1. Hong Kong | Singapore | Shanghai | London
THE WEALTH MANAGEMENT PROFESSIONALS
Henley Market Outlook
September 2013
Patience will be rewarded

2. The Henley Outlook September 2013
Hong Kong, Singapore, Shanghai & London
Equities
Global Overview ...............................................................................................................................................3
Cash & Currencies ..............................................................................................................................................5
Fixed Income ........................................................................................................................................6
Property ..............................................................................................................................................7
Equities US ........................................................................................................................................8
Japan ................................................................................................................................. 8
UK ........................................................................................................................................9
Europe Ex UK .................................................................................................................. 9
Australia ......................................................................................................................... 10
ASEAN ............................................................................................................................ 10
Greater China................................................................................................................ 11
India ............................................................................................................................... 11
Other Emerging Markets ......................................................................................... 12
Commodities Energy...............................................................................................................................13
Precious Metals.............................................................................................................13
Industrial Metals.......................................................................................................... 13
Agriculture.............................................................................................................. 14
Alternative Investments .............................................................................................................................................15
2
Content
The Investment Committee
Peter Wynn Williams
Investment Director
& Partner
Andrew Kelly
Partner
George Rippon
Partner
Simon Liu
Head of Investment
Research
Paul Brady
Partner
Chris Skinner
Partner
The Henley Investment Committee combines more than 110 years’ experience and
is unique in being backed by a full-time team of six investment professionals to
optimise asset allocation and manager selection.

3. Equities
3
“Have you ever feared flying more after hearing of a plane crash? If the answer is yes,
you are a normal human. But you also risk misunderstanding, or missing altogether,
plausible outcomes.”
Michael Mauboussin, Think Twice
We are seeing thinly traded markets across asset classes without clear direction in the summer
months. Low liquidity and complacency leave markets open to extreme ups or downs in the event
of any surprise. One of such many events is ‘tapering’ or cutting back on the USD85bn monthly
bond-buying programme by the US Federal Reserve. Mere speculation about tapering sent asset
prices tumbling at the end of June and early July. In fact, yields on 10-year US Treasury bond
have doubled to 2.88% from their low in July last year in anticipation of smaller purchases of
bonds by the US government.
Coping with Volatility
In an uncertain period like today, it can sometimes appear safer to park your investments away
from the storm than to watch your investments lose their short-term value. Yet timing future
market movements can be very challenging and costly.
Investors who make decisions in anticipation of performance for short time periods are often
vulnerable to monthly fluctuations and lose sight of the bigger picture: growing their wealth over
the long term. It is very difficult to grow your core asset by timing the market. Trends in stock
markets are driven by momentum in the short run as hype picks up and eventually fades.
We live in an interesting time where markets are reacting to policy risks all over the globe. Some
central banks are flooding the world with liquidity while others are trying to scale back on their
easing. It is more important than ever, that investors learn to cope with short-term volatility
exacerbated by uncertainty. The table above shows an important point – the more we focus on
short-term performance, the more risk we will mistakenly believe we have taken on. It should
be remembered that it is the long-term potential of investing and compounding that creates
wealth, not trend following.
Stay Diversified and Think Total Return of Portfolio
At THG, we believe a diversified portfolio is the most effective tool in managing risks. Diversifying
your portfolio with assets that have uncorrelated returns can improve the relationship between
return and risk over the long run by reducing the average risk in a portfolio while keeping the
same return!
Global Overview
Simon Liu
Head of Investment Research

4. Equities
The Henley Outlook September 2013
Hong Kong, Singapore, Shanghai & London
4
Investors have a strong tendency to focus on investment decisions fund by fund, without
considering the impact on our overall portfolio. This could mean missing out on diversification
opportunities, making new investments that cancel out existing ones, or declining opportunities
that look too risky on their own, but would be a good addition to the overall portfolio. We cannot
overstate the importance of strategic asset selection to build a low-risk portfolio from a collection
of risky assets.
Emotions can often cloud the judgment of even the most proficient investors. In a market
downturn, investors tend to flock to lower-risk investment options, which can lead to missed
opportunities during ensuing market recoveries. To avoid this, increased risk in the market must
be dealt with intelligently and with discipline, and thus through diversification over the long term.
Financial objectives and motivations of investors may change over time. Please speak to your
THG consultant if you want to know more about our latest thoughts.
Global Overview
Simon Liu
Head of Investment Research

5. Equities
5
HENLEY ASSESSMENT
Neutral
Emerging market currencies fall to
their lowest against the USD since
2010 on concern a paring of stimulus
under the Fed’s quantitative-easing
strategy would intensify outflows
from the currencies. Mexico’s peso
dived 1.8% against the USD, which
bought MXN13.1827. Indonesia’s
IDR lost 3.8% within a week — the
most of the USD’s 24 emerging-
market counterparts — amid a
record current-account deficit in the
second quarter and worse-than-
estimated economic growth. Brazil’s
BRL tumbled 14% over the past three
months. Things could get even uglier
as the US recovers and global interest
rates rise.
Summary
■■ The INR touched an all-time low of 65.94. INR is likely to continue to be under pressure given
rising oil and gold prices. India imports about 80% of its oil and is the world’s largest consumer
of gold, the price of which has advanced 13% this quarter.
■■ SGD remains steadily strong. Expectations are that the current gradual appreciation policy
will continue as it is.
Cash & Currencies

6. The Henley Outlook September 2013
Hong Kong, Singapore, Shanghai & London
Equities
6
Points of General Interest
■■ Investors yanked USD43.8bn from taxable-bond funds and USD16.4bn from municipal-bond
funds in June, making the month the worst on record for bond fund outflows.
■■ Detroit defaulted on its debt and highlighted fundamental issues within America at present,
and the likely scenario should the Fed stop buying its own debt.
■■ The fallout from Detroit resulted in further scrutiny to municipal debt in the US; scrutiny
that is likely to highlight the significant issues facing a number of other cities in the US, and
highlights that municipal debt can no longer be viewed as a risk-free asset class.
Exodus from Emerging Market Debt
Fixed Income
HENLEY ASSESSMENT
Neutral/Negative
The summer has been a very tough
period for this asset class as the
fears of QE tapering in the US have
seen rates rise and there are genuine
worries with regards the viability
of long-dated government debt.
However, as is the case with so many
asset classes, the story could be very
different if the tapering in the US is
not as significant as first thought.
With economic data from the US
underwhelming forecasts in recent
weeks, tapering may not be as
significant as expected and we could
see an extension of the 30-year bull
run that we have seen in fixed interest.
Without question, the long-term view
within this asset class is negative.
However, in the short term a world
that could still benefit from continued
QE may see renewed upside in the
final quarter of the year. The current
exodus (in particular within emerging
market debt) could continue apace
if the tapering is implemented in
September.
This catch 22 situation and the
knock-on risks associated clearly
demonstrate the risks currently
associated with this traditional “safe
haven” investment. Government Bonds
■■ China’s banking regulator told lenders to be “cautious” when investing in bonds issued by local
government financing vehicles.
■■ Bond prices could rise again if the Syrian crisis spins out of control, say traders.
■■ The rupiah-denominated bonds issued by the government on Tuesday received strong
demand from investors, although worries over the tightening of the global liquidity continued
to hit the local stock and debt markets.
Cash on Deposit
■■ As is often the case, speculation within the financial markets has not been translated into the
retail sector. Despite concern that interest rates offered by the banks to retail savers would
rise, there has been no such spike.

7. Equities
7
Positives
■■ The Chesterton Humberts Prime London Capital Value Index recorded a 2.3% increase in
1Q13. Given a more favourable mortgage market and an economy forecast to return to
growth this year, the prime London property market is likely to continue rising, with Chesterton
Humberts predicting a total gain of 8.2% for 2013. Further momentum will be provided by
overseas purchasers, who in some cases are enjoying a 30% currency discount due to GBP
weakness relative to their home currencies.
■■ The S&P/Case-Shiller US Home Price Indices increased 11.6% and 12.1% for 10 and 20 cities
respectively in the 12 months ending Apr13. MOM gains were 2.6% and 2.5% respectively.
However, both indices are still 26-27% lower than the Jul06 housing peak, with current market
values at their early 2004 levels.
Property
HENLEY ASSESSMENT
Neutral
Property prices generally, after
significant falls in 2009, stabilised
in 2010 and 2011. Property prices in
many areas have weakened in 2012
and2013YTDaseconomicconditions
remain difficult. Property values have,
however, recovered in selected areas
such as Singapore, Hong Kong and
London. Additionally we see signs of
a recovery in the US housing market.
We still consider some specialised
property assets, such as student
accommodation, to merit inclusion
in our portfolios. Other than these
investments, we would suggest that
clients remain cautious.
One area of concern in the continued recovery of US home prices is further mortgage rate rises.
After the US Federal Reserve suggested in June that it is considering scaling back its bond buy-
ing programme, bond prices fell sharply pushing the cost of a 30-year fixed mortgage up from
3.5% to 4.5%, roughly a two-year high.
■■ In China, new home prices rose in 69 of the 70 cities tracked by the government in July
from a year earlier. Gains were highest in the biggest metropolitan areas amid expectations
that the government will not currently introduce any more property market restrictions.
Negatives
■■ In Hong Kong, the US Federal Reserve’s plan to consider cutting stimulus is affecting sentiment
in residential property prices as investors fear rising interest rates. Property consultants
believe prices could fall another 5 to 10% over the next six months and transaction volumes
are falling sharply as buyers withdraw from the market. This uncertainty comes on top of
many property market cooling measures brought in by the Hong Kong government over the
last few years.
■■ Following the Singapore governments new curbs on property loans, home sales in July were
73% lower MOM. The new rules require lenders take a borrower’s debt into account when
granting loans and that home loans should not exceed a total debt-servicing ratio of 60%.
■■ In the UK, recent house reports suggest a stronger property market, as demand from new
buyers picks up. In addition to a strengthening economy, housing is getting a lift from the UK
government’s program to increase mortgage availability and the Bank of England’s Funding
for Lending Scheme. However, it should be remembered that the UK economy is still weak, so
any prices increases are likely to be modest.

8. The Henley Outlook September 2013
Hong Kong, Singapore, Shanghai & London
Equities
8
Positives
■■ Prime Minister Abe cemented control of government with his party, taking the majority in
the upper house of Japan’s National Diet. It will provide much needed support for Abe to
overcome resistance in deregulation and reestablish order in government finances.
■■ Japan business sentiment turned positive given a weaker JPY and stronger domestic demand.
Business confidence among large manufacturers rose to +4, from -8 in March, the first positive
figure since Sep11.
Negatives
■■ The slowed economy grew at just 2.6% annualised in the three months through June and
this is clouding prospects for a planned sales-tax increase that would help Japan to rein in its
massive public debt.
■■ Abe has yet to deliver structural reforms promised as part of his three-pronged growth
strategy. Investors are focused on the continuing sales tax debate.
EQUITIES
UNITED STATES
JAPAN
HENLEY ASSESSMENT
Negative
Financial markets are dangerous,
unstable, short of collateral and
drowning in debt. Growth is largely a
mirage. Corporate revenues and profit
margins are in recession. The doubling
of the yield on the US Treasury ten-
year note (to 2.86% at the time of
writing) since the low in May presents
a significant threat to equity prices,
as well as to bond prices themselves,
mortgage rates and the whole house
of cards. With the double spectacle
of debates on the federal budget and
the debt ceiling to look forward to
this month, it is going to be fun, fun,
fun. Both at home and abroad, the
US is on the back foot economically,
politically and militarily to an extent
we do not remember seeing before.
With the Federal Reserve seemingly
losing control of both the bond and the
gold markets, the risks of a collapse of
the USD grow larger by the day. The
G20 summit should provide a better
indication; but better to be out of this
market a long time early than one
minute late. The risks continue to be
more important than the returns.
Positives
■■ Any experiment with tapering QE will be short-lived and likely lead to resumption at even
higher levels.
■■ Federal Reserve has forecast rates will remain unchanged until at least 2015.
■■ In the long term, demographics and returned energy self-sufficiency bode well.
Negatives
■■ National debt: USD16.8tn (fudged, at limit); debt-to-GDP: 107% and rising. Absurdly
unsustainable.
■■ QE to infinity promises currency debasement, rising consumer prices and lower discretionary
spending.
■■ Possible imminent collapse of paper gold market would collapse the USD.
HENLEY ASSESSMENT
Neutral
Concerns over tapering of asset
purchases by the US Fed rekindled
strengthening of JPY. Abenomics
was tested by correction in stocks
and rising yields in Japanese
government bonds. Recent market
reactions suggest the “three-arrow”
policies by Prime Minister Abe are
not foolproof! Implementation of
economic restructuring has so far
been disappointing in terms of timing
and scope.

9. Equities
9
UNITED KINGDOM
EUROPE EX UNITED KINGDOM
EQUITIES
HENLEY ASSESSMENT
Neutral
In the UK, there were further signs
that the economic recovery was
strengthening. The preliminary
reading of second quarter GDP
growth was 0.6%, double the 0.3%
first quarter increase. Activity
indicators such as manufacturing
and services Purchasing Managers
Index (PMI) delivered further gains
while consumer confidence picked
up from low levels. The Monetary
Policy Committee (MPC) left interest
rates unchanged and, following Mark
Carney’s first meeting as governor,
the MPC revised up its near-term GDP
growth forecasts significantly.
Positives
■■ Mark Carney, the governor of the Bank of England, sought to convince a sceptical city that
borrowing costs will remain on hold for the next three years, as he warned that UK needs a
prolonged period of low interest rates to make up the ground lost during the recession. In
his first big speech since taking charge in July, Carney left the door open for fresh stimulus
measures if adverse market reaction to the bank’s new forward guidance regime threatened
the UK’s “fledgling recovery”.
Negatives
■■ Since the MPC adopted its new policy of forward guidance in July, contrary to what the
monetary policy committee would have wanted, investors have brought forward their
expectations of a rate rise amid strong economic data for the UK, and fears about the
knock-on effects if the US Federal Reserve phases out its own USD85bn-(GBP55bn)-a-month
programme of QE. This has driven short-term interest rates higher.
HENLEY ASSESSMENT
Strongly negative
Notwithstanding the positive growth
in the second quarter, economic
fundamentals in most countries
remain grim. While domestic
consumption finally appears to be on
the rise in Germany, many markets
further afield remain fragile. The
peripheral countries continue to lag
far behind the wealthier core, with
several still in recession and many
saddled with eye-watering rates
of unemployment: Greece 26.9%,
Spain 26.3%, and Ireland 13.5%.
Lastly, progress on many of the most
pressing political problems, including
completing a banking union, are
unlikely to be resolved until after the
German elections in September.
Positives
■■ GDP in the euro zone area rose 0.3% in the April-June period after a 0.3% contraction in the
previous three months. Germany (+0.70%) and France (+0.50%), the euro area’s two largest
economies, both showed faster-than-projected expansions in the last quarter.
■■ Europe’s economy emerged from a record long recession in the second quarter, expanding for
the first time since 2011.
■■ ECB will reduce the risk premium, or haircut, applicable to asset-backed securities to 10% from
16%. It will also lower the quality threshold for six ABS classes that are subject to loan-level
reporting requirements to two A- ratings from two AAA ratings.
Negatives
■■ Four of the euro area’s 17 member countries remain in recession, including Italy and Spain.
The jobless rate stands at 12.1%, the highest since the euro’s inception, ECB President Draghi
this month described progress as “tentative”.
■■ Dutch GDP shrank both QOQ and YOY, by 0.2 and 1.8% respectively. In July, 25 companies
were declared bankrupt every day, the highest reading since 1981. Unemployment hit another
record high in the month, reaching 8.7% of the workforce.

10. The Henley Outlook September 2013
Hong Kong, Singapore, Shanghai & London
Equities
10
ASEAN
AUSTRALIA
EQUITIES
HENLEY ASSESSMENT
Neutral
The Reserve Bank board next meets
on September 3. This is four days
before the general election. The
board’s minutes for the August
meeting stated clearly that rates are
likely to be on hold in September but
that the board has not closed off the
possibility of reducing rates further.
We believe that more rate cuts can
be expected over the course of the
next six months. Also, the weaker
AUD should begin to provide support
for key sectors of the Australian
economy, given its fall in recent
months. Tourism, manufacturing and
the domestic retail sector should see
support.
Positives
■■ The RBA took the decision to cut the official interest rate by 25bps to an historic low of 2.5%.
The rate has now been cut by 225bps since Nov11 and is at its lowest level since 1960.
■■ The Westpac Melbourne Institute Survey of Consumer Sentiment rose by 3.5% in August,
from 102.1 in July to 105.7. The consolidation of the AUD (15% fall since Apr13) at a lower
level may have played a positive role for sentiment.
Negatives
■■ Yields on the nation’s 10-year government bonds rose to 4.05%, the highest in 16 months.
■■ The consumer sentiment index is still 7% below the average read in 2010, when households
had become quite optimistic that the potential fallout from the global financial crisis (GFC)
had passed. Despite the RBA cutting rates by 2.25% so far in this cycle, the index is only 2.3%
above the level achieved following the first rate cut of 0.25% back in Nov11.
HENLEY ASSESSMENT
Neutral
Near-term volatility is immense
due to potential tapering. On the
fundamental side, as Myanmar exits
decades of isolation and tries to build
a healthy economy, it is looking to
Thailand for direction and financing.
The same goes for Cambodia, Laos
and Vietnam. The opening up of
smaller countries within ASEAN will
reverberate around the neighborhood
and impact the greater region of
south-east Asia.
Positives
■■ Indonesia’s budget deficit has stayed under 3% of GDP, unemployment and poverty rates
have fallen and the country has achieved an investment grade rating.
■■ Malaysian market offers the lowest volatility among the world’s biggest markets.
■■ Myanmar will be given preferential access to the EU market tomorrow for the first time since
1997.
Negatives
■■ Thai economic growth slowed for a second quarter as exports cooled and local demand
weakened.
■■ Thailand’s household debt at 80%of GDP limits the scope for further easing.
■■ Indonesia’s central bank reported yesterday that 2Q13 current account deficit widened to a
record USD9.85bn, from USD5.82bn in 1Q13.
■■ Potential QE tapering poses uncertainty to stock markets, which have taken a big hit over the
last couple of weeks. Indonesia, in particular, has fallen 13% WoW.
■■ External shocks from the Fed and China’s slowdown have a huge impact to ASEAN.

11. Equities
11
Positives
■■ HSBC China flash manufacturing PMI surged to a four-month high of 50.1 in August, beating
expectations and is up from an 11-month low of 47.7 in July.
■■ China’s exports rebounded in July, expanding 5.1% YOY, after a 3.1% contraction in June.
■■ CPI inflation figures stood at 2.7% in July, the same as the previous month and below target.
The consumer prices are largely driven by food prices, rising at 5%, while non-food prices only
rose 1.6%.
Negatives
■■ China’s GDP grew 1.7% QOQ in Q2 vs 1.6% in Q1. Annual growth stood at 7.5% YOY, in line
with expectations.
■■ In early June this year the National Audit Office (NAO) said a follow-up audit found a total
debt of RMB3.85tn owed by 36 local goverments at the end of 2012, up 12.9% from 2010.
Although Beijing still claimed the local government debt situation was under contral, many
people believe the systematic risks are increasing due to the unsustainable credit expansion.
GREATER CHINA
EQUITIES
HENLEY ASSESSMENT
Neutral
On 16th Aug, China’s stock market
experienced another setback to
its credibility when Everbright
Securities’s trading error causing
China’s version of ‘flash crash’. It
was actually a ‘flash rally’ generated
by the brokerage firm’s massive buy
orders (see the chart). The firm also
admitted that it had been trading
with its proprietary account on the
A-share market. The good news is
that during the same month China’s
manufacturing growth started to
stabilise on the back of modest
improvements in new business and
output. This is mainly driven by the
initial filtering-through of recent fine-
tuning measures and companies’
restocking activities, despite the
continuous extenal weakness. We
expect further filtering-through,
which is likely to deliver some upside
surprises for China’s growth in the
coming months.

12. The Henley Outlook September 2013
Hong Kong, Singapore, Shanghai & London
Equities
12
HENLEY ASSESSMENT
Negative
Emerging-market stocks tumbled
to a six-week low on concern that
capital outflows will accelerate amid
prospects for reduced US stimulus.
Investors withdrew USD8.4bn
from developing-nation exchange-
traded funds this year as weakening
economies fueled pessimism in
markets already concerned the Fed
will start cutting bond purchases.
Other Emerging Markets (South Korea, Russia, Brazil)
EQUITIES
Positives
■■ Russian consumer spending accelerated in July. Retail sales accelerated for a second month,
growing 4.3% from a year earlier after a 3.5% increase in June. The central bank held its main
lending rates unchanged for an 11th month as policymakers try to hold price growth to this
year’s target range of 5% to 6%.
■■ The Bank of Korea held rates steady at 2.5% – the third hold in a row. A statement from the
bank was a fair bit more optimistic than in previous monetary policy minutes. First is the
bank’s view of global growth, which has turned more confident. A subtle shift, but the bank
has gone from “expecting” a modest recovery to “forecasting” one in its statement. Next, the
bank was more positive on the domestic economy. The description of growth has shifted from
“weakly” to “moderately”, led by exports.
Negatives
■■ Brazil’s BRL fell more than 5% to trade at its weakest level since Mar09, even as the central
bank sold nearly USD3bn worth of currency swaps. The currency weakness has complicated
policymakers’ efforts to rein in inflation, leading many investors to bet the central bank may
speed up the pace of monetary tightening.
■■ Corporate-lending growth in Russia has plunged as the weaker economy prompts banks to
demand more collateral and as borrowers shun interest rates that can top 20%. The economy
grew 1.2% from a year earlier in the second quarter, the slowest pace since 2009. That may
mean Russia has entered its second recession in five years.
India
HENLEY ASSESSMENT
Neutral
Neutral. India is facing a trilemma
– slow growth, high inflation and
increasing current account deficit.
Fuelling the worries on the India story
is the recent free fall of the INR, which
has lost 23% since the start of May
this year. Ex-chief economist of the
IMF and the new RBI Governor could
not stop the INR from plummeting to
new lows, hitting 65.56 against the
greenback on 27 August almost every
day. Indeed, the RBI could tighten the
monetary policy, however that would
result in the stalling of the growth
engine of the frail economy. The
expected tapering of QE is worsening
the currency crisis. September is the
month to watch out for the INR,
which is expected to continue the
downtrend to unprecedented levels
of 68-70.
Positives
■■ The value of Indian exports shot up 11.6% YOY in July 2013 ; this is the best increase over the
last 12 months.
■■ On the back of the falling INR and rallying US stocks, Indian IT companies listed in the US
rallied 1 to 5% in August alone.
Negatives
■■ Output dropped for the third consecutive month in July with the PMI standing at 50.1
compared to 50.3 in June.
■■ Wholesale Price Index (WPI) figures showed that headline inflation, climbed to a five-month
high of 5.79 in July, from 4.86% in June, owing to higher food prices and expensive imports.

13. Equities
13
Key points
■■ The threat of further ETC divestment requires physical demand to absorb as much supply as
possible.
■■ Palladium continues to benefit from a weak US dollar, disrupted South African production and
slowing Russian stockpile sales.
Energy
Precious Metals
COMMODITIES
HENLEY ASSESSMENT
Neutral
Oil prices were significantly more
positive in July, with Brent crude oil
increasing by 5.9%. Strong demand
from China, a large upward revision
in demand across the OECD, and
geopolitical threats to supply pushed
prices higher. US natural gas prices
finished the month down 3.26% over
the period, which can partially be
explained by lower-than-expected
summer electricity demand. The
global liquefied natural gas (LNG)
market remains tight, and visible
robust demand from Asia will keep
European and Asian gas prices
supported.
Key Points
■■ Oil demand numbers have been relatively weak, especially from OECD Europe.
■■ Consensus remains that we are moving into a period of supply surplus.
■■ Supply from shale gas will keep natural gas prices rangebound.
HENLEY ASSESSMENT
Positive
The gold recovery continued through
August and at the time of writing the
price is USD1,375/oz., with bullion
posting a 5% gain in one week alone.
At the same time, silver gained 14% -
its biggest weekly increase in almost
five years. A more dovish Fed caused
speculative short sellers to cover
positions, which helped push prices
higher. Outflows from global gold
exchange traded commodities (ETCs)
slowed during the month. While
Chinese physical demand remained
strong, Indian demand continued
to be constrained by Indian Reserve
Bank policies. A weak economy and
a poor current account deficit saw
policymakers attempt to curb gold
imports, which represent a significant
contribution to total imports.
Palladium rebounded strongly in
July following a weak performance
in June. With a price rise of 10.5%,
it was one of the best performing
commodities, ending the month at
USD728/oz, and at the time of writing
was standing at USD754/oz.

14. The Henley Outlook September 2013
Hong Kong, Singapore, Shanghai & London
Equities
14
HENLEY ASSESSMENT
Positive and Negative
There are two very different markets
playing out in the agriculture
sector – physical and equity. Many
physical soft commodity prices have
exploded due to changing global
weather patterns over the past few
months, however these sharp price
increases tend to be followed with
just as sharp falls; there is a very
seasonal and cyclical pattern with
these movements. Currently with
many soft commodity prices at or
near record highs, we have a negative
view on investing at these levels and
encourage profit taking. On the equity
side, the largest weighting funds have
to this sector is via fertiliser and seed
companies. These industries are
having a significantly more important
role to play to help increase yield
and in the case of seed companies,
invent seed which is more tolerant to
changing global weather patterns.
We remain positive on agriculture
equity funds.
Positives
■■ UN’s Food and Agriculture
Organization estimates there will
be over nine billion mouths to feed
on the planet by 2050.
■■ Middle class consumers in BRICS
economies are increasingly
demanding more varied and
protein-rich foods. As affluence
increases, protein from sheep,
poultry, pigs, cows and fish may in
turn displace grains in diets.
■■ On the supply side, agricultural land
in production has barely increased
since the mid-1960s. Climate
change and depletion of natural
resources are powerful secular
trends that will restrict future food production.
■■ We remain positive on the agricultural equities asset class for 2013 as farmers are incentivised
to maximise production by optimising the usage of fertiliser and crop protection and using
the best seeds.
Negatives
■■ Prices are subject to many uncontrollable risks, eg, weather and natural disasters, politics and
other pests.
■■ Due to recent drought conditions in the American Mid-West and Russian Black Sea regions
we have seen corn, wheat and soy prices increase on average over 50% within a few months.
Commodities
Agriculture
Industrial Metals
HENLEY ASSESSMENT
Neutral
Zinc prices fell 0.5% while iron ore
prices rose 11.5% in July. The zinc
market has been in surplus since the
spike in prices in 2006 however, a
number of factors suggest that the
supply/demand balance for zinc is
turning, and with a move into deficit
we would expect to see prices rise
accordingly.
Key points
■■ The decline in silver prices from over USD30/oz to under USD20/oz will have raised costs at
many mines as silver is an important by-product from many zinc mines.
■■ Strong Chinese steel production and demand along with a dip in ore shipments from Australia
has allowed prices to recover at a time when prices usually dip.

15. Equities
15
Positives
■■ Following the first month of negative performance for the year in June, the hedge fund
industry returned to positive performance in July, the HFRX global hedge fund index posting
returns of +1%.
■■ Commodities managers were generally positive through July, led by a recent rally in precious
metals and energies.
■■ Correlations between asset classes were less prominent with, for example, a continuing selloff
in US treasuries accompanied by rising global equity markets.
■■ Event-driven hedge fund managers were among the top performers in July. Despite relative
restrained deal-flow in most of 2013, July became the biggest month for M&A activity since
Sep08.
Negatives
■■ Global macro managers was the worst performiing strategy in July, with both discretionary
macro managers and managed future managers struggling to generate returns in markets
that remain somewhat uncertain.
■■ It is likely that once earnings season is over, and the uneasy sense of macro picture, investors
focus will once again shift to the likehood of tapering, which in the short term we feel that this
will be a challenging environment for most of fund managers in alternative space.
Alternative Investment
HENLEY ASSESSMENT
Neutral
July was favorable for hedge fund
strategies. Despite the volatility of
June, many hedge fund managers
were able to regain their footing in
the month, readjusting exposure
in a nimble fashion to exploit the
risk-on background. Our outlook for
alternative investment has changed
very little through the month, as
markets have largely followed a
pattern we broadly anticipated.
We hope that the earnings season
in October 2013 will provide good
opportunities for equity long-
short managers with an edge in
fundamental research.
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Notwithstanding that the information contained herein has been obtained from sources which The Henley Group believes to be reliable, The Henley Group makes no guarantee, representation or warranty and accepts no responsibility or liability as
to its accuracy, completeness or correctness. The information in this document, including any expressions of opinions or estimates, should neither be relied upon nor used in any way as indication of the future performance of any financial products,
as prices of assets and currencies may go down as well as up and past performance should not be taken as indication of future performance.
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16. The Henley Outlook September 2013
Hong Kong, Singapore, Shanghai & London
Equities
16
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Henley Market Outlook
September 2013