investment strategyinvestment strategy quarterly views€¦ · "chinese crisis""hard...

September 2013

INVESTMENT STRATEGYINVESTMENT STRATEGY QUARTERLY VIEWS

ROCK AROUND THE CREDIT CLOCK

CONTENTS

STRATEGY VIEWS

ECONOMIC VIEWS

EXPERT CORNER

5

22

27

China is slowing! After two decades of fabulous economic development that sawthe country living standard increasing six-fold and turning the 11th largest economyinto number two. The country is now taking a pause. How can such a large highspeed train take a break without derailing?

Only time will tell and in the meantime, we cannot help thinking about the fashionof "predicting China crash" that has flourished in our industry over the past 10years. Almost any loud market commentator has at one point in time called for"Chinese crisis" "hard landing" or "Chinese meltdown" citing "credit bubble" "realEXPERT CORNER

FORECASTS

27

31

Chinese crisis , hard landing or Chinese meltdown , citing credit bubble , realestate craze", etc. No doubt if events worsen, these pundits will soon boast abouttheir forecasting abilities and praise themselves as having predicted correctly, notmentioning they have been wrong for 5 or 6 years...

We will not argue against evidences of a structural weakening of Chinese growthpotential and likelihood of a bumpy road ahead, in fact we share theseexpectations, but not the hard landing, though.

1

FOREWORD

China is definitely slowing, yet by how much is not the issue. What matters to us is theimplication for investment strategy in a wealth management perspective. While avidreader will find details on the Chinese ongoing transformation in this document, we wouldlike to raise attention to where it matters most. For successful investing, predictions area dangerous game in which being right does not matter as much as being focused andprecise. Sometimes and even often, "being smart" does help in "making money"!

With this in mind we have built the present quarterly outlook making less predictions butbuilding more analytical frameworks to apprehend possible and most probable outcome

Mourtaza Asad-SyedHead of Strategy

(44)1 228 819 [email protected]

with risk scenario. Even if we will experience only one outcome, the prudent investorshould be prepared for multiple scenario instead of one deterministic future.

Recent past has proven that it does not matter much for investments to predict an event. Itis all about timing and understanding the dynamics and consequences! If we had been toldahead of times that in September 2008, a major US investment bank would fail, the largestinsurance company would be barely be saved by the Treasury, and that the FederalReserve would have to bail out the system by injecting a trillion-dollar, all the doomsayers

ld h h t d "I t ld ! N th US d ll ill ll d i t t t ill

Ollivier CourcierFixed Income Head & Strategist

(33)1 42 14 78 70 [email protected]

would have shouted: "I told you so! Now the US dollar will collapse and interest rates willrise as a consequence of international investors losing confidence in America". The eventoccurred, but markets went opposite. The US dollar rallied by 20% and rates quickly hittheir lowest point in 50 years. It is hard to make money listening to market gurus, nomatter how prescient they are.

The same applies to China right now. It is not so much about debating on Chinese excess,and but really about how markets could be affected, even if we do not consider extremeevents as the most likely outcome

Xavier DenisCurrency strategist(33)1 56 37 38 50

[email protected]

events as the most likely outcome.

To sum up, we discourage clients to look for a crystal ball to predict the future,especially if they were to place their assets on one bets. This is also a reminder thatportfolio diversification is irreplaceable as the art of managing contradictions to preparefor multiple possible scenarios in one asset allocation.

Readers will find in this quarterly outlook our tactical view for the next 3 to 6 months taking

Kim March Emerging markets strategist

(33)1 42 13 19 78 [email protected]

Readers will find in this quarterly outlook our tactical view for the next 3 to 6 months takingin account structural factors defining the next 3 years. There are still many unknowns andwe will react as the events unfold, as of now our current scenario could relate to 1995-2000.During that period, there was a spectacular non-inflationary growth in America, witheasy monetary policy albeit in a tightening mood. The result on markets was as follows:Stock markets thrived, US stocks outperformed the rest of the world, with Eurozone slightlybehind, and France outperformed Germany, USD strengthen, High Yield bonds outmatchedInvestment Grade ones, while Emerging Markets assets and Gold underperformed.

Claudia PanseriEquity strategist

(33)1 42 14 58 [email protected]

3

INVESTMENT STRATEGY - QUARTERLY VIEWS

TACTICAL GRADINGS

As of September 20 2013

Europe US UK Japan

-= = = = = =

As of September 20, 2013

G t

GlobalEmerging

Markets

Developped markets2013Q4

Cash Fixed-income

- = - - - -= = = = = -- - - - . -+ + + + . -= - - - -+ = + + + -+

Duration

Government

AlternativeEquities

CorporateInvestment GradeHigh Yield

Upgrade since previous investment strategy Downgrade since previous investment strategy

=+

- + + - -Currencies

CommoditiesHedge Funds

How to read the table:

Gradings Investments P o rtfo lio (vs. B enchmark)

A bs. expectat io ns (vs cash)

R el. expectat io ns (vs histo ry)

++ Buy! Strong overweight Strong capital gain Strong capital gain

B di O i ht C it l i ti Ab

R eco mmandatio ns P erfo rmance expectat io ns

+ Buy on dips Overveight Capital appreciation Above average

= Hold Neutral Yield return* Average return

- Sell on rebond Underweight Capital loss Below average

- - Sell! Strong underweight Strong capital loss Strong capital loss

*Yield return: M oney market rate for FX, Coupon Yield for bonds, and earning yields for stocks

4


GLOBAL STRATEGYROCK AROUND THE CREDIT CLOCK !

VIE

WS

STR

ATE

GY

V

Investors are entering the last quarter of 2013 with mixed feeling because equities performedg q g q pbut safe havens such as gold, or US government bonds suffered one of the worstyears, and Emerging Markets (EM) assets did not match expectations. The looming threat ofrising yields, finally materialized and hurt many unprepared portfolios, losses on US bondswere similar to 1994, remembered as the “bond market massacre”. To avoid any furtherdisappointments, it would be tempting for many to take profits on winning positions such asstocks to secure a slightly positive year, but this calendar perspective does not constitute astrategy, it merely fits an accounting mind-set without broader perspective. No matter howclose we are to yearend, quarter after quarter, we review our strategy on the same principlesand processes: defining the structural factors driving the big picture, assessing the cyclical

Chi

EM

Global credit clock (Sept’13)

Switzerland

p g g g p g yeconomic outlook and immediate key issues and finally monitor risks by checking hot moneyflows and scenario. We conclude to remain exposed to risky assets.

The Big picture: Countries are scattered all around the clock

We believe asset prices around the world are being driven by the “credit clock”,because credit is at the heart of any modern financial cycle based on fiat currency. We have

Recession

Leve

ragi

ngC

ontr

actio

n

Expansion

USA

China

UK

Japan

EMUPeriphery

y y yseen that real activity is now heavily linked to financial cycle with causality going both waysthat is why our Credit Clock tracks each country trends in GDP (accelerating, decelerating)and credit (growing, contracting).

Our strategic approach based on the Credit Clock highlights that the US is entering thesweet spot of economic growth with credit expansion that usually generates assetappreciation. It is followed by UK and Japan where credit growth is still idle, but growthpotential is recovering. If this process accelerates, these markets should see a re-rating oftheir assets. Far behind is Eurozone, where growth has bottomed but road to recovery is far

Growth

C

EMUp y

from given mostly because Peripheral countries are still stuck in a contraction phase ofdeleveraging. Way ahead of the everyone, is China that has indeed turned the corner intoslower growth that should soon lead to credit contraction. As detailed in our economicsection, we expect China to enter a multi-year transition process.

This framework also shows that some countries, the ones deleveraging, have assets thatare depressed until credit excess are cleared and growth finds a new upward path, whichusually takes years and active policies. Therefore, expecting depressed countries to recoverover a quarter is just illusory. For instance, countries such as Spain, Portugal, Italy, Francehave joined Japan in the league of below 1%-growth countries with stocks prices nowaveraging only 1 to 1.5 times book value (their accounting value), when the US, Switzerlandor Mexico are valued at 2.5 times. These same European countries used to trade at 2-2.5x inthe 90s. How did the US turn so fast? Part of the explanation is that 50% of their householddebt reduction took place with debtors defaulting on their debt! So far, debt relief is a boldpolicy that Eurozone has yet to try.

Given the geographical disparity in cyclical and structural evolutions, regional assets shouldexperience diverging fortune over next 3-6 months. It is likely the geographical allocation

5

will matter as much as the balance between defensive assets (government bonds) andrisky assets (stocks). Therefore, we keep our view from late last year that with systematicrisk dissipating, correlations should decline across markets and there will be room fordifferentiation.


GLOBAL STRATEGYROCK AROUND THE CREDIT CLOCK !

VIE

WS

STR

ATE

GY

V

The macro view: A brighter outlook driven by America

The global macroeconomic outlook is brighter in 2014 than in 2013, most activityindicators (PMI) across the world picked up over the summer, most are in expansionarymode and accelerating. Looking “under the hood of recovery” reveals large disparities,though. The US is expected to continue on its growth path with less headwind from fiscalcontraction, and reach 3% growth. Japan and UK are following its footsteps with at least a12-18 month lag to reach a 2% growth pace. However, we do not expect Eurozone to gatherspeed right after clearing out of its recession given the lack of institutional progress in thespeed right after clearing out of its recession given the lack of institutional progress in theUnion, it is likely growth will fall short of 1% in 2014. Emerging Markets (EM), led by China,are slowing after reaching their peak and their recent rebound in activity is expected to beshort-lived, since their structural weaknesses are now apparent. Issues in the EMU andChina are key concerns but it is expected that none will derail global recovery, especially asmonetary conditions throughout the world are still expected to remain accommodative, evenwith normalization policies.

Eurozone debt crisis has stabilized but over the past six months institutional progresshave stalled projects such as Banking Union are still far from reality while time is running outhave stalled, projects such as Banking Union are still far from reality, while time is running outfor most peripheral countries who are already lagging behind on the 2013 budget reductiontargets. On the private sector side, an Asset Quality Review of European banking assets isscheduled in January 2014 and it is likely the conclusions will be that some banks will needfurther recapitalization.

Moderate growth in China will likely affect global trade as EM share of global GDP ismuch higher than in previous decades. Nevertheless, from existing trade flows it will bemostly EM that will be affected and some specialized exporters such as Germany. On thefront of capital flows and financial linkages contagion seems limited because western banksfront of capital flows and financial linkages, contagion seems limited, because western bankshave reduced their cross-border lending on the region. Nevertheless, EM have received atrillion-dollar of financing since 2007, thus some countries will suffer from any sudden stop insuch financing flows.

Tactical allocation: Still on risky assets

Overall allocation towards risk assets from our assumptions on a brighter economicoutlook are straightforward. This is in line with our previous tactical stance alreadyoverweighed in high yield bonds and stocks and cautious on safe haven assets such as goldoverweighed in high yield bonds and stocks, and cautious on safe haven assets such as goldand government bonds, which tend to decline or underperform in accelerating phases of thecycle. While low inflation and growth even moderate has been the setting for decliningdefaults, stock valuation expansion in addition to earnings growth. Inflation is clearly not athreat, so monetary tightening is out of question. Therefore equity valuation should not be atrisk of an interest rate shock.

To sum up, our preferences go for risky assets that will benefit from accelerating activitydriven by an American cycle. Stocks, High Yield bonds and Energy commodities are ourpreferred assets US UK and Japan are our preferred stock markets and the USD is

6

preferred assets, US, UK and Japan are our preferred stock markets, and the USD isour preferred currency. Emerging markets assets, namely currencies, bonds and equitiesare not attractive given our prudent outlook on these countries, and we remain underweighton most.


GLOBAL STRATEGY

VIE

WS

STR

ATE

GY

V

Managing risks: No market exuberance but 3 downside risks

Maintaining our positions on assets that performed well makes us not contrarian, thusvulnerable to disappointments in case of market reversal after exuberance. Fortunately hotmoney flows (usually from mutual funds) show that these trends are not overbought. Trendsin stocks, and cyclical commodities are steady with no exuberance yet. On the opposite,beware of EM assets and gold and Investment Grade bonds, where there is no evidence ofclear capitulation to the extent of the heavy accumulation of hot money over the past 5 years.Our scenario is of course subject to turns of events and we are convinced that cycles willOur scenario is of course subject to turns of events and we are convinced that cycles willlikely be shorter than in the past and tactical contribution will remain critical to deliveringperformances for portfolios over long run.In that respect, we highlight 3 main downside risks that would hurt our pro-risk positioning,which we need to keep a eye on, namely: An oil crisis, a hard landing in China and aninterest rate shock.

Mourtaza Asad-SyedHead of StrategyHead of Strategy

7


CURRENCY STRATEGY

VIE

WS

EUR/USD: DIVERGING MONETARY POLICY STANCEO S S

STR

ATE

GY

V

EUR/USD & Rate differentialsTO PUSH UP THE USD

Over the summer, the Euro has surprised to the strongside by remaining above the 1.30 mark vs. the USD. Thatwas not necessarily in the cards when late May ChairmanBernanke signalled the need for the Fed to taper thequantitative easing. In theory, the Fed chairman statementis a lift for the greenback as future interest ratedifferential is a key driver of currency strength, yet theupward move of the USD has not materialized yet

Source: Bloomberg, Société Générale Private Banking

upward move of the USD has not materialized yet.

Several headwinds prevented the dollar to gain groundagainst the EUR, although it strengthened markedlyvs. the EM currencies. First of all, as a risk off currency,the USD has been dragged down by the global momentumgaining pace and the more risk on approach of investors atleast in developed markets. Second, as proved by thebalance of payments data global investors have shedbalance of payments data, global investors have shedpositions on the US Treasuries market, leading to majoroutflows along the steepening of the yield curve. Third, it isworth highlighting that the US are still running a largecurrent account deficit (around 3% of GDP) against asurplus in the Eurozone, a positive factor for the singlecurrency. Over the longer term, growing oil and gas USexports will continue to pave the way for the rebalancing ofthe current account but this move is gradual.

Steepening yield curves, EUR & GBP

3

3,5

All in all, as we expect the economic recovery to expandfurther in the US, but to weaken somewhat later this yearin the Eurozone on the back of a faltering demand from theemerging world. This cyclical divergence shouldtranslate into a stronger USD. A clarification by the USFed about the pace toward monetary policy normalizationand the reiteration of a dovish stance by the ECB wouldeventually weigh on the EUR Also capital outflows from

0

0,5

1

1,5

2

2,5

1M 3M 9M 2Y 4 Y 7 Y 10 Y 15 Y 30 Yeventually weigh on the EUR. Also, capital outflows fromthe US market may stall, reversing a downward pressureon the greenback observed the past few months.

I We forecast the EUR/USD to at 1.28 by year-end and1.25 at 6-month.

Source: Société Générale Private Banking

1 Mo 3 Mo 9 Mo 2 Yr 4 Yr 7 Yr 10 Yr 15 Yr 30 Yr

EUR(01/04) EUR(17/09) GBP(01/04) GBP(17/09)

8


CURRENCY STRATEGY

VIE

WS

USD/JPY: THE YEN SLIDE IS TO RESUME

STR

ATE

GY

V

5 Y I fl ti B k d USD/JPYThe 100 mark seems to have played as a floor for theUSD/JPY. Yet, the BoJ is set to keep the most aggressivestance among G4 countries. The implementation of a salestax by next Spring as currently debated will certainly triggeran additional easing move from the central bank so as tomitigate the negative impact on growth.

We maintain our anticipation of a weaker yen although thismay not happen in the near term. By year-end, the yen is

5 Year Inflation Breakeven and USD/JPY

y pp y y yto trade in a range-bound market but looks more likely toedge down in the first part of 2014 along a new QQE to becarried out.

I We forecast 100 by year-end, and 105 at 6-month.

EUR/CHF: INVESTORS TURN BEARISH ON THE SWISS

As probably the safest currency in the world, the Swissf h b fit d f i it l i fl l di


Receding upward pressure on the CHF

franc has benefited from massive capital inflows leadingthe SNB to act decisively by defending at all cost the 1.20threshold set exactly two years ago. As the European debtcrisis has abated and investors have been willing to takeon more risk, the CHF has started to shed ground. Thiseasing has been relatively modest so far. As activity isaccelerating in Switzerland, the SNB is set to remain onhold to avert appreciation risks.

We anticipate a further weakening of the CHF as financialWe anticipate a further weakening of the CHF as financialconditions will further improve at the global level. Yet, theslide is set to be rather gradual and will largely depend onthe pace towards monetary policy normalization in the USand the Eurozone.

I We forecast 1.25 by year-end and 1.30 at 6 month.

EUR/GBP: MODEST UPSIDE IN THE CARDS

Source: NBS, Société Générale Private BankingAs for the British pound, we tend to foresee a slightappreciation of the British pound. First of all, macroreadings have surprised to the strong side in the UK (Aug.manufacturing PMI: 57.2) and most analysts are likely tosignificantly revise up their growth expectations for theyear and 2014 as well. In a nutshell, aggressive monetarypolicy is paying off. Second, the BoE has not reacted torising yields whereas the ECB has highlighted to downsidemacro risks in a way to talk down the recent yield pick up.

Xavier DenisCurrency strategist

9

This should favour the pound, in particular if politicaluncertainty returns in the Eurozone, something likely in ourview.

I We expect EUR/GBP at 0.85 at 3-month and at 0.83 at6-month


FIXED INCOME STRATEGY

VIE

WS

RISK OF RISING YIELDS HAS MATERIALISED

STR

ATE

GY

V

We also think investors, especially structural investorsESPECIALLY FOR US TREASURIES

Given very low yields of government bonds already at thebeginning of the year, we have regularly highlighted therisk that a rise in yield curves would represent for thewhole fixed income asset class. This risk hasmaterialised, noticeably on the US Treasuries marketsince the beginning of May.

Therefore, it has been wiser year-to-date to be exposed to

such as pension funds or insurance companies, need asafe haven. And US Treasuries remain one: rememberwhen S&P downgraded the US in summer 2011, triggeringa US Treasuries rally. Global economic growth whichremains sluggish and tame inflation are fundamentals thatalso help structural investors stay long on US Treasuries.

From a cross-asset perspective, investors should keep theglobal picture in mind: Fed tapering is all about reducingpurchases gradually from $45bn a month at a time whenthe eurozone rather than the US, to corporate bonds rather

than government bonds, to high yield rather thaninvestment grade, and to PIIGS sovereign bonds ratherthan core eurozone bonds.

The rise in the USD 10-year yield is certainly impressiveand is worth a closer look. Starting the year at 1.75% andafter falling to as low as 1.63% on May 2nd, it broke the2.40% support level in June. That was a material step upas this level had provided a backstop twice before: in

purchases gradually from $45bn a month, at a time whenthe US equity market capitalisation is $20trn (400x bigger)and when inflows in the equity markets have been recordhigh YTD. Any fading macro momentum could quicklylead to a “small but supportive enough” reallocation tothe US Treasuries market.

The US Treasuries curve should continue steepening overthe coming six months and we anticipate the yield reaching3.20% to 3.50% (which we consider to be a turning point inas this level had provided a backstop twice before: in

October 2012 and March 2013. Since then, 10Y USTreasuries continued climbing, up to 2.99% at 5September. We are now well established in the range thathad been in place from the outbreak of the financial crisisin 2008 until summer 2011 (2.40% to 4%). Undoubtedly,there is a structural reason for US Treasuries to rise in aUS economy where debt is skyrocketing while growth hasstalled. However, on a six-month horizon, we believethe bulk of the “damage” is done and the risk

ISM New orders & change in 10-year UST yields

( gasset allocation). We also anticipate more volatility in thecontext of rising geopolitical risk, US debt ceilingnegotiations, the replacement of Bernanke, Germanelections, and Italian political turmoil. We therefore remainunderweight.

the bulk of the damage is done and the riskbecomes asymmetric. More importantly, the speed ofthe increase should slow considerably.

There are several reasons for us to be reasonablyconfident. To start with, there has rarely been this kindof negativity in such a short period of time on oneasset class. A record $69bn was pulled out of US bondmutual funds and ETFs in June and that trend continuedover the summer. Moreover, Asian central banks (mainlyPBoC and BoJ) also sold US Treasuries recently, for acombined $41trn. Growing speculation on Fed tapering,expected to begin in September, drove this trend. Webelieve that this is over now and that the market haspriced in tapering.

In the past, spikes in the pace of change in 10Y USTreasury yields have always been correlated to spikesin ISM new orders. This is also a supportive element for10Y US T bonds to become more stable going forward


10

10Y US T-bonds to become more stable going forward.



VIE

WS

CONCERNS ARE RISING ABOUT GERMAN BUND

STR

ATE

GY

V

.WHAT ABOUT CORPORATES?

Concerns start to rise for the German bond market at leastfor two reasons. First, the German Bund yield curve isexpensive in absolute terms, vs. US Treasuries and other“safe haven”. Second, we remain fundamentally confidenton euro zone macro perspectives up to the end of theyear, with improving PMI figures and a – slow – exit fromrecession. We may therefore see reallocation of flows outof the German curve into PIIGS bonds but also USTreasuries

The main drivers of credit markets have always been andstill are the global macro/interest rate environment, thebalance of supply & demand (namely primary marketactivity and investor appetite), and fundamentals(corporate results and default rates). It is fair to say thatthe supply & demand balance as well as fundamentalshave not changed materially over the past few years, atleast in developed markets. Therefore, the main driverremains the interest rate environment.Treasuries.

The 5-10Y bucket is most at risk given its relative richness.The shorter buckets could potentially benefit from forwardguidance coming with an easing bias (but we do notexpect a rate cut anymore).

I With absolute yields very low and rising, we recommendbeing globally underweight in government bonds,

remains the interest rate environment.

Fundamentally, we only start seeing a slight deteriorationof credit ratios in the IG space, as shareholder friendlypolicies tend to gain momentum. However, corporatebalance sheets remain strong. Additionally, in a globalcontext of lower returns whatever the asset class, flowshave remained supportive.

Eurozone IG spread and leverageespecially in the core euro zone but also in the UK, wherethe Gilt curve should continue steepening as this does notseem to be a threat for the UK recovery according to theMPC. We believe the spread between 10Y US Treasuryand Bund should reduce by year end as the 10Y Bundyield could easily reach 2.30% by December. We arerelatively more comfortable on mid core countries andhappy to take a bit more duration risk there. However, weprefer to stick to short-term maturities for PIIGS countries,

Source: Bloomberg Societe Generale Private Banking

as short-term yields are already attractive.

The beginning of 2014 could see a rebirth of tensionson the European political landscape, leading to volatilitybut also an outperformance in core country bonds,including Germany. That would lead to the 10Y USTreasuries/Bund differential increasing again, above 100bp(vs. a 15-year average of 35bp). Source: Bloomberg, Societe Generale Private Banking

11



VIE

WS

Year-to-date, credit spreads are pretty stable on theG

STR

ATE

GY

V

US IG d d lInvestment Grade markets. Admittedly, they are almosttight, and if markets remember that liquidity has a price, wedo not see much potential for more tightening, even if theystill trade respectively at 4x for the eurozone and 2x for theUS, their tightest levels ever. We therefore remain verycautious on DM IG markets: spreads do not offset therisk of rising yields.

As for high-yield markets, the story is different. Even ifspreads trade at 3x their tightest level in the eurozone and

US IG spread and leverage

spreads trade at 3x their tightest level in the eurozone, and2x in the US, the HY spread cushion in itself is thickenough to protect against rising yields and to offerdecent carry. This is all the more so as flows into thisasset class, closely correlated to equity markets, havebeen massive year-to-date and continue to drive spreadcompression. Also, default rates remain at very low levels,supported by improving bank situations and massive“disintermediation”.

Source: Bloomberg, Societe Generale Private Banking

12-month default rates

Lastly, we believe the EM corporate debt market (in USD)is very much driven by the unwinding of carry trades thesedays. This is a purely technical aspect that is dealt with inthe EM section of this outlook.

I We believe corporate high-yield is the only attractivespace in the DM fixed income space. We prefer short-termduration bonds, which already offer attractive yields. Froma strictly valuation perspective, we stick to underweight onthis asset class as we do not see the trend reversing yetthis asset class as we do not see the trend reversing yet.

Graphe Default rate

Ollivier CourcierFixed Income Head & Strategist

Source: Société Générale Private Banking, Moody’s

12


VIE

WS

FIXED INCOME CONVICTIONSBANK LOANS: VALUE WITHOUT DURATION

STR

ATE

GY

V

In one of the worst years for fixed income investors, where HIGHLIGHTSto invest has been quite a riddle. High yield spreads arenot far from fair value and investment grade ones are quitelow. In addition, monetary normalization has alreadycreated uncertainty for long term fixed income investors.

Rising yields will undoubtedly impact fixed incomeportfolios. Even if we think the biggest risk lies in the speedof the rise more than in its extent, portfolio managers

| A long-term fixed-income instrument free of interestrate risk

| A better loss ratio than high yield bonds

| A market with an increasing liquidity

p gshould take a closer look at bank loans, as we believe theyare a very interesting tool. Bank loans are, like bonds,obligations to pay the holder interest and principal. Most ofthe time, the borrowers are Corporates that are leveraged.

Those bank loans are privately traded though. Somefeatures makes the asset class an attractive and “rarebeast” in the current environment:

High Yield is more expensive than bank loans

1000

1500

2000

2500

Delta

Leveraged loans (3years) Discount Margin

BofA ML Euro Zone High Yield (Spread to worst)

1/ As their coupons are floating, typically based on LIBORrates, bank loans are a good protection against risingyields.. That means returns will increase with rising yields.

2/ The loss ratio is lower than High Yield. Indeed,probability of default is lower than for High Yield bonds andbank loans being senior to high yield bonds in the capitalstructure and secured against identified assets, they offerhigher recovery in case of default.

Source: Société Générale Private Banking, BofA ML, July 2013Past performance is not an indication of future returns

‐1000

‐500

0

500

2006 2007 2008 2009 2010 2011 2012 2013

higher recovery in case of default.

3/ Finally, liquidity, albeit limited, is increasing in thismarket: banks are under increasing capital constraints ontheir credit books. That encourages them to sell their sub-investment grade exposure to the market, even if of goodquality. The market is therefore offering more and morediversification and constitutes an additional investmentuniverse to the High Yield one.

In the “credit universe”, where yields have been pushed to historic lows by central banks, bank loans offer a good hedgeagainst rising rates. For long term fixed income qualified investors, bank loans, through diversified vehicles, can be aninteresting option because i) their coupon is floating, ii) they have a smaller probability of default and a bigger recoveryrate than HY bonds, iii) the bank loans market is expanding.

13


EQUITY STRATEGY

VIE

WS

STR

ATE

GY

V

UPSIDE STILL EXISTS

140

160

180

200

S&P500

MSCI Europe

Negative real interest rates along with declining economictail risks and improving economic figures are supportingvaluation expansion in developed equity markets. Whilevaluations are less attractive than a year ago, we remainselectively bullish on equities up to the end of the year.

I Our preferences are for cyclicals in the US, value inEurope, and consumer sectors in Japan. We continue tofavour developed versus emerging markets.

Trailing earnings – rebased to 100 in June 2009

80

100

120

140

09 10 11 12 13

FED TAPERING SHOULD NOT STOP THE POSITIVE USMARKET PERFORMANCE

There is a widely held view that the Fed’s easymonetary policy has been one of the most importantdrivers of US stock outperformance and that the endof the asset purchases may put US stocks undersevere pressure. We disagree. Indeed, while USquantitative easing has certainly played an important rolein inflating asset prices the bulk of the US performance

Source: Datastream, IBES, Société Générale Private Bankingin inflating asset prices, the bulk of the US performanceshould be attributed to the strong recovery in US profits.With the S&P500 currently trading at 15x 2013e profits, USequity valuations do not look surprising to us when weconsider that the annualised earnings growth rate hasbeen close to 20% since 2009 (see chart above right). Inaddition, our concerns about Fed tapering remaincontained as tapering to $65bn per month of purchaseswould be the equivalent of announcing QE2. In otherwords we are very far from tightening and expect

Correlation between the S&P500 weekly return and change in the FED’s balance sheet

0 2

0.4

0.6

words, we are very far from tightening and expectaccommodation to reign at least until the end of the year.Our conclusion is that while there is scope for USequities to outperform bonds and other developedequity markets in the months to come, strongereconomic growth resulting in a normalisation ofinterest rates could trigger a more volatileenvironment, but this looks more like a story for latenext year. ‐0.8

‐0.6

‐0.4

‐0.2

0

0.2

07 08 09 10 11 12 13Sector-wise, we continue to favour cyclical over defensivealong with sectors showing positive sensitivity to risinginterest rates such as Financials and Energy (nowOverweight). Among cyclicals, we are buyers of capexsectors such as Information Technology and CapitalGoods.

We recommend taking profits on Chemicals as the sectorwill be weighed down by slower growth and commoditydemand from China ne t ear Rising rates ha e set off

Source: Datastream, Société Générale Private Banking

07 08 09 10 11 12 13

14

demand from China next year. Rising rates have set off“taper tantrums” in high-dividend yielding and debt-burdened sectors, particularly Telecom and Utilities.

I We keep our exposure to cyclicals unchanged.


EQUITY STRATEGY

VIE

WS

EURO PROFITS STILL CONTRACTING

STR

ATE

GY

V

RISING WAGES SUPPORT OUR POSITIVE CALL FOR

While many investors believe that euro equities willcontinue to perform strongly on the back of the latest PMIdata, we remain sceptical about the sustainability of a eurooutperformance. Indeed, we are convinced that a PMIrebound is a necessary condition for profits to improvesubstantially but is not sufficient on its own. Current PMIlevels are enough for EPS growth to stop falling, butfor the revisions to become significantly positiveupgrades in the past we needed higher PMIs in the

JAPANESE CONSUMER STOCKS

Although it is still early to say whether Abenomics isworking, recent developments confirm that for the quartersto come, Japanese stocks may still enjoy ongoing positivenewsflow. Indeed, we have been positively surprised bythe fact that inflation gains traction with signs of risingwages growth in an improving employment market.Strengthening private consumption and increasingdomestic demand reduce our concerns about Japaneseupgrades, in the past we needed higher PMIs, in the

54-55 range. We are still far from these levels and forward-looking PMI components are not encouraging (part of therebound was due to a pick-up in government spending,especially in Spain). In addition we believe that currentvaluations are less appealing than they look. Indeed, whilevaluations are extremely cheap for financials, energy andutilities, all other sectors are already trading abovehistorical averages.

domestic demand reduce our concerns about Japaneseexposure to weakening demand from Asian emergingmarkets. In addition, improved valuations relative to otherdeveloped markets (i.e. Germany, Switzerland) suggestthat the it is time to switch back once again to Japanesestocks.

We continue to Overweight Financials and ConsumerStaples. We now upgrade Telecoms from Underweight toNeutral as sector profit growth is expected to be up 30% in

We increase exposure on Value sectors (e.g. Utilities andEnergy) and downgrade cyclical sectors such asChemicals and Information Technology.

I As profits are still expected to end the year down, wetend to be less positive on euro stocks after the recentstrong rebound.

EARNINGS UPGRADES SHOULD CONTINUE TO

g2013 and the valuation is quite appealing (2013e P/E13.1x).

I Yen depreciation, a widening US/Japanese bond yieldspread, and strengthening domestic demand are theingredients for an explosive stock performance.

Stronger eurozone PMI is a necessary condition for profit recovery but is not sufficient on its own

EARNINGS UPGRADES SHOULD CONTINUE TOPROVIDE SUPPORT TO UK STOCKS

With the PMI standing at the highest level since 2007,improving credit conditions, and housing prices rising, UKstocks may reach a multi-year high relative to non-UKequities. However, one of the main problems UK investorsnow face is that the more obvious UK consumption playsare already trading at premium valuations. With the UKmacro data remaining strong and underpinned by loose 40

45

50

55

60

65

‐30%

‐15%

0%

15%

30%

45%

EZ EPS th (lh %)

profits expansion = PMI > 51.5

ac o data e a g st o g a d u de p ed by oosemonetary policy, we suspect this theme probably hasfurther to run, supported by earnings upgrades.

I We now Overweight Industrial stocks exposed to the UScapex story, and we tend to prefer UK financials to europeers as the former should be sustained by additionalsteepening of the yield curve.

Source: Datastream, Société Générale Private Banking

30

35

‐60%

‐45%

06 07 08 09 10 11 12 13

EZ EPS growth (lhs, %)

PMI ‐ 3m forward

Average PMI

Claudia Panseri

15


Claudia PanseriEquity strategist

EQUITY CONVICTIONSUS DE-EQUITISATION

VIE

WS

Thanks to low funding costs and large cash positions, "de- HIGHLIGHTS

STR

ATE

GY

V

equitisation” has continued unabated in the US. We focushere on one side of the equation: share buybacks. “De-equitisation” occurs when equity markets do not expandeven though nominal stock prices are rising, because thenumber of share buybacks and cash-financed M&Aoutpace the number of IPOs and secondary shareofferings. This phenomenon has clearly been more visiblein the US since 2009, as in that interval, companies havebought back more than 10% of average market cap.

| The “de-equitisation” process is still underway,sustained by large cash piles on company balancesheets.

| The most represented sectors in the share buybackuniverse are Consumer Discretionary, Health Careand Financials.

However, while the level of buybacks is historically high inabsolute terms, the amount of cash returned toshareholders is rather low given the level of corporateprofits. Corporate cash return as a percentage of netincome is currently around 45% of profits, the lowest levelof the past 10 years. In 2007, companies distributed closeto 100% of profits via buybacks and dividends.

| Companies buying back shares tend to be strongperformers.

Share buybacks ($bn)

160

180

600

700

Given the large cash piles on company balance sheetsand the low level of distribution relative to realised netincome, we think companies will continue to return capitalto shareholders via buybacks. Consequently, werecommend tilting global equity portfolios towards sharebuybacks. In our experience, companies buying backshares tend to be strong performers. The S&P500 sharebuyback index has posted a total return of about 250%since January 2001 vs only 60% for the S&P500.

0

20

40

60

80

100

120

140

0

100

200

300

400

500 US

Europe (rhs)

y y

We observe that the most represented sectors in the sharebuyback universe are Consumer Discretionary (mostlyMedia and Retail companies), followed by Health Care andFinancials.

Source: Société Générale Private Banking

001998 2000 2002 2004 2006 2008 2010 2012

As companies that announce share buybacks tend to outperform the overall market and offer a share price floor whenmarkets become more volatile, we suggest tilting global equity portfolios towards share buybacks, especially in the US.These companies are traditionally characterised by net cash positions and above-market cash yields (free cash flow yieldminus dividend yield).

16


EMERGING MARKETS STRATEGY

VIE

WS

STR

ATE

GY

V

COUNTRIES WITH CURRENT ACCOUND DEFICIT ARETHE MOST IMPACTED

Since late May, when the first hints of Fed tapering talk

We should not forget that recent FX weakness coincidedwith USD weakness (down nearly 1% against the EURduring the same period). Thus, if we consider the viewthat the USD is headed for a broad-based uptrend, the

materialised, investors have withdrawn nearly $6bn from EMbond and equity funds. The fact that this coincides with anarrowing EM-DM growth differential as 1) China slows; 2)commodity prices wave goodbye to their golden era; and 3)global demand remains moderate at best means not onlythat EM are looking less attractive than their DMcounterparts, but also that this is happening just as cash isbecoming scarcer. For this reason, countries with thegreatest external borrowing needs (aka current account EM Asset Performance (total return)

that the USD is headed for a broad based uptrend, theargument for EM FX appreciation becomes all the harderto make.

I We see continued downside in most EM FX. A selectfew, including the MXN, RUB, and PHP, may proveresilient.

deficit, or CAD) are being particularly ‘punished’. Theyinclude Brazil, India, Indonesia, South Africa, and Turkey,dubbed by one bank the “Fragile Five”. Yet, EM downsiderisk remains across the board over the coming months (weaccept that some outliers will surface) as economies andmarkets continue to adjust to a world with less money.

I Emerging markets have come under pressure as the entireasset class adjusts to rising borrowing costs in a soon-to-bepost-QE world

EM Asset Performance (total return)

110

120

130MSCI EM ML EM CORPO ML EM GOV

post-QE world

EM CURRENCIES: ONGOING DEPRECIATION

EM currencies have lost more than 7% in aggregate (vs. theUSD) since May, begging the question whether the sell-offis now due for a reversal. To which we would respond:perhaps, but not yet, and not across the board. First, let’slook at the winners and losers from the recent sell-off.India’s rupee (INR) lost as much as 28% before tracing backto its current level ( 17%) making other EM look like


90

100

2010 2011 2012 2013

to its current level (-17%), making other EM look likeoutperformers. Yet, unsurprisingly, the IDR, BRL, TRY, andZAR are next in line, each down more than 10%. Whilesome near-term pullback is possible, more depreciation islikely given the need for further rebalancing, and we wouldthus sell these FX on strength. Yet, most CA-surplus EMcurrencies are also weaker. So it would appear that manyEM are being unfairly punished for the weakness of themore vulnerable few; they could thus be poised to reboundin the months ahead These include the RUB supported by

Investors Leaving EM (% change AUM)

115

120

125

130

INR BRL ZARTRY IDR MXNRUB PHP KRW

depreciatingin the months ahead. These include the RUB—supported byhigher global oil prices and relative low foreign ownership ofdomestic markets — and the PHP — given strong macrofundamentals. The MXN may also have room to strengthen,since Mexico is positioned to benefit most from the USgrowth upswing.

Source: Bloomberg Société Générale Private Banking

90

95

100

105

110

115

mai-13 juin-13 juil-13 août-13 sept-13

appreciating

17



VIE

WS

EMERGING MARKETS STRATEGY

STR

ATE

GY

V

EM EQUITIES: ASIA TECH AND RUSSIA ENERGY THEONLY SWEET SPOTS

In sovereigns, fundamentals are likely to favour Mexicoand Russia Russia’s recent Eurobond issue ($7bn) wasONLY SWEET SPOTS

Given the uncertainty regarding additional adjustments stillneeded for CAD countries to address their imbalances—and the impact policy tightening could have on theirbanking and consumer sectors—we remain globallynegative on EM equities. Exceptions to this stance can befound, however, in those countries with lower overallvulnerability to higher DM interest rates: those with currentaccount surpluses. If we also consider the current pickup

and Russia. Russia s recent Eurobond issue ($7bn) was3x oversubscribed, showing that there is cash out there tobe put to work.

I Pressure may continue over the coming months for EMfixed income, but valuations have become more attractivefor sovereigns while corporates still benefit from lowdefault rates and (for some) a more competitive landscape.

of DM PMIs, and particularly the (albeit moderate) pickupof US growth, Korea and Taiwan (tech-related sectors)stand out as likely outperformers in the coming months.Russia also remains relatively insulated from rising interestrates, is seeing signs of disinflation which could pave theway for monetary easing, and strongly benefits from higherglobal oil prices. Consequently, we also see upside inRussian energy.

I Remain cautious on EM equities except in Asia tech and

Investors Leaving EM (% change AUM)

Thailand

South Korea

RussiaPoland

Philippines

Mexico

MalaysiaHungary

China

12

‐8

‐4

0

4

8

‐8 ‐3 2 7

CA/GDP

YTD Performance

I Remain cautious on EM equities except in Asia tech andRussian energy, where fundamental strength and theexternal backdrop are supportive and valuations relativelyattractive.

EM FIXED INCOME (HARD CURRENCY): PRESSUREMAY CONTINUE DESPITE ATTRACTIVE VALUATION

EM hard currency bond funds (corporate and sovereign)have recorded 16 consecutive weeks of outflows, totalling$12bn and equal to 12% of AUM impacted by the

Source: HSBC, Société Générale Private Banking

Turkey

South Africa

RussiaMexico

Indonesia

IndiaCzech

Republic

Brazil‐28

‐24

‐20

‐16

‐12

$12bn and equal to 12% of AUM, impacted by theunwinding of carry trades. Even if the long-term trend forEM bonds remains attractive—given still strong EMgrowth, deeper inter-EM trade links, and ongoing marketdevelopment—near-term stress from tighter globalfinancial conditions could reveal some of the asset class’sweaker players. Issuance is expected to pick up in thecoming months given the backlog created during summer,but supply will be cushioned by a pick-up in redemptions,particularly in early 2014

EM Sovereign BBB vs. US Corp BBB (bps spread)

150-100-50

050 EM BBB - US Corp BBB

particularly in early 2014.

EM corporates offer entry points for investors willing to dotheir homework. We recommend short duration bonds asspreads remain attractive, and we like “blue chips” withlocal currency costs and FX revenues, public banks,Russia corporates, and Chinese SOEs. Stay cautious onLatam given ongoing US investor unwinding and longerduration. Still, with investors arbitraging between EM andDM corporates (ratherthan inter-EM), recent EM corporate Source: BoAML Société Générale Private Banking

-400-350-300-250-200-150

06 07 08 09 10 11 12 13

18

p ( ), poutperformance vs. sovereigns is likely to stabilise.

Source: BoAML, Société Générale Private Banking


Kim March Emerging markets strategist

ALTERNATIVE STRATEGY

VIE

WS

Oil i & ISMCOMMODITIES : NEUTRAL

STR

ATE

GY

V

Oil price & ISMEnergy (oil): Positive (WTI Spot: $109, 3m: $105, 6m:$110). Oil prices are inflated by at least $5-10 ofgeopolitical risk premium, nevertheless, oil should continueto behave well in the wake of accelerating US andJapanese activity. Indeed, with recent energy crisis inJapan and the recent closing of the last nuclear facility,Japan supplanted China as the marginal buyer of oil (andgas). Energy prices will remain high as long as Japanesegrowth is positive.


growth is positive.

I Therefore, the spot price could appear expensive, but the12-m forward is cheap as it does not reflect our globalGDP expectations for 2014.

Gold: Negative (Spot: 1386, 3m: $1200, 6m: $1150). Ona tactical basis, the context of rising yield has not beenfully reflected in gold price, especially over the last month.

Gold & US real yieldsIndeed, gold rebounded by about $150 from its lows.Tensions on the physical market seems to have cut shortsome investors, but now the downtrend in price shouldresume. We expect real rates to still drive gold trendbecause the monetary nature of gold still prevail over thephysical commodity market, even if gold might sometimesbehave strangely in the midst of Emerging Marketsslowdown.

I In that respect gold still faces serious headwinds


I In that respect, gold still faces serious headwinds,because even with a pause in the rising yields, the trend isupward. Therefore investors will have to wait for at least ayear before gold could make a comeback as a safetycurrency in a time of monetary experiments.

HEDGE FUND : POSITIVE

Hedge Fund (HF) performances have been curbed byg ( ) p ymonetary actions over the past 3-year because assetprices patterns were altered by unpredictable exogenousfactors. Now, on-going monetary normalization shouldenable HF managers to regain the performance abilities oftheir strategies.

I Looking forward, the context seems extremely favorablefor HF with three factors that have proven very supportivein the past: Steep yield curve, rising equity markets andactive corporate activity (Buybacks M&A)

19

active corporate activity (Buybacks, M&A)


MAJOR RISKS

VIE

WS

STR

ATE

GY

V

We envision three main downside risks and two upside risks Some risks could hurt ourWe envision three main downside risks and two upside risks. Some risks could hurt ourpositions, but most of our current tactical bias tend to mitigate downside risks.

Oil shock. Oil prices spike led by geopolitical developments and derail US recovery, oiljumps to $115-130. Stock drop by 5-10%, with energy stocks outperforming all advancedmarkets.

► Overweight Energy stocks, and buy energy commodities to profit from forward curve inbackwardation and build with a hedge on crisis.

China collapses and contagion is global. EM markets drop a further 30%, global riskyassets drop by 20-30%, base metals collapse by 50%. Other assets (USD, UST, gold)have random behaviour as China could liquidate its own positions, but volatilityunambiguously jumps.

► Avoid expensive European exporters, and reduce exposure to EM Asian corporatecredit. Hold long volatility positions instead of being short.

Interest rates shock. US 10-year rates overshoot towards 4%. US Housing recovery ishalted, corporate stop releveraging. Stock markets drops by 10%-15%, EM assets bleedsfurther.

► Remain long USD, underweight EM assets (FX), and underweight interest-sensitive USstocks.

Eurozone accelerates beyond expectations, happen to be immune from EM slowdownand/or benefit from ECB pro-active policy and surpass 1% GDP growth in 2014 Europeanand/or benefit from ECB pro-active policy and surpass 1% GDP growth in 2014. Europeanstocks jump beating all markets by at least 5-10% by yearend!

► No simple hedge. Take the risk of suffering opportunity cost of 50bp at worse (5%outperformance potential x 10% active weight)

Emerging economies resume growth after active policy-mix and lower US rates.China rebounds and lift Asian and Latam suppliers! EM stocks, carry currencies, metalcommodities reboundcommodities rebound.

► No hedge. Portfolio with risky assets will benefit indirectly, and will at most suffer from100bp opportunity cost (10% outperformance x 10% weight)

20


FOLLOW-UP ON CONVICTIONSConvictions Horizon Current

positionSummary Opportunities

p

US CAPEX TO RECOVER

Tactical Open With the US economy gaining momentum,we reiterate our conviction that US sectorslinked to capital expenditures (Capex)should outperform by the end of the year.

Sector-wise, Overweight US business capex Information Technology and Industrials.High Free-Cash-Flow and low dividend yield companies perform better than Income names when capex recovers.

ASEAN EQUITIES

Strategic Hold The recent outflows out emerging marketsequity funds have increased the risks in theshort-term. However, in the long-term thestructural change in the Chinese’ role and

Strategically we still like EM Asia relative to Latin America and EMEA.We continue to prefer Thailand and Malaysia to Indonesia and Philippines Outside the EMstructural change in the Chinese role and

the lowering commodities prices are keyfactors sustaining ASEAN countriesperformance especially relative to otherEmerging Markets.

Indonesia and Philippines. Outside the EM universe, we are Underweight Singapore.

BOJ: TIMELY SUPPORT FOR EM LOCAL MARKETS

Strategic(>1 year)

Hold The imminent Fed tapering has driven upglobal interest rates, leading to sharpoutflows from EM asset classes, weighingnotably on EM local currency debt. Yet,institutional support remains for the assetclass, which continues to expand and

f

While EM local markets investments remain an attractive long-term investment, near-term downside is likely to continue weighing on the asset class., arguing for caution over the coming months.

remains a diversification play.

THE REVIVAL OF THE BANK LOAN MARKET

Strategic Open Fixed income investors need to mitigate partof their portfolios against rising yields anddeterioration of fundamentals of issuers.Bank loans meet both needs.

This is an expert market: invest through funds.That also optimizes liquidity.Prefer Europe to the US (better fundamentals).

COMMERCIAL REAL ESTATE: RESILIENT YIELD

Strategic Open As fixed income returns have meaningfullycome down, investors venture beyondtraditional bonds markets to meet their fixedreturn objectives. Commercial real estate

Alternative to traditional fixed income investments.Prefer core European markets with good economic prospects and/or appeal to foreign investors.Robust and inflation-linked yields but lower liquidity

markets look appealing as offering apotential defensive profile, long termvisibility and a hedge against inflation.

obus a d a o ed y e ds bu o e qu d ythan financial investments.Diversification tool.

AUSTRALIAN CREDIT IS A SHELTER

Tactical Open Currency hedged corporate Australiaperformed well vs. over DM markets overthe summer. Going forward, slow growthand the likelihood of additional monetaryeasing should continue supporting the call.

Prefer the banking industry for technical reasons (lower supply).Look at Kangaroo bonds too (foreign corporate issuing in AUD).

INVESTMENT See Fixed income strategy As Central Banks maintain low rates and Investment grade is too richINVESTMENT GRADE: TOO EXPENSIVE

See Fixed income strategy As Central Banks maintain low rates andmassive liquidity, the hunt for yield has ledto record low yields for IG markets. In acontext of most likely reduced liquidity goingforward with Fed tapering and better growthprospects, long term yields should continuerising. IG spreads will not offset that.

Investment grade is too rich.Stay short duration if fixed rates.Prefer floating rate notes.Within Investment Grade, find value in niche markets .

RESILIENT GROWTH STOCKS STILL BUBBLY

Tactical Closed Rising fears about the end of the Fed’stapering coupled with the recent weaknessin emerging markets currencies areincreasing the risk of sell-off on those

We close the strategy as expectations of changes in the US monetary policy may negatively impact the performance of the resilient growth universe.

gsectors negatively correlated to bond yieldsand with high sales exposure to EmergingMarkets (Consumer Staples).

LATAM: ENJOY THE COUPON

Strategic Hold Long-term fundamentals of the region aresound. The Latam market is correlated tothe US. We have a constructive view on theUS and do not see material risk on the USTcurve. Latam credit offers the mostattractive yield.

Credit work is very importantReserved for buy and hold investors

Convictions have either a Tactical horizon (3 12 months) or a Strategic horizon (1 3 years) the current position refers to our liking at the current time thus

21

Convictions have either a Tactical horizon (3-12 months) or a Strategic horizon (1-3 years), the current position refers to our liking at the current time, thus they are Open then Closed and removed from the list. For the Strategic Convictions, we consider an additional ‘Hold’ position, when we consider the theme still valid over its stated horizon, but the current conditions are not ideal to enter/sell the position now.


VIE

WS

GLOBAL ECONOMIC OUTLOOK LOOKING UNDER THE HOOD OF RECOVERY

EC

ON

OM

IC V

Summer 2013 broke the gloom of recent years with overall favourable economic news.Looking under the hoods of the major economies, the engines for sustainable recovery are invery different conditions. The US is in best shape; with growth set to shift above trend, Fedtapering is the correct response but monetary conditions will still remain exceptionallytapering is the correct response but monetary conditions will still remain exceptionallyaccommodative. The UK comes in second, although austerity must continue and thegovernment’s housing measures risk exacerbating the economic imbalances. In the euroarea and Japan, there is potential for a strong recovery, but politics will determine whethersustainable recovery is achieved. The Japanese government should couple the consumptiontax hike with new stimulus to keep recovery on track. In the euro area, recovery in globaltrade and improved financial conditions were not the only factors lifting GDP; also fiscalausterity was eased. Key now is whether this is allowed to continue after the Germanelection on 22 September. Our call is for some return to austerity, albeit spread out over alonger period Financial fragmentation remains a further headwind; breaking the sovereignlonger period. Financial fragmentation remains a further headwind; breaking the sovereign-bank doom loop is possible, but we remain concerned that the ECB’s Asset Quality Review(AQR) and subsequent stress test will not deliver the hoped-for catalyst. A final concern isthe loss of reform momentum in Italy. Our central scenario remains one of stall-speed growthfor the euro area, dissuading the ECB from any tightening. Turning finally to emergingeconomies, the common factor is tighter credit conditions. Nonetheless, as illustrated by ourforecast growth trajectories in the table below, these vary greatly by country. This reflects thedifferent quality of economic balances, domestic policies and trade ties to advancedeconomies. It’s no longer all about China!

For recoveries to be sustainable, a certain number of conditions must be in place; investorswould be well advised to look under the hood of recoveries before drawing investmentconclusions. This is the central theme of our new Global Economic Outlook centred on fiveanchor themes and introducing full coverage of Chile.

1. Mixed quality of recovery engines: Gauging the near-term outlook for the advancedeconomies, recent data suggest a stronger trajectory than we forecast in our previous GEOand most notably for the euro area. The quality of recovery engines is mixed, however, andwhile the basis for sustainable recovery is in place for the US, this is not yet the case for theeuro area. For the emerging economies, on the other hand, our forecasts remain broadlyunchanged and, if anything lower at the margin. A headwind from tighter liquidity conditionswas already factored into our previous forecast and this has not changed.

2. Sustainable euro area recovery needs sustainable politics: The German elections on22 September mark the next pivot event for the euro area. Opinion polls suggest the currentgovernment continuing in office, although the race has narrowed in recent days. For the euroarea this means further austerity to come, a focus on structural reform, no significant debtforgiveness and little appetite for debt mutualisation. Near-term, the economic data shouldcontinue to see good momentum, however, in the course of 2014 we expect to see the euroarea to become trapped at stall-speed. Against this backdrop, the ECB is set to keepmonetary policy accommodative with a likely boost from a new LTRO. We see the first ECBrate hike only in 2016.

3. Tapering ahead of above-trend US growth: Conditions for sustainable recovery are inplace in the US and we expect growth finally to break above trend in 2H13. Standing in starkcontrast to the euro area, the US headwind of private sector deleveraging is now in the pastand credit channels are back in working order. Furthermore, policy uncertainty has declined

22

and the housing sector is now a tailwind. Excluding the drag from fiscal policy, underlyinggrowth is well in excess of 3.5%. The launch of Fed tapering is imminent and we expect thisto be quick with Qe ending in March 2015. We see the first rate hike in mid-2015.


GLOBAL ECONOMIC OUTLOOKLOOKING UNDER THE HOOD OF RECOVERY

VIE

WS

4 Trading places: Spillover to emerging markets from Fed taper talk is already having a

EC

ON

OM

IC V

4. Trading places: Spillover to emerging markets from Fed taper talk is already having avery visible impact on a number of emerging economies and the downside fears that longplagued advanced economies appear to be shifting to the emerging universe. Already,central banks in Brazil, Indonesia, Turkey and India have taken action to defend theircurrencies. Our central scenario assumes that a full blown emerging market crisis can beaverted thanks to overall better fundamental balances, but risk features an importantdownside risk to our outlook.

5. Easy money, waiting for the credit: We return in our final anchor theme to monetarypolicies and credit in the other advanced economies Our key call is that while some recoverypolicies and credit in the other advanced economies. Our key call is that while some recoveryin lending is in prospect in the UK (mortgage growth fuelled by the Funding for Lending andHelp to Buy schemes) and Japan following in the footsteps of the US and helping to underpinrecovery, the sovereign-bank doom loop will continue to haunt the euro area periphery withrepair coming only very slowly as the ECB’s AQR will lack sufficient tangible supportmeasures from governments.

Risks have become more balanced for the advanced economies, but shifted to the downsidefor emerging economies. As the Fed prepares to taper, the focus is on US Treasury yields. Itwould take a substantial upward leap in US Treasuries to make the Fed reverse its strategy.would take a substantial upward leap in US Treasuries to make the Fed reverse its strategy.

In emerging economies, risks have clearly shifted to the downside and notably for the BIITS(Brazil, India, Indonesia, Turkey and South Africa). Geopolitical tensions, moreover, add tothese downside risks via the oil price channel. We see only a temporary spike from Syria,assuming there is no significant contagion. In China, the risks centre on the credit channelsand taming of the shadow banking sector. A hard landing for China would see a hard landingfor the global economy too.

The state of credit channels for the euro area holds both upside and downside risks and thisThe state of credit channels for the euro area holds both upside and downside risks and thisis also true for political decisions in broader terms when it comes to debt sustainability,austerity, structural reform, and fiscal and banking union. Consequently, we see risks asmore balanced for the euro area growth outlook in the short term. The risk of “pretend,extend, spend” lifts growth near term; medium term this would increase risks as public sectordebt loads continue to grow.

In Japan, the consumption tax hike forecast for October 2014 is viewed with trepidation as itbrings back memories of the previous hike in 1997 which ultimately proved to be a policymistake. It is a risky move and will require a fine tuning of offsetting policy measures to bemistake. It is a risky move and will require a fine tuning of offsetting policy measures to besuccessful.

Michala MarcussenChief economistSG Cross Asset Research

23


SG Cross Asset Research

REGIONAL ECONOMIC OUTLOOK

VIE

WS

EC

ON

OM

IC V

Eurozone

The euro area has emerged from recession and the gains inbusiness confidence indexes have been impressive sinceMarch. However, like ECB President Draghi, we remaincautious about a recovery.

Political decisions are key to the economic outlook. Austerityeased in 2013, but we believe euro policy makers won’toverlook public finances and structural reform in 2014,preferring the trade-off of making progress on euro area

US

We believe that structural headwinds to growth are quicklydissipating. Specifically, we assume that:•Housing is now a tailwind to growth, both via residentialinvestment and knock-on effects from rising home prices•Business investment will be supported by reduceduncertainty with regard to fiscal policy and•The effects of fiscal consolidation on growth have alreadypeaked and will diminish going forward.If our assumptions are proven correct, GDP growth should preferring the trade off of making progress on euro area

integration. Policy uncertainties remain high. Absent a fast-tracking of the banking union, financial fragmentation willremain high and the deleveraging process will weigh oneconomic activity.

gaccelerate meaningfully starting in H2 2013, marking thebeginning of a multi-year period of above-trend growth.

Europe excl. Eurozone

f

Other advanced2012 GDP Breakdown

UK: The forward guidance knockouts do not look verydemanding so pressure for an earlier start to the tighteningcycle than the Bank of England is signalling is most likely tocome from the unemployment rate.No tightening of fiscal policy before the election: If, as weexpect, the OBR in the Autumn Statement assesses there tobe more fiscal slippage the government will only add furtherausterity in the years beyond the 2015 general election.Help To Buy stimulates growth but does not cause a bubble:The combination of the Funding for Lending and Help To Buyschemes is stimulating the housing market. House priceinflation will accelerate but the market is unlikely to overheat

Japan: Thanks to Abenomics, we believe that Japan willgradually exit from deflation. Recent economic indicatorshighlight strength in the Japanese economy. So farAbenomics is on the right track, but for the Japaneseeconomy to move further towards a lasting exit fromdeflation, recovery in corporate activities is essential, as thisleads to expansion in aggregate wages. Flexible fiscal policy(the “second arrow of Abenomics”) as well as a long-termgrowth strategy (the “third arrow”) and further yendepreciation will determine the success of Abenomics. Wepredict that corporate deleveraging which had been thecause of deflation is likely to end in 2016, and Japan willat o acce e ate but t e a et s u e y to o e eat

significantly at the national level.

China

Reforming China in highly challenging times. The globaleconomy is expected to grow slower than in previous

cause o de at o s e y to e d 0 6, a d Japafinally exit from deflation.

EM excl. China

Brazil: Higher passthrough inflation notwithstanding, BRLdepreciation seems to be delivering what policy makers havelong craved – competitiveness in external markets andeconomy is expected to grow slower than in previous

decades for a prolonged period of time. Against thischallenging backdrop Chinese policymakers have to pushthrough economic reform in order to avoid an economic hardlanding and/or devastating social instability. As we expected,China’s new leaders have shown a great deal of awarenessto the fact that the sensible goal is to steer for relatively lesspainful deceleration, rather than to sustain fast growth ratesat the cost of deteriorating economic efficiency. However,given the ingrained structural weaknesses of high corporateleverage and large-scale excess capacity, downside risk willpersist and a bumpy landing remains our central scenario.

long craved competitiveness in external markets andinvestment growth. Investment cycle will moderate, yetrescue domestic demand which is facing high inflation,resulting in interest rate hikes and decelerating consumptiongrowth.

Russia: Faced with weak external demand as well asstagnating investment and decelerating consumer activity,the Russian economy performed very poorly in H1 13.Persistent headwinds imply only modest recovery in H2 13.The stagnating growth environment has increased pressureon the government and the CBR to adopt pro-growthpolicies

24

policies.

Source: SG Cross Asset Research/Economics


KEY ECONOMIC ISSUESCHINA DELEVERAGING

VIE

WS

It is no longer surprising to most people that China has ad bt bl Th bi t t d i l t 2008 h

EC

ON

OM

IC V

More credit for less growth: a larger role for non bankdebt problem. The big run-up started in late 2008 whenChina embarked on a steep leveraging path to keep thegrowth engine running with a torrid level of fixed-assetinvestments. According to our estimate, China’s debt levelhas risen sharply to 200% of GDP from less than 140%only six years ago, a 20% growth per annum. Corporatesand local government financing vehicles (LGFVs) haveaccounted for nearly all the increase in China’s overallleverage, as this sector’s debt load is now approaching150% f GDP d i bl hi h l l b

More credit for less growth: a larger role for non bankcredit

150% of GDP – an undeniably high level by anystandard.Accompanying the phenomenal debt rise is an ever-largerscale of capital misallocation, resulting in a trend ofdeclining investment returns. At the macro level, theChinese economy now has to invest almost twice as muchas it did five years ago for each extra yuan of real output.At the micro level, we notice that listed companies haveseen persistent declines in their return on equity as well as

Source: PBoC, CEIC, SG Cross Asset Research/Economics

profit margins. One new development that has further exacerbatedChina’s debt risk is the increasing role of non-banklending, i.e. the corporate bond market plus the shadowbanking system. Shadow bank lending is comprised oftrust loans, entrust loans, nonbank financial institutions’lending and formal banks’ off-balance-sheet lending.Credit supplied by these channels is now equivalent toover one-third of formal loans and nearly half of GDP, afterfour years of break-neck growth. China’s shadow banking

China’s unprecedented leveraging since 2008

system has become an important short-term creditprovider for corporates – and thus can pose a materialliquidity risk to the entire financial system.

The new leadership seems well aware of the debt risk andhas started trying to deflate the credit bubble in acontrolled manner. We can see three parts to this strategyof slow deleveraging.


STIFLING DEBT SERVICE BURDENRising debt load and declining efficiency have put China’sdebt service ability into serious question.The corporate sector’s debt service cost has risen to astifling level of nearly 40% of GDP, higher than that ofmany economies when they were headed towardsfinancial crises. There may be a non-negligible share of


25

financial crises. There may be a non negligible share ofthe corporate sector unable to repay either the principal orinterest and we think non-performing debt may reach asmuch as 15% of China’s total borrowing or 30% of GDP;



KEY ECONOMIC ISSUESCHINA DELEVERAGING

VIE

WS

The first part is to slow new credit growth so the debt riskwill accumulate at a slower pace Since the beginning of

EC

ON

OM

IC V

The third part is to really start writing off non-performingt th t th b ffi i twill accumulate at a slower pace. Since the beginning of

the year, the People’s Bank of China and financialregulators have issued a slew of policy-tighteningmeasures designed to limit the supply of easy liquidity fromthe interbank market for speculative uses and riskyshadow banking activities. In early June, interbank liquidityconditions started to tense up as these measures tookeffect. The PBoC adopted a tough stance and held offliquidity injection, which resulted in unprecedented interestrates spikes Liquidity conditions have been kept at a

assets so that the economy can become more efficientand more able to pay back debt. First, provinces havebeen permitted to set up provincial asset managementcompanies (AMCs) to help local banks dispose of non-performing loans (NPLs).

The aforementioned strategy to deflate the credit bubblehas a chance of helping China avoid a full-blown bankingcrisis in our view. Nevertheless, the fiscal cost will not berates spikes. Liquidity conditions have been kept at a

relatively tight level ever since and total credit growth hasslowed significantly.

c s s ou e e e t e ess, t e sca cost ot below and the execution will be prone to downside risks. Thedeleveraging process that China will have to go throughwill be painful no matter what scenario unfolds.

Easy liquidity conditions no more

A significant part of the bad debt will still need to be rolledover to buy time for restructuring. The second part is tospeed up some financial innovations in order to lower thedebt service burden on corporates and alleviate some ofthe rollover pressure on banks.


We think the central government will particularly focus onfinding alternative funding sources for infrastructureprojects. We expect the local government bondprogramme to expand quickly. In addition, loansecuritisation experiments will be strongly favoured as away to free banks from footing long-term low-returninvestment lending.

26



PERPECTIVE FROM A GREAT INVESTOR

RN

ER

EX

PE

RT

CO

R

Discussion with Bill Gross past 30 years as the total return of long-term bonds

PIMCO Founder and Co-Chief Investment Officer

Societe Generale Private Banking: Has the great bulltrend of fixed income ended in 2013?

Bill Gross: In 1980, the Federal Reserve, led by PaulVolcker, tightened the quantitative noose to tame double-digit inflation, fueling an unprecedented tailwind for bondprices. Thirty years later we find ourselves at the otherextreme While we are not likely to see a repeat of that type

equaled and even exceeded the performance of stocks formuch of the time period. Yet predictions of a great rotation,or a mass flight from bonds into equities, have simply notbeen borne out, though some investors have increasedtheir allocations to cash.

In short, a significant portion of an institutional orindividual’s portfolio will always require bonds. Insurancecompanies, pension funds – all institutions with liabilitystructures that require matched asset hedging require fixedextreme. While we are not likely to see a repeat of that type

of bull market any time soon, we also do not believe we areat the beginning of a bear market for bonds. Rather, whatwe’re seeing is the continuation – and acceleration, insome respects – of the deleveraging process.

Central banks have reached a critical inflection point inwhich the negatives of their aggressive policies may beoutweighing the positives and in fact hampering growth.Where their monetary repression has succeeded, however,

structures that require matched asset hedging require fixedincome assets on the other side of their balance sheet. Therecent several months’ experience of higher yields was, infact, a blessing for them, as their future liabilities went downfaster than the price of their bond assets did.

y pis in forcing investors to take increasing amounts of risk,but for lower yields and more volatile returns. This hasaccounted for a good degree of the surge in stock pricessince the crisis of 2008.

Fixed income investors are concerned about their priorconceptions of bonds as an asset class – an asset that hashistorically provided reliable income and stable to higherprices. This concept has been more than validated over the

27


RN

ER

EX

PE

RT

CO

R

Demographics is another factor: Millions of baby boomers yields and will continue to do so for some time – the Fedwill be headed toward retirement over the next 16 years orso. Their memories of 2008 are still fresh and they can’ttolerate another sharp stock decline. So they’re seeking therelative steadiness of fixed income; the bumps along theway, as we saw this May and June, don’t compare to thepeaks and troughs of stocks.

SGPB: Where would you invest your money over thenext 10 years?

may taper but we expect the federal funds rate to stay put.Another is a global economy that’s going to grow moreslowly and less smoothly than it did over the past decade.Wages continue to be dampened by globalization.

BG: While it’s natural to want to reach for higher returnsover a long time horizon, an investment strategy’s successdepends on carefully weighing potential rewards againstthe long-term costs, using the insights you’ve gathered onthe ground and on a macro level through rigorous analysis.Fortunately, PIMCO has a wide array of tools at ourdisposal to accomplish that. There are ways to navigatechallenging markets without feeling stuck. One is to expandyour investment universe by going global. Here at PIMCOwe like to say that there is no “bond market,” but rather “amarket of bonds.”

Today, given the economic uncertainty and rich marketvaluations, the fortitude to wait for more attractiveopportunities is a valuable attribute. Sensible goals fortoday’s investment strategy are to enhance dry powder,seek prudent alpha and reduce risk – not dramatically, butto average or slightly below-average levels. In a marketenvironment such as the one we’re currently navigating aenvironment such as the one we re currently navigating, arisk management priority becomes even more essential.

These days bond investors should focus on “safer” front-end positions in Treasuries or credit space because of theFed’s shift to forward guidance. Reducing maturity,however, is not the only potential strategy for thisenvironment; in fact because of near 0% money marketyields, at times it may be counterproductive. By focusing on“carry” and its diversifying characteristic components, abond manager can help protect against downside risks.Total carry, or total yield, consists of maturity extension,credit spreads, yield curve differences, volatility, andcurrency components.

SGPB: Do you feel that current QE (quantitative easing)and ZIRP (zero interest rate policies) will have negativelong-term consequences by destroying savings returnand future pensions?

28

BG: Investors need to accept a number of new realities andthen try to make the most of them as they plan for thefuture. One reality is the prolonged period of financialrepression that has punished investors with negative real


RN

ER

EX

PE

RT

CO

R

Demographic trends, notably the aging of our society and practicing yoga, I become aware of the relationshipsthe retirement of the Baby Boomers, will lead to a lowerlevel of consumer demand. And then there’s the raceagainst the machine; technology continues to eliminate jobsas opposed to provide them.

Asset and currency prices ultimately rest on the ability of areal economy to grow. If growth cannot be boosted bymonetary or fiscal policy, then portfolio strategies shouldacknowledge bite-sized future returns and the growing riskof disruptive financial markets at some later point

between my emotional, mental, and physical levels. It’s likea complete massage for all your body parts, inside and out.And because of yoga, I am better equipped to sift “thenoise” from “the facts” of an investment or a situation, andremain relatively calm doing so.

Biography : William H. Gross, CFAMr. Gross is a founder, managing director and co-CIO ofPIMCO based in the Newport Beach office He has beenof disruptive financial markets at some later point.

Investors, be they individuals or large institutions, need tonotch expectations appropriately and save more, and forlonger.

Our global financial system at the zero-bound isdesperately attempting to cure an economy that requiresstructural as opposed to monetary solutions. We areconcerned by the growing downside of zero-basedmonetary and QE policies – among them a worrisome

PIMCO based in the Newport Beach office. He has beenwith PIMCO since he co-founded the firm in 1971 andoversees the management of more than $1.9 trillion ofsecurities. He is the author of numerous articles on thebond market, as well as the book, "Everything You’veHeard About Investing is Wrong," published in 1997.Among the awards he has received, Morningstar namedMr. Gross and his investment team Fixed Income Managerof the Decade for 2000-2009 and Fixed Income Managerof the Year for 1998, 2000, and 2007 (the first three-time

distortion in asset pricing, the misallocation of capital andultimately a dis-incentivizing of risk-taking by corporationsand investors. Never (as I tweeted recently) have investorsreached so high in price for so low a return. Never haveinvestors stooped so low for so much risk. Near-zero-basedinterest rates and QEs that have lowered carry and riskpremiums have stabilized real economies, but not returnedthem to old normal growth rates. Zero-bound yields deprivesavers of their ability to generate income, which in turn

of the Year for 1998, 2000, and 2007 (the first three timerecipient). He received the Bond Market Association’sDistinguished Service Award in 2000 and became the firstportfolio manager inducted into the Fixed Income AnalystsSociety's hall of fame in 1996. Mr. Gross is a nine-timeBarron's Roundtable panelist (2005-2013), appearing inthe annual issue featuring the industry's top investmentexperts, and he received the Money Management LifetimeAchievement Award from Institutional Investor magazine in2011. In a survey conducted by Pensions and Investments

limits consumption and economic growth. Perhaps whenyields, carry and expected returns on financial and realassets become so low, then risk-taking investors turninward and more conservative as opposed to outward andmore risk-seeking.

SGPB: What are the 3 qualities that you believe madeyou successful for so long?

BG: On the walls of my office are three pictures: J.P.

2011. In a survey conducted by Pensions and Investmentsmagazine in 1993, he was recognized by his peers as themost influential authority on the bond market in the U.S.He has 43 years of investment experience and holds anMBA from the Anderson School of Management at theUniversity of California, Los Angeles. He received hisundergraduate degree from Duke University.

Morgan, who taught me that it is character, not assets, thatcounts most; Jesse Livermore, who taught me that it isimportant to “know thyself”; and Bernard Baruch, whotaught me that no matter what, “2 and 2 will always equal 4”… and that no one has ever invented a way to getsomething for nothing.

SGPB: How do you manage the pressure of yourresponsibilities?

29

BG: Focus is a huge part of what I do, and when you aretrusted with other people’s money, you’d better be focused.Yoga helps with both the focus and also with stressreduction. Yoga combined with meditation work together toattain the goal of uniting mind, body, and spirit. By

RN

ER

INVESTING IN STYLESOCIALLY RESPONSIBLE INVESTING

EX

PE

RT

CO

R

Investing based on sustainability factors works! It is a common belief that Socially Responsible Investing (SRI) is only for“ethical” investors concerned about visible social impacts such as human rights, working conditions or CO2 emissions.But we swim against the tide, asserting that SRI can be profitable for any investor.

The first generation of SRI funds used a negativescreening method to select companies for investment,mainly based on religious/moral criteria, excludingindustries like defense, tobacco or alcohol (“sin stocks”).Later, other approaches were implemented (i.e. “best inl ”) t l t th b t k d i i th

The assumption is that these standards will prevent aweak situation from remaining the same or getting worse,either via a change of strategy or management. Moreprecisely, there are four main selection criteria:

class”) to select the best-ranked companies in thepermitted sectors. Neither of these methods truly do justiceto SRI because for an investor, the first thing that mattersis performance, and broadly limiting the investmentuniverse can be seen as a loss of opportunity. Moreover,financial analysis was not the most important criteria inselecting assets in these methods.

Nowadays, Socially Responsible Investing is much moreSustainable and Responsible Investing. This change of

1) Underperformance of >15% relative to peers over the past four years; 2) CEO in office for more than three years, the time necessary to implement a strategy and see the results; 3) “Solid” financial structure (i.e. gearing, credit rating); and last but not least 4) “Sound” corporate governance standards. Increasing pressure on management from all stakeholders

“CEO Value”: Backtest, May 2013

Susta ab e a d espo s b e est g s c a ge oterms highlights a new proactive philosophy dedicated toidentifying companies that can perform in the long runbecause they respect sustainable principles which couldresult in material returns (financially speaking).

The two biggest changes are to believe that followingenvironmental, social and governance (ESG) principlescan be beneficial to a company, a fact now supported bymany academic studies; and that accurate quantitativeESG h b i l t d i t diti l

Increasing pressure on management from all stakeholders(including political and regulatory pressure) can lead to aclear improvement in share performance, but this tends tohappen over the longer term, as financial recovery is theultimate goal.

ESG research can be implemented in traditionalinvestment approaches.

A good example is the CEO Value stock selection. Back in2006, this investment strategy was launched based on asimple, pragmatic idea: companies underperforming theirpeers should see a turnaround in performance if a “solid”financial structure is combined with “sound” corporategovernance standards, the catalyst being the CEO.

Source: SG Cross Asset Research/SRI, Datastream

Yannick OuaknineSenior SRI Financial AnalystSG Cross Asset Research

30

More and more institutional investors like pension funds are investing in socially responsible funds. SRI success comesfrom focusing on the right factors and from a first-hand understanding of the corporate world and top managementdynamics. In this way, SRI can deliver consistent performance by highlighting firms that will respond positively tostakeholders and create value for shareholders.


GLOBAL ECONOMIC FORECASTS

STS

FOR

EC

AS

2012 2013f 2014f 2015f 2012 2013f 2014f 2015f

World (Mkt FX weights) 2.5 2.5 3.2 3.5 3.3 3.0 3.1 3.2 Advanced countries 1.2 1.1 2.1 2.4 2.0 1.4 ▼ 1.8 2.0 Emerging countries 5.0 5.0 5.2 5.4 6.1 5.9 5.6 ▲ 5.5 ▲

Real GDP CPI% change year over year

Eurozone -0.5 -0.5 ▲ 0.6 1.1 2.5 1.5 1.4 1.3Germany 0.7 0.4 1.4 1.4 2.1 1.9 1.9 1.7 France 0.0 0.1 ▲ 0.5 1.3 2.2 1.2 1.6 ▼ 1.6 ▼Italy -2.4 -1.5 ▲ 0.0 ▲ 0.7 3.3 1.7 1.4 1.2 Spain -1.4 -1.2 ▲ -0.2 ▲ 0.4 2.3 1.5 0.2 0.3

United States 2.2 1.6 3.1 3.4 2.1 1.6 1.5 ▼ 1.8 ▼China 7.8 7.6 6.9 6.7 2.7 2.5 2.7 3.0 Europe excl. Eurozone

United Kingdom 0 3 1 3 ▲ 2 1 ▲ 2 3 ▲ 2 8 2 6 2 9 3 4 ▲United Kingdom 0.3 1.3 ▲ 2.1 ▲ 2.3 ▲ 2.8 2.6 2.9 3.4 ▲Switzerland 1.0 1.5 1.6 1.8 -0.7 -0.3 ▼ 0.6 1.3 Sweden 0.7 1.2 2.2 2.6 0.9 0.2 1.6 2.9 ▲Norway 3.3 2.5 2.7 2.6 0.7 1.6 2.2 2.5

Other advanced Japan 1.9 2.0 ▼ 1.8 ▼ 1.3 0.0 0.1 ▲ 2.3 1.7 Australia 3.6 2.3 ▼ 2.8 2.9 1.8 2.1 2.7 2.5 ▼Canada* 1.8 1.5 2.4 2.5 1.5 1.5 1.8 1.9South Korea 2.0 2.6 3.3 ▲ 3.5 2.2 1.3 2.1 2.5Taiwan 1.3 2.3 3.4 3.6 ▼ 1.9 ▲ 0.9 ▼ 1.3 ▼ 1.6 ▼

Emerging excl. China Brazil 0.9 2.4 2.7 3.0 5.4 ▼ 6.5 5.7 6.0 Russia 3.4 1.7 ▼ 3.3 ▼ 3.5 ▼ 5.1 6.5 4.7 ▼ 4.6 ▼India* 3.2 5.6 6.3 8.6 7.1 5.4 5.0Mexico 3.9 ▲ 2.9 3.6 3.5 4.1 ▲ 4.0 3.4 3.4 Indonesia* 6.3 6.7 7.0 7.0 6.5 5.4 5.3 4.7Turkey* 2.2 3.4 3.8 4.1 6.9 5.3 5.0 5.0Poland 1 9 1 2 2 3 3 3 3 7 1 1 2 6 3 0

Significant changes from previous forecasts▲ Up ▼ Down

Poland 1.9 1.2 2.3 3.3 3.7 1.1 2.6 3.0Kazakhstan 5.0 5.2 5.8 5.9 5.2 6.3 ▼ 5.5 5.2Czech Republic -1.2 -0.8 1.8 2.1 3.3 1.5 1.3 1.3 Slovakia 2.0 0.8 2.2 2.6 3.7 1.7 1.5 1.8 Romania 0.7 ▲ 1.3 2.1 2.6 3.4 4.7 ▼ 2.9 2.9 Ukraine 0.2 1.0 ▼ 2.7 ▼ 3.0 ▼ 0.1 1.9 ▼ 6.2 ▼ 6.5

31

* IMF forecasts as of June 2013Source: SG Cross Asset Research/Economics, IMF

p

STS

MARKET PERFORMANCES & FORECASTS

FOR

EC

AS

% ch. 1m % ch. 3m % ch. YTD % ch. 12mDevelopped Markets Performance

(in local currency) Current LevelS&P500 1688 2.7% 4.6% 19.3% 16.0%DJ Euro Stoxx 50 2867 1.3% 8.4% 9.7% 11.4%FTSE100 6584 1.9% 5.0% 12.4% 12.0%Nikkei 225 14405 5.5% 13.5% 38.6% 57.3%MSCI World ($) 1534 1.7% 4.8% 14.6% 13.8%

(in local currency) Yield to MatEuropean IG 2.25% -0.4% -0.2% 0.7% 4.1%European HY 5.45% 0.3% 2.8% 5.2% 12.2%US IG 3.58% -0.8% -2.5% -4.0% -1.6%US HY 6.72% 0.1% 0.6% 3.2% 6.2%UK 4.13% -0.9% -1.2% -0.3% 3.6%Japan 0.56% 0.1% 0.6% 1.1% 1.2%

% ch. 1m % ch. 3m % ch. YTD % ch. 12m

(in USD) Current LevelMSCI EM 987 3.0% 3.5% -6.5% -2.7%

Emerging Markets Performance

SCMSCI EM Asia 432 3.1% 4.0% -3.4% 2.8%MSCI EMEA 326 2.9% 5.3% -8.6% -7.2%MSCI Latam 3292 2.9% 0.3% -13.3% -13.5%

(in USD) Yield to MatBAML EM SVGN 5.66% -1.8% -3.3% -7.6% -4.0% Asia Svgn 5.41% -3.5% -6.1% -12.4% -10.1% EMEA Svgn 5.11% -1.3% -2.5% -4.8% -0.7% Latam Svgn 6.49% -2.0% -3.5% -9.4% -6.2%BAML EM CORP 5.44% -0.8% -1.8% -3.9% -0.6% Asia Corp 4.71% -0.8% -1.5% -3.1% 0.0% EMEA Corp 5.16% -0.7% -1.1% -2.1% 1.3% Latam Corp 6.41% -1.0% -2.7% -6.4% -2.9%

Performance YTD Current* 3-month forecast 6-month forecast

EUR/USD 1.1% 1.33 1.28 1.25USD/JPY 14.2% 99 100 105EUR/CHF 2 4% 1 24 1 25 1 30

Currencies forecasts

EUR/CHF 2.4% 1.24 1.25 1.30GBP/USD -2.2% 1.59 1.51 1.51EUR/GBP 3.3% 0.84 0.85 0.83


USA -6.40% 2.9 3.0 3.2GER -2.80% 1.9 2.1 2.0UK -4.90% 2.8 3.1 3.2

10-year yield forecasts

32*As of the 16th September 2013,Source: Societe Generale Private Banking


Gold in USD -17.7% 1397 1200 1150Oil (WTI) in USD 18.1% 109 105 110

Commodity forecasts

This document has been prepared by the Strategy team of Société Générale No information explanations or communication (written or oral) of SG shall be

IMPORTANT DISCLAIMER

This document has been prepared by the Strategy team of Société Générale Private Banking . The information provided is an objective and independent explanation of the content of this document. The name and function of the person having prepared the document is indicated in the first page of this document. This document is provided to you for private use only and may not be passed on or disclosed to any other person (with the exception of external advisors on the condition that they themselves respect this confidentiality undertaking), nor copied in whole or in part, without the prior written consent of the Société Générale group of companies ("SG").

No information, explanations or communication (written or oral) of SG shall be considered as investment advice or recommendation to enter into any transaction(s) described in this document or deemed to be an assurance or guarantee as to the expected results of transaction(s) involving such investment product(s)/asset class(es).

This document does not purport to list or summarise all of the terms and conditions, nor to identify or define all or any of the risks that would be associated with the purchase or sale of the investment product(s)/asset class(es) described herein.

The price and value of investments and the income derived from them can goThe information herein is not intended to be in whole or in part an offer, recommendation or advice to buy or sell, or a solicitation of an offer to buy or sell, any securities. The material is not intended to provide, and should not be relied on for, accounting or legal purposes. The information herein, including any expression of opinion, has been obtained from, or is based upon, sources believed to be reliable but is not guaranteed as to accuracy or completeness. Any price levels, rates, simulations, illustrations, terms or conditions contained herein are indicative only, provided for illustration or discussion purposes only and may vary in accordance with changes in market conditions or market

The price and value of investments and the income derived from them can go down as well as up. Changes in inflation, interest rates and the rate of exchange may have an adverse effect on the value, price and income of investments.

The value of securities and financial instruments may be subject to currency exchange rate fluctuation that may have a positive or negative effect on the price, value of such securities or financial instruments and the income derived from such investments.

Any services and investments referred to may have tax consequences and it is i b i i d h SG d id d i Th l l ffluctuations.

The investment product(s)/asset class(es) described in this document may not be eligible for sale or subscription in all jurisdictions or to certain categories of investors. This document is not intended for distribution to a person or within a jurisdiction where such distribution would be restricted or illegal. It is the responsibility of any person in possession of this document to investigate and observe all applicable laws and regulation of the relevant jurisdiction.

important to bear in mind that SG does not provide any tax advice. The level of taxation depends on individual circumstances and such levels and bases of taxation can change.

Past performance is not necessarily a guide to future performance. Estimates of future performance are based on assumptions that may not be realized.

Investments in general, and derivatives in particular, involve numerous risks, including, among others, market, counterparty default and liquidity risk.

The investment product(s)/asset class(es) described herein may be issued by issuer(s) which credit rating given by any rating agency in the market may be

SG is under no obligation to disclose or take account of this document when providing services to or dealing with or on behalf of customers. The views of SG reflected in this document may change without notice. In addition, SG may issue other reports that are inconsistent with, and reach different conclusions from, the information presented in this report and is under no obligation to ensure that such other reports are brought to the attention of any recipient of this report.

To the maximum extent possible at law, SG does not accept any liability

issuer(s) which credit rating given by any rating agency in the market may be inferior to that of the companies in SG and SG is not responsible nor liable for any risk in respect of such issuer(s) including but not limited to risk of default on the part of such issuer(s). Further, SG assumes that investors are aware of the risks, including any risk which may be in relation to or arise from the issuer(s), and practices described herein.

CONFLICTS OF INTEREST

This research contains the views, opinions and recommendations of SGPB whatsoever (financial or otherwise) arising from the use of the material or information contained herein nor in respect of actions taken by recipients on the basis of the research. Moreover, no member of SG makes any warranty, expressed or implied, as to the accuracy or the completeness of the information or on the profitability or performance of any investment product(s)/asset class(es), countries, markets or companies. SG is not responsible, in any circumstances, for the financial, legal or tax consequences of investing into the investment product(s)/asset class(es) described in this document, nor the performance of this investment(s).

Strategists. Trading desks may trade, or have traded, as principal on the basis of the analyst(s) views and reports. In addition, strategists receive compensation based, in part, on the quality and accuracy of their analysis, client feedback, trading desk and firm revenues and competitive factors. As a general matter, SG normally makes a market and trade as principal in fixed income securities discussed in research reports.

Companies within SG may from time to time deal in, profit from trading on, hold on a principal basis or act as market-makers, advisers or brokers in relation to the investment product(s)/asset class(es) mentioned in this document or provide

The investment product(s)/asset class(es) described in this document are destined to prospective investors who possess sufficient knowledge, based on their own experience, to evaluate the advantages and the risks inherent to such investment product(s)/asset class(es). In addition, the financial instrument discussed in this report may not be suitable for all investors. Investors must make their own informed decisions, not to be taken solely on the basis of this document. Investors must seek their own advice regarding the appropriateness of investing in financial instruments or implementing strategies discussed herein and/or enabling them to understand any applicable tax legal or accounting

banking services to the companies and their affiliates mentioned herein. Employees of SG or persons/entities connected to them may from time to time have position in or are holding any of the investment product(s)/asset class(es) mentioned in this document.

SG may have (or may liquidate) from time to time positions in the investment product(s)/asset class(es), security or securities and/or underlying assets (including derivatives thereof) referred to

34

and/or enabling them to understand any applicable tax, legal or accounting consequences and other risks arising in respect of such investment and/or related to their own particular circumstances and financial conditions. For this purpose, investors must, to the extent they deem necessary, obtain independent advice from competent legal, financial, tax, accounting and other professionals.

herein, if any, or in any other asset, and therefore any return to prospective investor(s) such as yourself under the investment product(s)/asset class(es) described herein may directly or indirectly be affected. Specific disclosures are

SGPB Hambros GIB is part of SGPB Hambros Group. Further details are available on request or can be found at www.privatebanking.societegenerale.com/hambros.

made in the first part of this document.

DISTRIBUTION

Unless otherwise expressly indicated, this document is issued and distributed by Société Générale, a French bank authorised and supervised by the Autorité de Contrôle Prudentiel, located 61, rue Taitbout, 75436 Paris Cedex 09. Société Générale is a French Société Anonyme with its registered address at 29 boulevard Haussman, 75009 Paris, with a capital of EUR 998 320 373,75 at 8 January 2013 and unique identification number 552 120 222 R.C.S. Paris. Further details are available on request or can be found at www

Guernsey : This document has been distributed in Guernsey by SG Hambros Bank (Channel Islands) Limited, Guernsey branch. SG Hambros Bank (Channel Islands) Limited (“SGPB Hambros CI”) is regulated for banking and investment business by the Jersey Financial Services Commission. The Guernsey branch of SGPB Hambros CI is regulated for banking and investment business by the Guernsey Financial Services Commission and the Jersey Financial Services Commission. SGPB Hambros CI is registered in Jersey under number 2693. The company’s registered office and principal place of business is at PO Box 78, SG Hambros House, 18 Esplanade, St Helier, Jersey, Channel Islands, JE4 8PR Th G b h f SGPB H b CI h it i i l l fFurther details are available on request or can be found at www.

privatebanking.societegenerale.com.

Bahamas : This document has been distributed in Bahamas to its private clients by Société Générale Private Banking (Bahamas) Ltd duly licensed and regulated by the Securities Commission of the Bahamas and is not intended for distribution to persons designated as a Bahamina citizen or resident under the Bahamas Exchange Control Regulations.

Belgium: This document has been distributed in Belgium by Société Générale Private Banking NV, a Belgian credit institution according to Belgian law and controlled and supervised by the National Bank of Belgium (NBB) and the

8PR. The Guernsey branch of SGPB Hambros CI has its principal place of business at PO Box 6, Hambros House, St Julian’s Avenue, St Peter Port, Guernsey, GY1 3AE. The paid-up capital and reserves of SGPB Hambros CI exceeded £218 million as at 31 December 2011. Copies of the most recent audited summary financial statements are available on request. There are no investor compensation schemes in Jersey or Guernsey. SGPB Hambros CI is a participant in the Jersey Banking Deposit Compensation Scheme: such scheme offers protection for eligible deposits of up to £50,000. The maximum total amount of compensation is capped at £100,000,000 in any 5 year period. Full details of such scheme and banking groups covered are available on the States

controlled and supervised by the National Bank of Belgium (NBB) and the Financial Services and Markets Authority (FSMA). Société Générale Private Banking NV is registered as insurance broker at the FSMA under the number 61033A. Société Générale Private Banking NV has its registered address at 9000 Gand, Kortrijksesteenweg 302, registered at the RPM Ghent, under the number VAT BE 0415.835.337. Further details are available on request or can be found at www.privatebanking.societegenerale.be.

China : This document is not distributed or provided by Societe Generale (China) Limited and Societe Generale (China) Limited is not involved in preparing for this document in China.

of Jersey website or on request. The Guernsey branch of SGPB Hambros CI is a participant in the Guernsey Banking Deposit Compensation Scheme. The scheme offers protection for 'qualifying deposits' up to £50,000, subject to certain limitations. The maximum total amount of compensation is capped at £100,000,000 in any 5 year period. Full details are available on such scheme's website www.dcs.gg or on request.

SGPB Hambros CI is part of SGPB Hambros Group. Further details are available on request or can be found at www.privatebanking.societegenerale.com/hambros.

preparing for this document in China.

Dubaï : This document has been distributed in Dubaï by Societe Generale Bank and Trust, DIFC branch. Related financial products or services are only available to professional clients with liquid assets of over $1 million, and who have sufficient financial experience and understanding, to participate in the relevant financial markets according to the DFSA rules. Societe Generale Bank and Trust is duly licensed and regulated by the Dubai Financial Services Authority (DFSA). Further details are available on request or can be found at www. privatebanking.societegenerale.ae.

Gibraltar: This document has been distributed in Gibraltar by SG Hambros

Hong Kong: This document has been distributed in Hong Kong by Societe Generale Bank and Trust, Hong Kong Branch, which is authorised and regulated by the Hong KongMonetary Authority. The contents of this document have not been reviewed by any regulatory authority in Hong Kong. If you are in any doubt about the contents of this document, you may clarify them with Societe Generale Bank and Trust or you should obtain independent professional advice. Further details are available on request or can be found at www.privatebanking.societegenerale.asia.

Japan: This document has been distributed in Japan by Societe Generale Gibraltar: This document has been distributed in Gibraltar by SG Hambros Bank (Gibraltar) Limited (“SGPB Hambros GIB”), which is regulated and authorised by the Gibraltar Financial Services Commission. SGPB Hambros GIB is registered in Gibraltar under number 1294. The Company’s registered office is at 32 Line Wall Road, Gibraltar. The Company’s principal place of business is at Hambro House, 32 Line Wall Road, Gibraltar. The paid-up capital and reserves of SGPB Hambros GIB exceeded £47 million as at 31 December 2010. Copies of the most recent audited financial statements are available on request. SGPB Hambros GIB is a participant in the Gibraltar Deposit Guarantee Scheme ("the Scheme") established under the Deposit Guarantee Scheme Act ("the Act").

Private Banking (Japan) Ltd, which is regulated by the Japanese Financial Services Agency. Further details are available on request or can be found at www.privatebanking.societegenerale.co.jp.

Jersey: This document has been distributed in Jersey by SG Hambros Bank (Channel Islands) Limited (“SGPB Hambros CI”), which is regulated for banking and investment business by the Jersey Financial Services Commission. SGPB Hambros CI is registered in Jersey under number 2693. The company’s registered office and principal place of business is at PO Box 78, SG Hambros House, 18 Esplanade, St Helier, Jersey, Channel Islands, JE4 8PR. The paid-

it l d f SGPB H b CI d d £218 illi t 31Payments under the Scheme cover 100% of the bank’s total liability to a depositor in respect of deposits which qualify for compensation under the Act subject to a maximum payment to any one depositor of €100,000 (or the Sterling equivalent). Further details of the Scheme are available on request or can be found at www.gdgb.gi The Scheme does not apply to fiduciary deposits. SGPB Hambros GIB is a participant in the Gibraltar Investor Compensation Scheme. Further details are available on request or can be found at www.gics.gi.

SGPB Hambros GIB is part of SGPB Hambros Group. Further details are available on request or can be found at

up capital and reserves of SGPB Hambros CI exceeded £218 million as at 31 December 2011. Copies of the most recent audited summary financial statements are available on request. There are no investor compensation schemes in Jersey or Guernsey. SGPB Hambros CI is a participant in the Jersey Banking Deposit Compensation Scheme: such scheme offers protection for eligible deposits of up to £50,000. The maximum total amount of compensation is capped at £100,000,000 in any 5 year period. Full details of such scheme and banking groups covered are available on the States of Jersey website or on request.

SGPB Hambros CI has a branch in Guernsey branch having its principal place

35

available on request or can be found at www.privatebanking.societegenerale.com/hambros.

SGPB Hambros CI has a branch in Guernsey branch having its principal place of business at PO Box 6, Hambros House, St Julian’s Avenue, St Peter Port, Guernsey, GY1 3AE. The Guernsey branch of SGPB Hambros CI is a participant in the Guernsey Banking Deposit Compensation Scheme. Such scheme offers protection for 'qualifying deposits' up to £50,000, subject to certain

limitations. The maximum total amount of compensation is capped at £100,000,000 in any 5 year period. Full details are available on such scheme's website www.dcs.gg or on request.

Switzerland: This document has been distributed in Switzerland by Société Générale Private Banking (Suisse) S.A. , which is regulated by the Swiss Financial Market Supervisory Authority, FINMA, and in Lugano by Société

SGPB Hambros CI is part of SGPB Hambros Group. Further details are available on request or can be found at www.privatebanking.societegenerale.com/hambros.

Luxembourg: This document has been distributed in Luxembourg by Societe Generale Bank and Trust (“SGBT”), a credit institution which is authorised and regulated by the Commission de Surveillance du Secteur Financier and whose head office is located at 11 avenue Emile Reuter – L 2420 Luxembourg. Further details are available on request or can be found at www.sgbt.lu.

SGBT accepts no responsibility for the accuracy or otherwise of information

Générale Private Banking (Lugano-Svizzera) S.A. , which is regulated by the Swiss Financial Market Supervisory Authority FINMA. Further details are available on request or can be found at www.privatebanking.societegenerale.ch.

UK: This document has been distributed in UK by SG Hambros Bank Limited (“SG Hambros”), which is authorised and regulated by the Financial Services Authority. SG Hambros is registered in England and Wales under number 964058. The company’s registered office is at Norfolk House, 31 St James’s Square, London SW1Y 4JR. SG Hambros is covered by the Financial Services Compensation Scheme (FSCS). The FSCS can pay compensation to depositors if b k i bl t t it fi i l bli ti M t d it i l diSGBT accepts no responsibility for the accuracy or otherwise of information

contained within the research environment. SGBT accepts no liability or otherwise in respect of actions taken by recipients on the basis of the research only and SGBT does not hold itself out as providing any advice, particularly in relation to investment services.

SGBT has neither verified nor independently analysed the information contained in this document.

The opinions, views and forecasts expressed in this document (including any attachments thereto) reflect the personal views of the author(s) and do not

f f SG

if a bank is unable to meet its financial obligations. Most depositors - including most individuals and small businesses - are covered by the scheme. The scheme, however, is not available in respect of non-deposit investment products. For further information about the scheme (including the amounts covered and eligibility to claim) please ask your private banker, refer to the FSCS website www.FSCS.org.uk or call the FSCS on 0800 678 1100.

SG Hambros is part of the wealth management arm of the Société Générale Group, Societe Generale Private Banking. Société Générale is authorised by the Banque de France and by the UK Financial Services Authority and is regulated by the Financial Services Authority for the conduct of UK business Furtherreflect the views of any other person or SGBT unless otherwise mentioned.

The Commission de Surveillance du Secteur Financier has neither verified nor analysed the information contained in this document.

Monaco: This document has been distributed in Monaco by Société Générale Private Banking (Monaco) S.A.M. , located at 13, 15 Bd des Moulins, 98000 Monaco Ville, Monaco, which is regulated by the Autorité de Contrôle Prudentiel and the Commission de Contrôle des Activités Financières. Further details are available on request or can be found at www.privatebanking.societegenerale.mc.

by the Financial Services Authority for the conduct of UK business. Further details on SG Hambros including additional legal and regulatory details are available on request or can be found at www.privatebanking.societegenerale.com/hambros.

SG Hambros accepts no responsibility for the accuracy or otherwise of information contained within the research environment. SG Hambros accepts no liability or otherwise in respect of actions taken by recipients on the basis of the research only.

Rules and regulations made for the protection of investors and/or depositors under the UK Financial Services and Markets Act 2000 will not apply to business

Singapore: This document is for distribution to only “accredited investors”, expert investors and institutional investors, in Singapore within the meaning of the Securities and Futures Act (Cap. 289) of Singapore by Societe Generale Bank and Trust, Singapore Branch (“SGBT SIN”), which is regulated by the Monetary Authority of Singapore. If you are an accredited investor or expert investor, please be informed that SGBT SIN is relying on the following exemptions to the Financial Advisers Act, Cap. 110 (“FAA”) that have been granted to it by the Monetary Authority of Singapore: (1) the exemption in Regulation 33 of the Financial Advisers Regulations (“FAR”), which exempts SGBT SIN f l i ith S ti 25 f th FAA di l f d t

under the UK Financial Services and Markets Act 2000 will not apply to business conducted at or from offices located outside the UK and investors and/or depositors will not be able to benefit from the provisions of the Financial Services Compensation Scheme.

Notice to U.K. Investors: The information and any advice contained herein is directed only at, and made available only to, professional clients and eligible counterparties (as defined in the FSA rules) and should not be relied upon by any other person or party.

Notice to U.S. Investors: This document is not intended to U.S. Persons under th U S S iti A t f 1933 d d d d th i l f thSGBT SIN from complying with Section 25 of the FAA on disclosure of product

information to clients; (2) the exemption set out in Regulation 34 of the FAR, which exempts SGBT SIN from complying with Section 27 of the FAA on recommendations; and (3) the exemption set out in Regulation 35 of the FAR, which exempts SGBT SIN from complying with Section 36 of the FAA on disclosure of certain interests in securities.

Further details are available on request or can be found at www.privatebanking.societegenerale.asia.

the U.S. Securities Act of 1933, as amended and under the various laws of the States of the United States of America.

Notice to Canadian Investors: This document is for information purposes only and is intended for use by Permitted Clients, as defined under National Instrument 31-103, Accredited Investors, as defined under National Instrument 45-106, Accredited Counterparties as defined under the Derivatives Act (Québec) and "Qualified Parties" as defined under the ASC, BCSC, SFSC and NBSC Orders

Notice to Japanese Investors: This document is solely for educational purposes

Société GénéraleSA Capital 976 447 673,75 EURRegistered under Paris RCS N°552 120 222

Société Générale Private BankingTour Granite189, rue d’Aubervilliers75886 Paris Cedex 18France

and does not constitute advertisement of financial services targeted at investors in Japan. This document is intended for information purposes only and does not constitute investment advice or an offer to sell or solicitation of an offer to buy the funds described herein. This document is intended only for those people to whom it is sent directly by Societe Generale Private Banking (Japan) Ltd, and under no circumstances should it be forwarded to any third party. The products mentioned in this report may not be eligible for sale in Japan and they may not be suitable for all types of investors.

http://www.privatebanking.societegenerale.com.

36

Franceprivatebanking.societegenerale.com © Copyright the Société Générale Group 2012. All rights reserved. Any

unauthorized use, duplication, redistribution or disclosure in whole or in part is prohibited without the prior consent of SG.

The key symbols, Société Générale, Société Générale Private Banking are registered trademarks of SG. All rights reserved.

investment strategyinvestment strategy quarterly views€¦ · "chinese crisis""hard...

Documents