111
Our View of the World Economy and What it Means for your InvestmentsWiesbaden – 06 May 2014
222
JEAN MÉDECIN, CFAMember of the Investment Committee
333
United States
444
Growth Benefits from the End of the Fiscal Drag Confirmation Expected on the Investment Front
* estimatesSource:LHS: CBO, JP Morgan, 09/12/2013RHS: Carmignac Gestion, CEIC, 31/12/2013
2010 2011 2012 2013* 2014*-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
0.4%
-0.6%
-1.2%
-1.8%
-0.8%
03/0009/01
03/0309/04
03/0609/07
03/0909/10
03/1209/13
-20%
-15%
-10%
-5%
0%
5%
10%
15%Fiscal drag effect 2013-2014
(as % of GDP)Non-residential investment
555
Long Term Rates Reached All Time Lows in 2013 2014: Rising Long-term Yields, as Fed Initiates “Tapering”
Source: Bloomberg, 09/04/2014
0
2
4
6
8
10
12
14
16
18 US 10 years government bond yield
Tapering:
"In light of the cumulative progress toward maximum employment and the improvement in the outlook for labour market conditions, the committee decided to modestly reduce the pace of its asset purchases”.
Ben Bernanke, 18th December 2013
666
t0
Economic recovery
The Nature of the Interest Rate Risk in 2014
With QE
Long
-ter
m in
tere
st ra
te
Time
Economic recovery
t2
T1: time when recovery starts with QET2: time when recovery starts without QESource: Nomura, 22/10/2013
t1
Without QE
Long-term interest rates with and without QE
777
The FED’s DilemnaActive Management of Modified Duration will be Key
Source: Carmignac Gestion, Bloomberg, 28/04/2014
09/1310/13
11/1312/13
01/1403/14
04/142.4%
2.6%
2.8%
3.0%
3.2%
US 10-year government bond yields and Carmignac Patrimoine Modified Duration
Modified duration as at 28/04/14: -0.28
Modified duration as at 31/01/14: +0.08
Modified duration as at 15/11/13: -0.98
Normalisation of US monetary policy
For the third time in as many meetings, the FOMC voted to continue its QE tapering
However, it has been noted that: inflation remains below the
Fed’s long-term target the FOMC will no longer rely on
unemployment reaching 6.5% to raise its key interest rates
Interest Rate
Strategy
888
A Competitive Advantage Linked to the Energy Revolution
Source: Left: IEA Data, 2012Right: Stifel, November 2013* estimates
Global Natural Gas Prices (USD/MMBTU)
Japan NGL EU Natural GasUS Natural Gas
X5
US Ethylene production capacity (000 t/y)
Equity Strategy
Stock in the portfolio:LyondellBasell, a leading world polyolefins producer
999
Source: INGAA Foundation, Inc*Capital expenditures reported in 2011 Study were converted from 2010$ to 2012$ using a 4% inflation factor.
Crude oil Natural Gas NGL0
2
4
6
8
10
12
14
16
Average annual for 2012 to 2035 (2011 forecast)Average annual for 2014 to 2035 (2014 study)
x 4.3
x1.7
x8.9
Comparison between 2011 and 2014 studies on capital expenditures
Billions of real dollars
Oil Services
Schlumberger
Core Laboratories
Construction and Engineering
Jacobs Engineering Group
Fluor Corporation
Our stocks to play this theme
Equity Strategy
Shale Oil & Gas: Driving higher Energy related Capital Expenditures
101010
Europe
111111
Structural Reforms are Positive and Necessary
2 21.5
2.0
2.5
3.0
3.5
4.0
Source: J.D.Power and Associates, McGraw Hill Financial., LMC Automotive, 31/12/2013Figures for 2014 and 2015 are forecasts, 2013 figures are forecasts for France
France Car Production
Spain Car Production
Light Vehicle ProductionFrance vs Spain
121212
Is the Eurozone Facing a Deflationary Threat?Germany is Not Escaping from Deflationary Pressures
Source: Left: Thomson Reuters Datastream, Les cahiers verts de l’économie, April 2014Right: Bloomberg, 31/03/2014
Private sector lending, YoY German inflation
Household lending (consumer and other)Residential mortgagesNon-financial business lending
131313
03/1103/12
03/1303/14
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
03/0903/10
03/1103/12
03/1303/14
2
3
4
5
6
7
8
03/0903/10
03/1103/12
03/1303/14
0
50
100
150
200
250
300
350
400
Fixed Income: ECB’s Targeted Response to Recent Crises
Source: Bloomberg, 31/03/2014
Liquidity crisis Solvency Crisis Inflation?
Itraxx Senior
FinancialsSpanish 10-year yield
LTRODraghi “put”
Is the ECB
ready to act?
Eurozone inflation
141414
Fixed Income: Portugal Should also Benefit from European ConvergenceFundamentals are improving in terms of growth and budget forecasts
3%
4%
5%
6%
7%
8%
Source: LHS: Bloomberg, 31/03/2014RHS: Japanese Ministry of Finance, March 2014*medium and long-dated bonds
Portugal
Italy
Spain
Allocation to European peripheral government bonds: 24.5%of which Portugal: 3.2%
Weekly Japanese investment abroad*Change in 10-year
government bond yields
Fixed IncomeStrategy
151515
Credit: a Point in the Credit Cycle Beneficial to Europe
Source: RBS Credit Strategy, Bloomberg, 31/03/2014
STABILISATIONRELEVERAGING
BUBBLE CONTRACTION
Fixed IncomeStrategy
European Economy is in a Phase of Stabilisation:
Moderate Growth Low Inflation Deleveraging Low Default Rates
European Credit: 19%
161616
Regulatory Ecosystem Reducing Vulnerability of European Financial System
Size of shock
Pric
e of
Ris
k
Vulnerability of Financial System
Vulnerability of Financial System with Tighter
Regulation
Vulnerability to Shocks and Price of Risk
Vulnerability to Shocks and Price of Risk
AT1
Coco
O-SIFI
G-SIFI
CCCB
CCB
MDA
Basel 3
CRD4
Solvency2
Leverage ratio
Bailinable buffer
LCR NSFR
SSM
SRM
SRF
DGS
AQRCCAR
SPE
MPE
OLA
RRM
Bailin
Living wills
PONV
PRA
Liikanen
VolkerDodd Frank
Corporate Bonds: We Favor the Financial Sector Fixed
IncomeStrategy
4.92%
6.83%
Average Yield
Subordinate
Contingent Convertibles
Source: Carmignac Gestion. Average yields are provided for Carmignac Patrimoine as of 31/03/2014.
171717
Emerging Countries
181818
Emerging Countries: Adjustments have been Made to Address Deficits
Source: Emerging Advisors Group, EM Monthly Chartbook, March 2014
% GDP12m cum
% GDPsa 3mma
IndiaTrade Balance and Current Account
Current AccountTrade Balance (right scale)
191919
Valuations and Sentiment are Supportive of a Rebound in EM Equities
Source: Left: Thomson Reuters Datastream, Les cahiers verts de l’économie, April 2014; Right: BofA Merrill Lynch Global Fund Manager Survey, 15/04/2014
Emerging Markets P/E vs. Developed Markets P/E*
Global Investor Positioning relative to history (z-score)
*MSCI EM and MSCI World
Underowned Overowned
Japan
UK
Eurozone
US
EM
EM cheap
EM expensive
202020
Chinese Demographic Dividend is Coming to an EndAutomation is expected to rise significantly in China
Source: IFR, Gavekal, 2013
China: Convergence of robot cost and wages
Avg. Industrial robot unit cost
2 years Foxconn salary
Hourly wage x 24 hours x # of days in 2 years2 years Foxconn salary =
USD
212121
Fanuc: A Long Term Growth Story50% of Sales in Asia ex-Japan
Source: IFR, Gavekal, 2013
Fanuc, a leader in automation and industrial robots
Low penetration of industrial robots in Emerging countries is a strong growth opportunity
A competition limited by high barriers to entry
Margins protected by a high value added products
Estimated number of multipurpose industrial robots per 10000 manufacturing employees
General industriesAutomotives
Equity Strategy
JapanChina
GermanyUS
MalaysiaTaiwan
Spain
S. KoreaFrance
222222
MSCI ChineMatériaux
ImmobilierEnergie
Alimentation, boissons et tabacLogiciels et internet en Europe
BanquesSemi-conducteurs
Equipement technologiqueTelecom
MSCI MondeEquipements de santéMoyens de production
Hôtels et loisirs aux USAHôtels et loisirs en Europe
Logiciels et internet aux USLogiciels et internet
AutomobileHôtel et loisirs en Chine
Indice Internet Chinois
0%1%3%
13%14%
19%19%19%20%22%23%
30%30%31%32%34%35%
40%84%
98%China Internet IndexChina Hotel, Resorts and LeisureAutomobilesSoftware and InternetUS Software and InternetEurope Hotel, Resorts and Leis-ureUS Hotel, Resorts and LeisureCapital goods Healthcare EquipmentMSCI AC WorldTelecomsTechnological EquipmentSemiconductorsBanksEurope Software and Internet Food, Beverages & TobaccoEnergyReal Estate MaterialsMSCI China
Chinese Markets Continue to offer Great Opportunities
Source: CICC Equity Strategy Research, March 2014
Performance 2013: MSCI AC World index industry groupsvs. internet & gaming
Macau Casinos Wynn Macau, Sands China
Internet Baidu
Infant Milk China Mengniu Dairy
Our Chinese Stocks
Equity Strategy
232323
Allocation Strategy
242424
CORE STRATEGIES/LONG-TERM CONVICTIONS TACTICAL STRATEGIES/MANAGEMENT OF
MODIFIED DURATION
Carmignac Patrimoine: Our Modified Duration Breakdown shows our Rate Convergence Conviction
Source: Carmignac Gestion, 14/04/2014
Finance 117bp
Energy14bp
Credit169bp
Peripheral sov.283bp
Italy138bp
Spain79bp
Reducing interest rate risk
Consumer Sector12bp
Portugal35bp
Total modified duration: -23bp
Focus on spreads
Ireland22bp
United States-370bp
Safe haven sov. -493bp
Japan-49bp
UK-26bp
Germany-49bp
Fixed IncomeStrategy
252525
Carmignac Investissement: Portfolio Construction
GLOBAL LEADERS EUROPEAN
STABILISATION
US Dollar Exposure
Cash Active Management of Interest Rate Risk
US GROWTHJAPAN
EMERGING MARKETS
Equity Strategy
262626
Equity Allocation: Summary and Prospects
Geographic Area
Macro- economic Visibility
Investors’ positioning Valuation
Potentialfor political
surprise Current equity
weighting
Possible Evolution
of Allocation
United States 44.0%
Europe 25.5%
Emerging 17.2%
Japan 9.4%
Source: Carmignac Gestion, 31/03/2014
Stratégie actionsEquity
Strategy
272727
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