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Broadgate: Weekly Briefing 20/6

20 June 2013

China – Emerging markets are suffering a sharp pullback by investors fearful of a shock from China just as confidence in the world economy, and the euro zone in particular, rises, according to a survey of fund managers.

The monthly poll from Bank of America Merrill Lynch, published on Tuesday, showed that allocations to global emerging market equities in June hit their lowest level since December 2008, with a net 9% of respondents now underweight.

A net 48% of fund managers reported an overweight position in equities overall, up from 41% in May and back above the 47% level seen in April.

The fears over China come after a Reuters poll on Tuesday signalled more optimism among equity analysts, and Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, suggested the survey response looked overdone.

“The lows in emerging market equity and commodity allocations suggest the market has over-positioned itself for a shock from China,” he said. China was considered the greatest tail risk among those polled, followed by a potential failure of stimulus measures in Japan.

India – India looks set to overtake China as the world’s most populous country from 2028, according to the United Nations (U.N.).

At that point, both nations will have 1.45 billion people. Subsequently India’s population will continue to grow until the middle of the century, while China’s slowly declines.

The UN also estimates that the current global population of 7.2 billion will reach 9.6 billion by 2050.

The world’s 49 least developed countries are projected to double in size from around 900 million people in 2013 to 1.8 billion in 2050, whereas the population of developed regions will remain largely unchanged.

Japan – Japanese exports rose in May at the fastest annual rate since 2010 as the yen weakened, providing a boost to Prime Minister Shinzo Abe’s plan to revive the economy.

Shipments shot up 10.1% from the previous year, data showed, to earn 5.8tn yen ($60.5bn). The yen has weakened significantly since last year, despite recent gains, helping exporters. A strong yen makes Japanese goods expensive overseas and cuts profits.

“This (export data) shows Japanese companies are increasingly in better shape,” said Junko Nishioka, chief economist at RBS Securities Japan. “Their profitability is also rising these days, meaning they are becoming more resilient to potential external shocks.”

Europe – JP Morgan Asset Management points to the potential for double-digit returns for long-term European equity investors prepared to re-risk their portfolios now, as the outlook for the region continues to improve.

According to the latest Market Insights analysis by JP Morgan, belief that the eurozone crisis is now contained and the “high tide of austerity” has largely subsided brings the opportunity for investors to benefit from increasing equity prices as risk appetite returns.

JP Morgan global market strategist Daniel Morris says: “Even if it takes markets until 2018, a full decade after the onset of the crisis, investors getting back into the markets now stand to achieve nearly double-digit annualised total returns.”

Spotlight on: Dissecting Global Wealth

North America reclaimed the top spot as having the most millionaires last year, beating Asia as the world’s ultra-rich pushed global wealth to a record high, according to a report by Cap Gemini SA and Royal Bank of Canada.

People in North America with at least $1mn in investable assets climbed 11.5% to 3.73 million in 2012, according to the 17th annual World Wealth Report. High-net-worth individuals in the Asia-Pacific region, which overtook North America a year earlier, increased 9.4% to 3.68 million, boosted by Singapore and Hong Kong.

The combined wealth of the world’s millionaires rose 10% to a record $46.2tn last year, after declining 1.7% in 2011. North America remained the richest region with $12.7tn of high-net-worth assets, compared with $12tn in Asia-Pacific where the wealthy are expected to retake the top spot in “the very near future” and lead growth over the next three years, according to the study.

“Both the U.S. and Canada benefited from marginal GDP growth as well as equity and real estate markets,” Jean Lassignardie, chief sales and marketing officer for Paris-based Cap gemini Global Financial Services, said. Still, Asia-Pacific’s total wealth increased 12.2%, outpacing North America’s 11.7% growth, he said.

The increase in wealth was led by the super-rich, those with at least $30mn to invest, whose assets and numbers rose by about 11% following declines in 2011, according to the report.

Latin America

The MSCI World Index, which tracks global stocks in developed and emerging markets, climbed 13% in 2012 and has advanced 11% this year. The MSCI AC Asia Pacific Index jumped 14% last year and is up 2.8% in 2013.

All regions had strong gains in high-net-worth populations and wealth except Latin America, which faltered amid slow economic growth and “challenged” equity markets, according to the report. The population of millionaires worldwide rose 9.2% to 12 million, the report showed.

In Europe, the high-net-worth population increased 7.5% to 3.41 million and their wealth climbed 8.2% to $10.9tn, the study found.

In Asia, Hong Kong’s number of high-net-worth individuals climbed 36% to 114,000 people worth a combined $560bn, the report stated. Singapore’s jumped 10% to 101,000 with wealth of $489bn.

Global wealth will grow at 6.5% annually over the next three years, led by the 9.8% increase from the Asia-Pacific region, according to the report. Assets of the high-net-worth are projected to reach $55.8tn in 2015.

Wealthy Entrepreneurs

The dominant source of wealth for the world’s richest people is from entrepreneurship rather than inheritance, according to a separate report this week by London-based Barclays Plc. Wealth is being created twice as quickly in developing regions such as Asia-Pacific and Africa, where it took rich people an average of 12 years and 16 years, respectively, to accumulate their assets, the study found.

A Pew Research Center study in April found that while the U.S. economy has recovered for households with net worth of $500,000 or more, the recession continues for almost everyone else. Wealthy U.S. households boosted their net worth by about 21% between 2009 and 2011 as the rest of America lost 4.9% of household wealth, the Pew study found.

“Asia’s wealth generation is less dependent on markets,”Barend Janssens, head of RBC Wealth Management’s emerging markets division, told reporters in Singapore, citing the region’s entrepreneurship. That compares with “the Western world where they manage a lot of inherited money. That creates the potential to grow very quickly.”

Cautious Rich

The world’s affluent remained cautious in 2012, with a focus on preserving assets, according to the report from Capgemini and Royal Bank’s RBC Wealth Management unit, which surveyed more than 4,400 high-net-worth individuals. A third were primarily focused on preserving wealth, while 26% sought to increase assets. Almost 30% of high-net-worth wealth was held in cash and deposits, the report found.

Millionaires in the Middle East and Africa were the most focused on wealth accumulation, with about 42% making asset growth a priority compared with 33% seeking preservation, the study found.

North America’s wealthy held most of their assets in equities, at 37%, while those in Latin America and Asia-Pacific, excluding Japan, preferred property. Latin America’s rich had 30% of their portfolios in real estate, compared with 25% for Asia-Pacific. Millionaires in Europe favored cash and real estate, allocating 27% to each.

BWB

The information set out herein has been obtained from various public sources and is by way of information only. The Broadgate Financial Group can accept no liability of any sort in relation thereto and readers should obtain their own verification of any statement before making any decision which may have any financial or other impact.

Neither the information nor the opinions herein constitute, or are they to be construed as, an offer or a solicitation of an offer to buy or sell investments.

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