400 2,400 Corn 552.00 525 575 550 625 640 650 Soybeans 1375.75 1,500 1,575 1,400 1,550 1,450 1,500 Wheat 678.50 695 675 650 675 695 675

Source: Bloomberg, Standard Chartered (Data and forecasts as of 22th June 2012) * Period averages for each quarter.


15

Disclosure Appendix

This document is not research material and it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. This document does not represent the views of Standard Chartered Bank, particularly those of the Global Research function. Standard Chartered Bank is incorporated in England and Wales with limited liability by Royal Charter 1853, Reference number ZC 18. The Principal Office of the Company is situated in England at 1 Aldermanbury Square London EC2V 7SB. Standard Chartered Bank is authorised and regulated by the Financial Services Authority under FSA register number 114276. In Dubai International Financial Centre (“DIFC”), the attached material is circulated by Standard Chartered Bank DIFC on behalf of the product and/or Issuer. Standard Chartered Bank DIFC is regulated by the Dubai Financial Services Authority (DFSA) and is authorised to provide financial products and services to persons who meet the qualifying criteria of a Professional Client under the DFSA rules. The protection and compensation rights that may generally be available to retail customers in the DIFC or other jurisdictions will not be afforded to Professional Clients in the DIFC. Banking activities may be carried out internationally by different Standard Chartered Bank branches, subsidiaries and affiliates (collectively “SCB”) according to local regulatory requirements. With respect to any jurisdiction in which there is a SCB entity, this document is distributed in such jurisdiction by, and is attributable to, such local SCB entity. Recipients in any jurisdiction should contact the local SCB entity in relation to any matters arising from, or in connection with, this document. Not all products and services are provided by all SCB entities. This document is being distributed for general information only and it does not constitute an offer, recommendation, solicitation to enter into any transaction or adopt any hedging, trading or investment strategy, in relation to any securities or other financial instruments. This document is for general evaluation only, it does not take into account the specific investment objectives, financial situation, particular needs of any particular person or class of persons and it has not been prepared for any particular person or class of persons. Opinions, projections and estimates are solely those of SCB at the date of this document and subject to change without notice. Past performance is not indicative of future results and no representation or warranty is made regarding future performance. Any forecast contained herein as to likely future movements in rates or prices or likely future events or occurrences constitutes an opinion only and is not indicative of actual future movements in rates or prices or actual future events or occurrences (as the case may be). This document has not and will not be registered as a prospectus in any jurisdiction and it is not authorised by any regulatory authority under any regulations. SCB makes no representation or warranty of any kind, express, implied or statutory regarding, but not limited to, the accuracy of this document or the completeness of any information contained or referred to in this document. This document is distributed on the express understanding that, whilst the information in it is believed to be reliable, it has not been independently verified by us. 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Accordingly, SCB, its affiliates and/or subsidiaries may have a conflict of interest that could affect the objectivity of this document. This document must not be forwarded or otherwise made available to any other person without the express written consent of SCB. Copyright: Standard Chartered Bank 2012. Copyright in all materials, text, articles and information contained herein is the property of, and may only be reproduced with permission of an authorised signatory of, Standard Chartered Bank. Copyright in materials created by third parties and the rights under copyright of such parties are hereby acknowledged. Copyright in all other materials not belonging to third parties and copyright in these materials as a compilation vests and shall remain at all times copyright of Standard Chartered Bank and should not be reproduced or used except for business purposes on behalf of Standard Chartered Bank or save with the express prior written consent of an authorised signatory of Standard Chartered Bank. All rights reserved. © Standard Chartered Bank 2012.

THIS IS NOT A RESEARCH REPORT AND HAS NOT BEEN PRODUCED BY A RESEARCH UNIT.

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