#digi2013 William Hobbs, Barclays

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William Hobbs' presentation from Propel's recent "Predictions for Digital 2013" event. For more content like this, go to www.propellondon.com/blog or follow us on Twitter - @propellondon

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  • Behaviouralising Finance: getting the best of client comfort and investment efficiency
  • 01/31/13 09:52
  • 01/31/13 09:52
  • 01/31/13 09:52
  • #digi2013 William Hobbs, Barclays

    1. 1. Investment outlook 2013William HobbsHead of Equity StrategyJanuary 2013
    2. 2. Outline of presentation  2013 outlook  Risk #1: the euro crisis  Risk #2: US & UK austerity  The global context  How to invest4
    3. 3.  2013 Outlook Source: Google Images, Barclays5
    4. 4. Clouds begin to lift Most visible clouds: 1: The euro’s existential crisis 2: Fiscal austerity in the US and UK Rays of sunshine? 1: The ECB (and, if needed, the BoE) 2: US New Year deal & UK history 3: The bigger picture: ‘Customer no. 1’ and Asia6
    5. 5. Key barometer: manufacturing surveys stabilising 2 Standard deviations from trend 1 0 -1 -2 -3 -4 -5 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 China US UK Germany Japan Source: Bloomberg, Datastream, Barclays Research7
    6. 6.  Risk #1: the euro crisis8
    7. 7. How to view it: “One must imagine Sisyphus happy” – Camus
    8. 8. The ECB’s safety net at work (%) (%) 2.0 7 6 1.5 5 4 1.0 3 2 0.5 1 0.0 0 2007 2008 2009 2010 2011 2012 2013 Euro interbank - OIS spread (lhs) Germany-Spain 10 year bond spread (rhs) Source: Bloomberg, Barclays10
    9. 9. Spain, the ECB and OMT…  Will Spain ask for a bail-out? If the ECB’s promise is credible, it may not matter A formal request determines who, not what  After Greece’s default, why not Spain? Budget and debt arithmetic is better Economy is different & reforms more credible The troika would try harder…11
    10. 10. Plausible timescale for a definitive euro fix 2012… 2013-15? 2017?? 2022??? Co-ordinate Safeguard deposit Greater fiscal More banks, tackle insurance, integration, competitive Lasting solution deficits & supervision, joint bond peripheral insolvent rescue issuance economies sovereigns facilities Source: Blackrock, Barclays Wealth Strategy12
    11. 11.  Risk #2: US & UK fiscal austerity13
    12. 12. US fiscal cliff has been turned  New Year compromise was a big deal ‘American Taxpayer Relief Act’ keeps a lid on taxes Tax hit in 2013: $190bn, or 1.2% GDP (cf: $650bn, 4.1%)  TBD (March?): spending cuts & debt ceiling Spending sequestration: $90bn, or 0.6% GDP Credit ratings matter less than ‘fundamentals’14
    13. 13. Govt. borrowing (rolling 12 mths, % GDP) 12 10 8 6 4 2 0 -2 -4 -6 Q1 1994 Q1 1999 Q1 2004 Q1 2009 US UK Source: Datastream, Barclays Research15
    14. 14. Structural government deficits (IMF, % GDP) 8 6 4 2 0 -2 -4 -6 -8 -10 -12 2007 2009 2011 2013F Change 2009- 2013 UK Euro area US Japan Source: IMF WEO; Barclays16
    15. 15. Precedent: a brief UK history lesson “How 364 economists got it totally wrong” Daily Telegraph, March 2006 – a 25th anniversary17
    16. 16. Sterling is competitive & real rates are low 3 105 2 100 1 0 95 -1 90 -2 -3 85 -4 80 -5 -6 75 02/11/2002 02/11/2004 02/11/2006 02/11/2008 02/11/2010 02/11/2012 Real interest rates (%, LHS) Real exchange rate (index, RHS) Source: Datastream, Barclays Research18
    17. 17.  The global context19
    18. 18. US housing market gathering momentum 1300 550 1200 500 1100 450 1000 400 900 350 800 300 700 250 600 200 500 150 400 100 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Building permits Private housing starts Stock of new homes for sale (RHS) Source: Factset, Barclays Research20
    19. 19. US consumer spending: life after debt Index: Dec 2005=100 000s per w eek 125 700 650 120 600 550 115 500 450 110 400 350 105 300 100 250 15/12/2005 15/12/2007 15/12/2009 15/12/2011 US household spending (nominal, index) Unemployment claims (000, RHS) Source: Datastream, Barclays Research21
    20. 20. Total US liabilities are large… Debt/GDP 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Q2 1962 Q2 1972 Q2 1982 Q2 1992 Q2 2002 Q2 2012 Consumer +Government +Non-financial business +Financial sector = Total domestic Source: Datastream, Federal Reserve, Barclays Research22
    21. 21. … but consumer assets are larger X GDP 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Q2 1962 Q2 1972 Q2 1982 Q2 1992 Q2 2002 Q2 2012 Debt Financial assets Tangible assets Net worth Source: Factset, Barclays Wealth Strategy23
    22. 22. Asian growth: structural underpinnings Asia’s weight in the world, % 60 50 40 30 20 10 0 Stocks now Bonds now Real GDP now Population in 2041 Source: US Bureau of Census, MSCI, Barclays24
    23. 23. Barclays’ key macroeconomic projections 2011 2012(E) 2013(F) 2014(F) Real GDP (%) Global 3.8 3.0 3.2 4.0 Emerging 6.5 5.0 5.4 6.0 US 1.8 2.3 2.1 2.5 Euro area 1.5 -0.4 0.1 1.4 UK 0.9 -0.1 1.3 2.2 Inflation (CPI,%) Global 3.9 2.9 3.0 3.3 Emerging 6.4 4.8 5.1 5.1 US 3.2 2.1 2.0 2.5 Euro area 2.7 2.5 1.8 1.7 UK 4.5 2.8 2.8 2.4 Official interest rates (end-year, %) US 0.0–0.25 0.0–0.25 0.0–0.25 n/a ECB 1.0 0.75 0.5 n/a Bank of England 0.5 0.5 0.5 n/a Barclays Forecasts25
    24. 24.  How to invest26
    25. 25. Conclusion: risk assets preferred in 20131. Corporate securities preferred to government - Business cycle and collective risk appetite matter more than QE - Credit spreads are flattered by low GB yields: High Yield preferred2. Stocks preferred to bonds - Analysts too optimistic, but market doesn’t believe them: valuations low - Current: US and EUX preferred to Japan, UK, RoW; neutral EM (Asia pref.) - Within EUX: some core and some periphery - Rotation ahead: ‘Income’ & recovery to switch into ‘Growth’…3. F/X: USD becomes pro-cyclical; JPY & CHF to reverse; Asian EMs27 favoured
    26. 26. Strategic and Tactical Asset Allocation Moderate risk portfolio         SAA Asset Class Indices SAA +TAA TAA Cash & Short Maturity Bonds Barcap Global Treasury 1-3y 8.0% 6.0% -2.0% Developed Government Bonds Barcap Global Treasury 7-10y 9.0% 4.0% -5.0% Investment Grade Bonds Barcap Global Corporate 4.0% 4.0% High Yield & Emerging Markets Bonds Barcap Global High Yield and EM 8.0% 10.0% 2.0% Developed Markets Equities MSCI World Index 38.0% 43.0% 5.0% Emerging Markets Equities MSCI EM 10.0% 10.0% - Commodities DJ UBS Future Commodity Index 5.0% 5.0% - Real Estate MIT/CRE IBI US Index (70%) and IPD UK (30%) 4.0% 4.0% - Alternative Trading Strategies Barclays Wealth ATS Weighted Index 14.0% 14.0% - TOTAL   100.0% 100.0% 0%28
    27. 27. Developed profitability is not extreme (real ROE, %) 16 14 12 10 8 6 4 2 0 -2 Dec-74 Dec-79 Dec-84 Dec-89 Dec-94 Dec-99 Dec-04 Dec-09 inflation adjusted RoE 10 year moving average Source: MSCI, Datastream, FactSet, Barclays Please note that past performance is not necessarily a reliable indicator of future performance
    28. 28. Cross-asset dislocation: a message to CFOs Yield (%) 8 7 6 5 4 3 2 1 0 Jan-01 Jan-03 J an-05 Jan-07 J an-09 Jan-11 Developed Markets Equity Dividend Yield Global Investment Grade Corporates Yield Source: Factset, Barclays Please note that past performance is not necessarily a reliable indicator of future performance30
    29. 29. DisclaimerThis document has been issued and approved by Barclays Bank PLC. Although information in this document has been obtained from sources believed to bereliable, we do not represent or warrant its accuracy, and such information may be incomplete or condensed. This document does not constitute a prospectus,offer, invitation or solicitation to buy or sell securities and is not intended to provide the sole basis for any evaluation of the securities or any other instrument,which may be discussed in it. All estimates and opinions included in this document constitute our judgement as of the date of the document and may be subjectto change without notice. This document is not a personal recommendation and you should consider whether you can rely upon any opinion or statementcontained in this document without seeking further advice tailored for your own circumstances. This document is confidential and is being submitted to selectedrecipients only. It may not be reproduced or disclosed (in whole or in part) to any other person without our prior written permission. Law or regulation in certaincountries may restrict the manner of distribution of this document and persons who come into possession of this document are required to inform themselves ofand observe such restrictions. We or our affiliates may have acted upon or have made use of material in this document prior to its publication. You should seekadvice concerning any impact this investment may have on your personal tax position from your own tax adviser.Barclays offers wealth and investment management products and services to its clients through Barclays Bank PLC and its subsidiary companies.Barclays BankPLC is registered in England and authorised and regulated by the Financial Services Authority. Registered number is 1026167 and its registered office is 1Churchill Place, London E14 5HP.© Barclays Bank PLC 2012. All rights reserved. Issued for companies including Barclays Bank PLC (Reg. No. 1026167), Barclays Stockbrokers Limited (Reg. No.1986161), a member of the London Stock Exchange and PLUS, Barclays Sharedealing (Reg. No. 2092410), Barclays Bank Trust Company Limited (Reg. No.920880) and Gerrard Investment Management Limited (Reg No. 2752982), a member of the London Stock Exchange. All of these companies are registered inEngland and have their registered office at: 1 Churchill Place, London E14 5HP. All of these firms are authorised and regulated by the Financial ServicesAuthority.

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