the tortoise & the hare - masecoasia.com€¦ · the tortoise & the hare | q3 2019 economic...

1 Issue 25 | October 2019

the tortoise & the hare

| Q3 2019 Economic Overview

Economic Overview

US GDP expanded 2.3% in the second quarter of 2019 over the same quarter of the previous year, which is the lowest reading in 2 years. The US annual inflation rate fell to 1.7 % in August 2019, dragged down by energy price falls and despite food prices continuing to increase. The US Federal Reserve Bank (Fed) lowered interest rates by 0.25% to 2% during its September meeting, amidst heightened concerns about the economic outlook and ongoing trade tensions with China. 10y US government bond yields have dropped back below 1.7% and the market is pricing in a further rate cut in the final quarter of the year. Nonetheless, the US Dollar showed strength against the Yen, the British Pound and particularly against the Euro (against which it gained more than 4%).

GDP for the Eurozone advanced 1.2%, slowing slightly from 1.3% in the previous quarter. The European Central Bank (ECB) left its rate unchanged. However, policymakers decided for new round of bond purchases to boost both growth and inflation, which has recently dropped to only 1%. Bond purchases will commence in November, at a monthly pace of €20 billion, 10y German bunds have reacted, now yielding less than -0.5%.

Britain's GDP for the 2nd quarter expanded 1.3% percent year-on-year, compared to a 2.1% growth in the previous period, its weakest period since the 1st quarter of 2018. Inflation fell to 1.7% in August, reflecting lower prices for transport and clothing. The Bank of England (BoE) voted to hold the rates at 0.75% in its latest meeting, reaffirming it would increase rates slowly should a hard Brexit be avoided.

Japan's consumer price inflation fell to 0.3% in August 2019, its lowest inflation rate in six months. While the Bank of Japan decided to leave rates unchanged, it left the door open for more monetary stimulus in the final quarter. GDP in Japan expanded 1% year over year in the 2nd quarter of 2019. The Chinese economy on the other hand grew by 6.2% over the same period. However, that was the lowest growth rate since the 1st quarter of 1992, with trade tensions and slowing global demand clouding the picture.

Fixed Income

Performance was positive across fixed income last quarter, fuelled by falling yields. Global government bonds, if hedged, did very well, returning over 3% judged by the change in the FTSE WGBI index. Only US credit performed slightly better. All other segments, if measured in US Dollar, returned less due to the strong ‘greenback’.


Q3 2019 Economic Overview

Equities

In local currency terms, investors in Japanese and Eurozone stocks gained the most in the 3rd quarter, with the Nikkei and EuroStoxx 50 index up about 3%. US stocks ended the quarter in positive territory, but EM stocks and the Asia ex Japan region, measured by the respective MSCI indices, returned -2.1% and -2.4%.

Small caps underperformed the broad market in the US by roughly 4% and in emerging markets by a small margin of 0.4% but, reflecting the rest of the World, the MSCI World Ex USA Small Cap beat the broad market by 0.6%.

Value investors suffered independent of the region in which they were invested. While underperformance was mild in the US and other developed markets, in emerging markets the MSCI EM Value index fared 2.3% worse than the broad market.

Real Assets and Total Return

Global Real Estate Investment Trusts (REITs) had a very strong quarter, as the S&P Global REITS index gained 6%. REITs stocks are now up over 23% year to date. The story of the broadly diversified Bloomberg Commodity index was very similar to the previous quarter, as the index ended the period down 1.8%. Gold continued to shine with the price up over 5% but the index was pulled down once again by a fall in oil prices, as Brent Crude finished the period down 6%.

The Credit Suisse Managed Futures index recorded another positive quarter, up 0.6%. The Templeton Global Total Return fixed income strategy lost more than 3%, as it suffered particularly heavily from its short duration position as well as its FX and bond exposure to Argentina.

Sources

Morningstar for index and foreign exchange data, FT.com for yield data, Yahoo Finance for VIX data, Trading Economics for economic data, all as of 30th September 2019


Fixed Income Summary (%)Index (Base Currency) Q3 2019 YTD 2019 2018 2017 2016 2015 2014 3 Yr (Annualised) 5 Yr (Annualised)JPM EMBI Global Diversified TR USD 1.5 13.0 -4.3 10.3 10.2 1.2 7.4 4.6 5.7ICE BofAML Gbl HY TR HUSD 1.3 11.3 -1.9 8.0 16.2 -2.0 2.5 6.3 5.8Markit iBoxx Liquid IG TR USD 3.3 15.7 -3.7 7.3 6.4 -0.7 8.7 4.8 5.2FTSE WGBI USD 0.8 6.3 -0.8 7.5 1.6 -3.6 -0.5 1.2 1.8FTSE WGBI Hdg USD 3.1 9.2 2.6 2.1 3.8 1.3 8.4 3.6 4.3

Source: Morningstar as of 30th September 2019

Equity summary (%)Index (Base Currency) Q3 2019 YTD 2019 2018 2017 2016 2015 2014 3 Yr (Annualised) 5 Yr (Annualised)FTSE 100 NR GBP 1.0 14.2 -8.8 11.9 19.0 -1.3 0.7 6.8 6.4EURO STOXX 50 NR EUR 3.0 21.9 -12.0 9.2 3.7 6.4 4.0 8.8 4.8Nikkei 225 Average NR JPY 2.9 10.4 -10.7 20.9 2.0 10.6 8.6 11.5 7.8MSCI Pacific Ex Japan NR LCL -2.6 15.0 -4.5 19.4 8.3 -1.0 5.7 9.9 7.7S&P 500 TR USD 1.7 20.6 -4.4 21.8 12.0 1.4 13.7 13.4 10.8Russell 2000 TR USD -2.4 14.2 -11.0 14.6 21.3 -4.4 4.9 8.2 8.2Russell 1000 Value TR USD 1.4 17.8 -8.3 13.7 17.3 -3.8 13.5 9.4 7.8MSCI World Ex USA NR LCL 1.8 15.9 -10.9 14.6 6.4 4.0 6.3 8.2 5.9MSCI World ex USA NR USD -0.9 13.6 -14.1 24.2 2.7 -3.0 -4.3 6.5 3.1MSCI World Ex USA Small Cap NR USD -0.3 12.6 -18.1 31.0 4.3 5.5 -5.3 5.5 5.1MSCI World Ex USA Value NR USD -1.4 8.8 -15.1 21.0 7.4 -7.7 -5.4 5.4 1.0MSCI EM NR LCL -2.1 7.8 -10.1 30.6 9.7 -5.8 5.2 7.6 5.5MSCI EM NR USD -4.2 5.9 -14.6 37.3 11.2 -14.9 -2.2 6.0 2.3MSCI EM Small NR USD -4.6 1.8 -18.6 33.8 2.3 -6.8 1.0 1.3 -0.1MSCI EM Value NR USD -6.5 1.8 -10.7 28.1 14.9 -18.6 -4.1 4.8 0.4MSCI ACWI NR LCL 1.1 17.2 -7.7 19.8 9.0 1.3 9.3 10.5 8.0MSCI ACWI NR USD 0.0 16.2 -9.4 24.0 7.9 -2.4 4.2 9.7 6.7


Real Assets (%)Index (Base Currency) Q3 2019 YTD 2019 2018 2017 2016 2015 2014 3 Yr (Annualised) 5 Yr (Annualised)S&P Global REIT TR USD 6.0 23.2 -4.8 8.6 6.9 0.6 22.8 6.6 8.5LBMA Gold Price PM USD 5.4 16.1 -0.9 12.7 8.1 -12.1 0.1 3.9 4.1Bloomberg Commodity TR USD -1.8 3.1 -11.2 1.7 11.8 -24.7 -17.0 -1.5 -7.2Bloomberg Sub Brent Crude TR USD -6.0 16.7 -14.9 14.2 25.4 -45.6 -47.6 6.9 -14.3


Total Return (%)Index (Base Currency) Q3 2019 YTD 2019 2018 2017 2016 2015 2014 3 Yr (Annualised) 5 Yr (Annualised)Credit Suisse Mgd Futures Liquid TR USD 0.6 -0.4 -4.4 -2.3 4.2 3.6 15.8 -2.3 2.4SG Multi Alternative Risk Premia NR USD 2.0 4.8 -4.7 5.9 4.9 n/a n/a 1.9 n/aTempleton Global Total Return Adv -3.1 0.2 2.0 3.1 8.7 -4.6 0.6 4.5 1.4


Risk Warnings

Past performance is not a reliable indicator of future results.

The illustrations are in US Dollars unless otherwise stated. Currency fluctuations may increase or decrease the returns of any investment.

There can be no guarantee or assurance that a client’s portfolio will not incur a loss over any particular time period. Fees and charges do not apply in respect of any index, indices are unmanaged, which do no incur fees and cannot be invested in directly.









Risk Warnings












Risk Warnings












Risk Warnings








Risk Warnings


The illustrations are in US Dollars unless otherwise stated. Currency fluctuations may increase or decrease the returns of any invest-ment.

There can be no guarantee or assurance that a client's portfolio will not inclur a loss over any particular time period. Fees and charges do not apply in respect of any index, indices are unmanaged, which do not incur fees and cannot be investment in directly.


Economic Indicators GDP annual growth rate (%)

Index Unemployment rate (%)Current A/C

Balance*Budget

Balance*

Industrial Production

(%)**2017 2018 Latest quarter

US 3.7 -2.4 -3.8 0.4 2.5 3.0 2.3UK 3.8 -3.9 -2.0 -0.9 1.6 1.4 1.3Eurozone 7.4 2.9 -0.5 -2.0 2.8 1.2 1.2Japan 2.2 3.5 -3.8 -4.7 2.4 0.3 1.0* % of GDP 2018 estimate Source: Trading Economics (30th Sep 2019) Source: Trading Economics (30th Sep 2019) ** change on 1 year ago

Yields (%) - Government bonds Inflation (%)

1 month 3 month 2 years 10 years 2017 2018 Latest MonthsUS 2.0 1.9 1.7 1.7 2.1 1.9 1.7UK 0.8 0.8 0.4 0.5 3.0 2.1 1.7Eurozone (DE) -0.6 -0.6 -0.7 -0.5 1.4 1.5 1.0Japan - -0.4 -0.3 -0.2 1.0 0.3 0.3

Source: FT.com (1st Oct 2019) Source: Trading Economics (30th Sep 2019)

Foreign exchange

USD/JPYUSD/GBPUSD/EURGBP/JPYGBP/EUREUR/JPY*Quarter % Change from 30/06/2019 to 30/09/2019 Source: Morningstar (30th Sep 2019)**YTD % Change from 31/12/2018 to 30/09/2019

Volatility Index (%)

Index Current 1 year change52 week

high52 week

low

VIX 16.6 6.5% 36.2 11.0Source: Yahoo Finance (30th Sep 2019)

Current Qtr End Previous Qtr End Year EndYTD % change**

108.130/09/2019 30/06/2019 31/12/2018 Qtr % change*

117.5

107.7

137.10.880.79

1.12122.7

0.920.81

133.41.14

-5.7%

109.2

138.2

0.3%

0.88-2.7%4.5%

0.79

1.11

-1.0%

-3.5%4.5%2.5%

2.3%124.6

2.5%

-4.2%

US

EurozoneUK

Japan

US

EurozoneUK

Japan

1.4%


All expressions of opinion are subject to change without notice and are not intended to be a guarantee of future events. This document is for information only and does not constitute a solicitation to buy or sell securities nor does it purport to be a complete description of our investment policy, markets or any securities referred to in the material. Opinions expressed herein are not intended to be a forecast of future events or a guarantee of future results or investment advice and are subject to change without notice or based on market and other conditions. Any reference to model portfolios, which is used for internal purposes, is purely illustrative. The value of investments and the income from them may fluctuate and can fall as well as rise. Past performance is not a guarantee of future results. You may not recover what you invest.

Although information in this document has been obtained from sources believed to be reliable, MASECO Asia Limited does not guarantee its accuracy or completeness and accepts no liability for any direct or consequential losses arising from its use.

Throughout this publication where charts indicate that a third party (parties) is the source, please note that the source references the raw data received from such parties.

MASECO Asia Limited do not provide tax or legal advice and levels and bases of taxation can change.

Investments or investment services referred to may not be suitable for all recipients.

MASECO Asia Limited (CE# BHR224) is authorized and regulated by the Securities and Futures Commission of Hong Kong to carry out Type 9 Regulated Activities.

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