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Investment Outlook 2013

Feb 1, 2013

Investment Summary


  • We believe that the global economic cycle went through the bottoming process last fall and now shows signs of improvement. Global PMIs have turned upward. The economic surprise index for the “G-10" economies remains firmly in positive territory.
  • Major central banks continue to pursue accommodative monetary policies. The Fed, BoE, and BoJ are likely to continue expanding their balance sheets at least through 1H13. QE measures have provided the real economy positive momentum; we see an improvement in industrial output and increased inflationary expectations.
  • Global uncertainty has forced investors to hoard defensive assets. In the current environment, most of these assets can only result in slow and certain wealth destruction (in real terms). The strongly suppressed appetite for risk assets (especially equities) appears to have lead US fixed-income funds to hold around $1 trillion of excess investments.
  • High-grade local corporate bonds look attractive after an impressive rally in OFZs. Local government bond yields are now close to historical lows. At the same time, corporate credit spreads have a scope for tightening.
  • Russian Eurobonds took top performance rankings in 2012. Spreads to USTs tightened by 180-300 bps depending on credit quality bracket. We believe that this asset class already discounts the most favorable low-inflationary scenario and we see limited upside going forward.
  • The scenario-weighted upside for the RTS index is +48% according to our estimates. Dividends and share buy-backs remain key forces that should unlock fundamental value. Following a strong rally on the fixed income side, risk appetite will likely spread to equities. Russian equities should double in order to close the accumulated 5 year performance gap with fixed income.

icon_pdf.gif   Full version of the report can be found attached.

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