Capital International Group | Investment Review

CapitalInternational Group

FIRST QUARTER 2016

INVESTMENT REVIEWINNOVATION | INTEGRITY | EXCELLENCE

CELEBRATING

Y E A R S I N B U S I N E S S

2016: BUILDING ON

Y E A R S O F BUSINESS FROM THE ISLE OF MAN

CapitalInternational

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The first quarter has certainly contained enough financial market action to last the rest of the year...

Volume: 13 | Issue: 4

Global EquitiesAn Extraordinary Quarter... Page 2

THURSDAY | 24 MARCH 2016The first quarter of 2016 has certainly contained enough financial market action to last the rest of the year...

Economy in FocusIsle of Man Budget 2016 Page 4

THURSDAY | 03 MARCH 2016The latest Isle of Man Budget needs to be seen in the context of a global economy struggling for top line growth and flirting with deflation...

Country in FocusCanada Page 6

FRIDAY | 19 FEBRUARY 2016The last few months have proved to be a difficult time for the Canadian equity market and the country has also had to suffer a weak currency...

Region in FocusEurope | Brexit Vote Page 8

MONDAY | 14 MARCH 2016The question facing UK voters on 23rd June 2016 will be should the UK remain a member of the European Union or leave the European Union?

Sector in FocusUK Retail Page 11

THURSDAY | 17 MARCH 2016Activity in the UK retail sales sector cooled in February as conditions remained challenging and hopes of a strong start to the year faded...

Fixed Income ReportFirst Quarter Review Page 12

THURSDAY | 31 MARCH 2016Unlike the fourth quarter of 2015, the latest quarter under review has seen a sharp fall in bond yields...

The Capital International GroupCelebrates 20 Years in Business Page 14

THURSDAY | 31 MARCH 2016In 1996, petrol only cost 52.9p a litre, The Spice Girls released their first single Wannabe and Independence Day was a hit at the box office but more importantly...

Investment ReviewContents

Country in FocusBrazil Page 16

WEDNESDAY | 03 MARCH 2016The political and financial problems that had Brazil teetering on the edge of a depression...

Regional UpdateSouth Africa Page 18

THURSDAY | 31 MARCH 2016Often equity markets start the year on a positive note in anticipation of positive prospects...

Industry in FocusSovereign Wealth Funds Page 20

THURSDAY | 10 MARCH 2016For years, sovereign wealth funds (SWFs) – primarily established by oil-rich nations as stabilisation funds and/or inter-generational savings vehicles...

Sector in FocusUK Housing Market Page 22

MONDAY | 25 JANUARY 2016UK house prices experienced another year of solid growth on aggregate last year...

Country in FocusSouth Africa Page 24MONDAY | 18 JANUARY 2016After a tumultuous December with Jacob Zuma’s firing of Finance Minister Nene we can look back at this moment as one where South Africans thought this was one step too far...

Market JargonIt's not a jungle out there... Page 26

TUESDAY | 12 JANUARY 2016We often refer to animals in our everyday life and the financial services is certainly not short of its own references...

Group SponsorshipPassion for Speed Page 27SATURDAY | 06 FEBRUARY 2016

Cape Argos Cycle RaceSUNDAY | 13 MARCH 2016

Group AnnouncementsNew Appointments Page 28TUESDAY | 01 MARCH 2016

Group PromotionsFRIDAY | 22 JANUARY 2016

Page 1

© Capital International Group 2016 Innovation Integrity Excellence

THURSDAY | 24 MARCH 2016

The first quarter of 2016 has certainly contained enough financial market action to last the rest of the year. For instance, there were more 2% global equity market daily shifts in January

than in the entire year of 2014! Several factors came together to unnerve investors, with continued declines in commodity prices, fears of a fresh banking sector meltdown and weak Chinese economic data. We believed the falls were overdone, although this can be hard when several equity indices were 12% lower than their year-end 2015 close.

Indeed since mid-February we have witnessed a decent ‘risk-on’ phase for global equities with many of the punch drunk sectors rallying the hardest, notably mining and emerging markets. It is unclear how ‘technical’ the bounce has been and there appears to have been a significant amount of short covering by hedge funds which has added fuel to the fire. At the time of writing we are essentially back to where we started, which is a predominantly dull picture, where global GDP growth is at a premium and Central Banks are doing all they can just to maintain stability.

The UK economy is overshadowed in the short term by the looming EU Referendum in June which is unhelpful for the Bank of England. The uncertainty created is delaying investment plans, and whilst status quo remains the likely outcome, it is clear that UK GDP growth is faltering. However, the weakness in Sterling is a positive for the export sector and with continuing full employment, consumer spending is well underpinned. UK inflation remains far below the target of 2%, with the latest reading being a mere 0.3%. The recent Budget also indicated that the public finances will remain weaker for a longer period of time.

The ECB has done its best to boost Eurozone growth with unconventional measures such as effectively paying banks to borrow money Deflation remains a concern, with prices expected to rise by a meagre 0.1% this year. The ECB forecasts do, however, call for inflation to revive, rising to 1.3% next year and 1.6% for 2018. That would still be less than the official target of below, but close to, 2%. There are tentative signs that growth has picked up towards the end of the quarter with a recent Purchasing Managers Index rising to a three month high. Growth for the region should now be 1.4% in the current year and 1.7% in 2017.

The US economy remains in somewhat of a holding pattern, although it is susceptible to a mild recession as corporate profitability is squeezed. The Federal Reserve are aware of these risks and have dialled back interest rate expectations. They appear to be comfortable in taking the risk that the labour market could cause some short term inflationary risks in order to keep the wider economy on track.

Japan has been a disappointing economy with weaker than expected exports and a lack of housing investment. A stronger Yen in recent weeks is unhelpful and we expect the Bank of Japan to ease policy further in the coming months. GDP growth in the current year will struggle to beat 0.5%. In the Emerging Markets, equities in countries such as Brazil, Thailand, Indonesia and Malaysia have had an unexpected strong comeback since bottoming in mid-January, driven largely by a weaker dollar and hopes for a slower pace of US rate hikes.

Global EquitiesAn Extraordinary Quarter...


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Newmont MiningBased in Colorado, USA, Newmont Mining is one of the

world's largest producers of gold, with active mines in Nevada, Indonesia, Australia, New Zealand, Ghana and Peru. Holdings include Santa Fe Gold, Battle Mountain Gold, Normandy Mining, Franco-Nevada Corp and Fronteer Gold. As of the third quarter of 2014, Newmont was the world's second-largest producer of gold, behind only Barrick Gold.

World Price at % Chg % ChgIndices 31-Mar-16 31-Dec-15 31-Mar-15 Quarterly 1 Year

UK Markets 6,174.90 6,242.32 6,773.04 -1.08% -8.83%Dow Jones 17,685.09 17,425.03 17,776.12 1.49% -0.51%NASDAQ 4,869.85 5,007.41 4,900.89 -2.75% -0.63%S&P 500 2,059.74 2,043.94 2,067.89 0.77% -0.39%DAX 9,965.51 10,944.97 11,966.17 -8.95% -16.72%CAC 40 4,385.06 4,637.06 5,033.64 -5.43% -12.88%Nikkei 225 16,758.67 20,235.73 19,206.99 -17.18% -12.75%Hang Seng 20,776.70 26,250.03 24,900.89 -20.85% -16.56%FT All Gilts 177.35 170.33 177.33 4.12% 0.01%

Rates & Price at % Chg % ChgCommodities 31-Mar-16 31-Dec-15 31-Mar-15 Quarterly 1 Year

GBP/USD 1.4394 1.4734 1.4843 -2.31% -3.02%GBP/EUR 1.2647 1.356 1.3835 -6.73% -8.59%GBP/JPY 161.937 177.093 178.045 -8.56% -9.05%SILVER 15.155 13.803 16.753 9.79% -9.54%GOLD 1233.60 1062.25 1179.25 16.13% 4.61%EUR Crude Oil 38.72 35.75 53.34 8.31% -27.41%US Fed Funds 0.50 0.50 0.25 0.00% 100.00%UK Base Rate 0.50 0.50 0.50 0.00% 0.00%ECB Base Rate 0.00 0.05 0.05 -100.00% -100.00%

In the US, the S&P 500 Index is now in positive territory for the year, something that seemed unthinkable in mid-February when it had fallen nearly 11%. It has now risen nearly 0.5% with the Dow Jones up 1%. The NASDAQ is trailing with a near 4% fall, which reflects some of the valuation concerns that investors have regarding the technology stocks. The embattled mining sector has led the recovery with Freeport-McMoRan up 62%, Newmont Mining 52% higher and Range Resources up 33%. The domestic consumer stocks have also been resilient with Urban Outfitters up 44%, Wal Mart up 11% and Macys rose 25% on the quarter. On the downside, Financials have been poor with American Express down 13%, Bank of America fell 18% and Morgan Stanley was 19% lower. Other fallers included TripAdvisor down 25%, Transocean down 20% and Amazon down 17% on profit taking.

The UK equity market remains negative for the year with the FTSE 100 down 1% and the Mid-Caps down 3%. Amongst the fallers, Barclays declined 28%, HSBC lost 17% and RBS dropped 24%. Other fallers included Inmarsat down 18%, Sports Direct falling 36% and Thomas Cook 25%. On the gainers list, Glencore climbed 77%, Tesco rallied 33% and Pearson recovered 23%.

In Europe, most indices fell on the quarter with the DAX down 6%, the French CAC lost 4% and the Swiss market declined 10%. Decliners included Credit Suisse down 33% on cost saving measures, Deutsche Bank lost 27% on asset write-down concerns and EDF fell 23%. On the plus side, Adidas was up 14%, ArcelorMittal was up 26% and Moncler rallied 13%.

Asia also experienced volatile trading conditions, with the Nikkei in Japan down 11% and the Hang Seng in Hong Kong down 6%. Whilst Taiwan rose 5% and Thailand gained 10%. Gainers across the region included AirAsia up 44%, Genting gained 35% and China Steel gained 26%. Fallers included Dai-Ichi Life down 33%, Hitachi down 24% and Great Wall Motors lost 28%.

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Barclays PLCBritish multinational banking and financial services company headquartered in London. It is a universal bank with operations in retail, wholesale and investment banking, as well as wealth management, mortgage lending

and credit cards. It has operations in over 50 countries and territories and has around 48 million customers.

AirAsia BerhadLow-cost airline headquartered near Kuala Lumpur, Malaysia being the largest airline in fleet size and destinations. AirAsia group operates scheduled domestic and international flights to 100 destinations

spanning 22 countries. AirAsia operates with the world's lowest unit cost of US$0.023 per available seat kilometres (ASK) and a passenger break-even load factor of 52%.

China Steel CorporationThe largest integrated steel maker in Taiwan. Its main steel mill is located in Kaohsiung was founded in December 1971. According to the World Steel Association, China Steel is the 23rd largest steel producer in the world

in 2015 having produced 15.4 million tonnes. Putting this in context the UK alone produce 10.9 million tonnes in the same time period.

Freeport-McMoRanThe company, often called Freeport, is one of the world's largest producers of copper and gold. Its headquarters are in Phoenix, Arizona and is the largest copper and molybdenum producer

in the world. It mines and mills ores containing copper, gold, molybdenum, cobalt and silver for the world market as well as having oil and gas interests.

Innovation Integrity Excellence© Capital International Group 2016

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The latest Isle of Man Budget needs to be seen in the context of a global economy struggling for top line growth and flirting with deflation. In many areas, bond yields are

actually negative for an increasing number of maturities and the weakness experienced recently in global markets has quashed any imminent interest rate rises. UK economic growth is forecast to be only 1.9% in the current calendar year. It is a tough environment for any Government to try to grow tax receipts or to attract new, major inward investment. However, it should be commended that the Island has now enjoyed 33 years of continuous GDP growth.

The latest Budget measures should be viewed in terms of the long term structural development of the economy rather than any short term personal taxation overhaul. The Treasury mantra is economic diversification and in recent years the success of the e-gaming sector has shown how fruitful this can be. This was never really going to happen in an election year. The Government are still reacting to the reduction in the VAT take and there remains much work to be done. Centralised procurement of services has saved impressive amounts of money so far and there is surely more to come.

It should be welcomed that flexibility regarding work permits has been introduced for certain sectors. Diversification of the economy is key, particularly when core areas such as Banking are in a headcount reduction mode. Technology changes are having a huge impact on all our lives and this can be a crucial area for Government to generate some of the further cost savings required.

The recent increase in tourism figures should be welcomed and hopefully news in the sector will lead to an increase in the availability of hotel beds. There has been the flagship development in Douglas and longer term the Port Soderick re-development could be interesting. The boost to the capital programme and the proposed Government bond are also positive developments.

With immediate effect, the Government has also introduced a new Land Development Tax Holiday offering income tax exemption up to five years for new commercial developments to help create additional employment. This is also hoped to encourage companies to relocate to the Island.

Another positive, from a business perspective, is the confirmation that there will be no changes to the company tax system. This remains the cornerstone of our economy and key to the future as continued growth is identified as a key requirement to deal with the structural deficit.

As with countries such as China and Japan, the Island faces an ageing population and this clearly brings challenges to areas such as Healthcare. What is interesting is that in Japan they are turning it into a positive and focusing on products for the older market. The Island could consider encouraging companies to innovate new products and services focused on the older demographic.

With effect from 6th April 2016, administrators of certain approved pension schemes will be able to make trivial commutation payments of up to £50,000 to scheme members aged 55 or older who choose to draw the full value of their funds. This level is an increase from the current limit of £30,000 after aged 60. These lump sum payments are subject to Isle of Man income tax at the individual’s marginal rate (on either 70% or 75% of the fund depending on the pension with the remainder paid tax-free), with the scheme administrator responsible for making the relevant deduction under ITIP.

There is no easy answer to the pensions issue and the low bond yields highlighted previously have made estimated deficits even larger. The flexibility of individuals to take amounts less than circa £70,000 is a good one but other more drastic initiatives are required to solve the possible long term funding gap.

Economy in FocusIsle of Man Budget 2016


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Facts & Figures

Motto Quocunque Jeceris Stabit (Latin)

Whithersoever you throw it, it will stand

Status Crown dependency

Capitaland largest settlement

Douglas

Official Language(s) English, Manx Gaelic

Population, origins(2011)

47.6% Isle of Man37.2% England3.4% Scotland2.1% Northern Ireland2.1% Republic of Ireland1.2% Wales0.3% Channel Islands6.1% Elsewhere

Demonym Manx

Government Parliamentary democratic constitutional monarchy with a de facto non-partisan democracy

■ Lord of Mann Queen Elizabeth II ■ Lieutenant Governor Adam Wood

Sir Richard Gozney (from 27/05/2016)

■ Chief Minister Allan Bell

Legislature ■ Upper house ■ Lower house

TynwaldLegislative CouncilHouse of Keys

AreaTotal 572 km2 (178th)

221 square miles

Water (%) 0

Population2011 census 84,497Density 148/km2 (77th)

362.4 per square miles

GDP (PPP)TotalPer capita

2010 estimate$4.1 billion (162nd)$53,800 (11th/12th)

Currency Manx pound (official)

Pound sterling (also used) (GBP)

Time Zone ■ Summer (DST)

GMT (UTC)West (UTC+1)

Drives on the Left

Calling Code +44

Internet TLD .im

Key features of the Isle of Man Budget 2016-17 include:

■ A £1,000 increase in individual’s income tax personal allowance, to £10,500, lifting 2,000 of those on the lowest incomes out of the tax net and reducing tax bills for a further 19,000

■ The 10% income tax band is retained but will apply to the first £8,500 of an individual’s taxable income, instead of the current £10,500 limit. No taxpayer is expected to be worse off as a result of the changes in banding and allowances

■ A proposed Government Bond offering a secure investment opportunity for local savers while raising funds for capital projects

■ The introduction of a penalty for those found to have avoided Manx income tax in contravention of general anti-avoidance provisions

■ A new Land Development Tax Holiday offering income tax exemption up to five years for new commercial developments that help to create additional employment

■ Additional transitional funding for the Health Service while it tackles escalating costs, particularly the cost of having to employ temporary staff at Nobles Hospital because of recruitment difficulties

Other key points from the 2016/17 Budget:

■ A new more transparent way of presenting Government’s financial information, including a revised Budget ‘Pink Book’ which now features commentary from each Department, Office and Board

■ Establishment of the Enterprise Development Fund to support the delivery of the Enterprise Development Scheme with year one funding of £10 million

■ A capital programme of £93m is planned which includes construction and engineering work worth £71 million, £23 million more than the previous year

■ Creation of a new £5 million contingency fund to be available in exceptional circumstances, including extreme weather damage

■ No change in income tax rates, Personal Allowance Credit or the ‘tax cap’

■ Basic state pension to rise 2.9% in line with the UK, but no change to the Manx Pension Supplement. There will be an additional increase of £5 per week for the poorest pensioners, those on income support


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FRIDAY | 19 FEBRUARY 2016

The last few months have proved to be a difficult time for the Canadian equity market and the country has also had to suffer a weak currency. The main index was down 4% over

the last quarter of 2015 and 12.5% over the last 12 months. This has hurt even more, considering the strength of the US currency over the period. At a point in January the main index, the TSX, was at the same level as 2006, a lost decade for equity investors. With many commodity related sectors struggling, the country’s equity index is a high beta play on a possible rebound. The concern however is that the TSX is trading at nearly 20x P/E with a dividend yield of just over 3%.

Recent strength in the gold price, driven by fears of a global deflationary spiral, has led the TSX to virtually eradicate the losses so far experienced in 2016. Indeed, this has left Canada as the best performing developed market. Stocks on the rebound have included Barrick Gold up 68%, Kinross Gold up 65% and Detour Gold is some 54% up in 2016. The Energy sector is still struggling in the wake of the historic decline in the crude oil price. Encana, a leading exploration and production company fell a staggering 56% in 2015 and is down another 33% year to date. The debt rating agencies have downgraded the company to junk status; Saudi Arabia’s planning is beginning to work.

Another bygone strength for the Canadian stock market in recent years is the country’s big banks, lauded during the financial crisis for their conservative approach. But they too have suddenly found themselves in investors’ crosshairs because of their perceived exposure to Canada’s slumping growth. So even though Canadian bankers collectively grew earnings by 6% last year, the “sell Canada” movement contributed to a nearly 10% decline in bank shares last year, according to Credit Suisse analyst Kevin Choquette. Some have been hit harder than others: while TD Bank’s share price has dropped 12% since hitting a high in mid-2014, Scotiabank is down a full quarter over that time.

There has been some positive corporate news in other sectors recently with Restaurant Brands International, the owner of Burger King and Tim Hortons, reporting strong Q4 2015 revenues. New menu items such as milkshakes and chicken fries are driving the food innovation overhaul. In the Telecoms sector, Bell Canada is seeing solid subscriber growth for both the fixed line and mobile business.

Country in FocusCanada


The Bank of Canada may cut its trendsetting interest rate to zero this year after floating the idea of negative interest rates last month. Meanwhile, Prime Minister Justin Trudeau has suggested he’ll speed up his government’s infrastructure plan in an attempt to boost the economy. However, neither approach is guaranteed to have the desired effect. Further interest rate cuts would push even more money into Canada’s bubbly-looking housing market and cause further deterioration in the currency. Meanwhile, the impact of deficit-spending schemes has been shown to be of minimal impact in a country like Canada where money can easily be moved across borders.

The core economy is also starting to suffer from a malaise, for instance, retail sales fell at the fastest pace in more than five years in December, on reduced holiday shopping and as a late start to winter snowfall curbed vehicle purchases. The 2.2% decline was way ahead of consensus forecasts, which had predicted a 0.9% dip. Elsewhere, the OECD slashed Canada’s GDP estimate by the most of any major developed economy this year and warns of “substantial” financial stability risks sweeping across borders. It’s also pushing politicians to take the stimulus burden off central bankers. The OECD now expects Canada’s economy to expand 1.4% this year as the collapse in oil prices takes a toll. In November 2015, it had been predicting over 2% GDP growth.

The incumbent Liberal Party have also promised to balance the budget in the fourth year of their mandate, a goal that will be difficult to accomplish without tax hikes or spending cuts. In a December interview, Prime Minister Justin Trudeau insisted his pledge to balance the books in four years was “very” cast in stone. Trudeau also said he would live up to the other fiscal “anchor” of lowering the debt-to-GDP ratio in every year of its mandate.

Balancing the books will be a tougher task than lowering the debt-to-GDP ratio, which represents a government’s capacity to pay back debt. Experts say by targeting debt-to-GDP, the Liberals can produce annual deficits of up to $25 billion in the coming years and still lower the ratio as long as the economy grows at a decent pace. However, at a certain point Ottawa may be forced to provide less fiscal stimulus to meet its debt-to-GDP goal.

Facts & Figures

Capital ■ Largest city

OttawaToronto

Official Language(s)Recognised regional languages

English, FrenchChipewyan, Cree, Gwich’in, Inuinnaqtun, Inuktitut, Inuvialuktun, North Slavey, South Slavey, Tłı̨chǫ

Ethnic Groups 76.7% White14.2% Asian4.3% Aboriginal2.9% Black1.2% Latin American0.5% Multiracial0.3% Other

Demonym Canadian

Government Federal parliamentaryconstitutional monarchy

■ Monarch ■ Governor General ■ Prime Minister

Queen Elizabeth David Johnston Justin Trudeau

■ Chief Justice Beverley McLachlin


ParliamentSenateHouse of Commons

AreaTotal Area 9,984,670 km2 (2nd)

3,854,085 square milesWater (%) 8.92

891,163 km2

344,080 square miles

PopulationQ1 2016 estimate2011 census

36,048,521 (37th)33,476,688

Density 3.41/km2 (228th)8.3 per square mile


2015 estimate$1.628 trillion (15th)$45,488 (20th)

GDP (Nominal)TotalPer capita


Currency Canadian dollar ($) (CAD)

Time Zone ■ Summer (DST)

(UTC−3.5 to −8)(UTC−2.5 to −7)

Drives on the Right

Calling Code +1

Internet TLD .ca

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MONDAY | 14 MARCH 2016

The question facing UK voters on 23rd June 2016 will be should the UK remain a member of the European Union or leave the European Union?

Eurosceptics argue that withdrawal would reverse immigration, save the taxpayer billions and free Britain from an economic burden. Europhiles counter that it would lead to deep economic uncertainty and cost thousands, possibly even millions, of jobs. It is certainly the case that the UK’s view on Europe tends to fluctuate in line with economic cycles. For instance, in recent years the Eurosceptic views peaked in the European debt crisis of 2011. A ‘leave’ vote could cause political turmoil with changes expected in the exit negotiations. It is also likely to cause another call for a Scottish independence vote.

Region in FocusEurope | Brexit Vote

Mr Cameron agreed a package of changes to the UK's membership of the EU after two days of intensive talks with other member states' leaders in Brussels in February. David Cameron wants Britain to stay in the EU, now he has got some powers back from it. The agreement, which will take effect immediately if the UK votes to remain in the EU, includes changes to child benefit payments to migrant workers for children living overseas to be recalculated to reflect the cost of living in their home countries. The UK can also decide to limit in-work benefits for EU migrants during their first four years in the UK. This so-called "emergency brake" can be applied in the event of "exceptional" levels of migration, but must be released within seven years - without exception.

Britain can keep the pound while being in Europe, and its business trade with the bloc, without fear of discrimination. Any British money spent on bailing out Eurozone nations will be reimbursed. Safeguards exist for Britain's large financial services industry to prevent Eurozone regulations being imposed on it. There is an explicit commitment that the UK will not be part of an "ever closer union" with other EU member states. This will be incorporated in an EU treaty change. It will be easier for governments to band together to block unwanted legislation. If 55% of national EU parliaments object to a piece of EU legislation it will be rethought. The settlement calls on all EU institutions and member states to "make all efforts to fully implement and strengthen the internal market" and to take "concrete steps towards better regulation", including by cutting red tape. Denying automatic free movement rights to nationals of a country outside the EU who marry an EU national, as part of measures to tackle "sham" marriages. There are also new powers to exclude people believed to be a security risk - even if they have no previous convictions.

The latest public opinion polls remain very close, with the ‘remain’ camp polling 51%, whilst the ‘leave’ camp have been registering 49%. This excludes the ‘don’t knows’. The Leave campaign has proved aggressive and well financed. It has skirted past a lack of clarity over alternatives to membership, instead playing up concerns over migration and sovereignty lost to Brussels. Immigration clearly remains a central issue and probably provides the biggest swing factor in the outcome of the result. The economy is probably the other key pillar, with the focus on both trade and investment flows. The UK relies heavily on inflows to finance the budget deficit and in recent times these have risen to multi year highs as a share of GDP.

In terms of trade, Government figures show that 12.6% of output is linked to exports for the Eurozone. The main benefit of EU membership must surely be the reduced barriers to trade and investment. Some estimates suggest that the currency will drop 10-15% in the event of a ‘leave’ vote. This clearly has important ramifications for the competitiveness of UK industry and the affordability of imports.

The UK has already opted out of the EU's monetary union, meaning that it uses the pound sterling (GBP) instead of the euro, and the Schengen Area, meaning that it does not share open borders with a number of other European states. Quantifying the impact from a possible Brexit is anything but easy. It is undisputable that Britain plays an important role in the EU. Whether it is the share in total population, total GDP or FDI, Britain ranks in the top three countries and a Brexit would be a big loss. Another factor would be other states making up the UK shortfall in the EU budget, should it leave. The biggest burden would be on the biggest countries, with Germany having to pay an additional €2.5 billion on top the current €30 billion into the EU budget.

Even putting the referendum result to one side, there is a concern that in the build up to the vote there will be a period of UK economic uncertainty. Companies may well delay spending decisions and put hiring plans on hold. UK GDP growth is already expected to slow to under 2% in 2016 from 2.2% in 2015. We believe that in Q1/Q2 the Brexit factor could shave off an additional 0.2% points in growth. This is clearly unhelpful at a time of deflationary pressures and concern on a slowing Chinese economy and the impact on global GDP.

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CapitalInternationalCapitalInternationalCapitalInternational



Activity in the UK retail sales sector cooled in February as conditions remained challenging and hopes of a strong start to the year faded. Following a poor pre-Christmas period for UK

retailers which was largely attributed to unseasonably warm weather, expectations were for a gradual pick-up going into 2016 and a strong set of January figures seemed to reinforce this. However, February’s figures were much softer according to the British Retail Consortium (BRC), with sales rising by 0.1% on a like-for-like basis from a year ago (on a total basis, sales were up 1.1%).

UK Retail Stats and Facts ■ Total value of UK retail sales were £339 billion in 2015. ■ 8% of all VAT-registered businesses in the UK are retailers, with the total number currently at 192,000 in 2015.

■ The retail industry employed over 2.8 million people in 2015. ■ In 2015, there were 290,315 retail outlets in the UK. ■ More than a third of consumer spending goes through shops. ■ The retail sector generates 5% of the Gross Domestic Product of the UK.

■ Sales over the internet accounted for about 12% of total retail sales in 2015.

■ Retail Internet sales are estimated to be growing at 10% per annum, totalling around £40 billion in 2014.

Source: ONS, Eurostat, Retail Economics analysis

After January's acceleration, February's slowdown put the three-month average growth in line with the 12-month average of 1.8% growth. Total retail foot-fall was down by 1.1% in February, with much of the decline due to a reduction in high street shoppers, which were 2.9% lower than the same month in 2015. Shopping centres also welcomed fewer visitors, down 0.6%, but retail parks reported an increase of 2.5%, partly as a result of additional attractions such as restaurants and entertainment, and, in a sign that the housing market remains buoyant; there was also robust demand for larger items such as furniture and white goods. Overall, every area of the country except Greater London and the south-west experienced a downturn in the number of shoppers coming through retailers’ doors.

Looking forward, it appears that the industry is going through a potentially challenging period. In the short-term there is potential fallout from the EU referendum and a much vaunted overhaul of business rates in this year’s budget. Business rates, which generated around £28 billion for the Treasury last year, are forecast to rise by £500 million this year, and to rake in £32.4 billion by 2020. Adding to these costs are the introduction of other government schemes such as the national minimum living wage which takes effect in April and the new Apprenticeship Levy, designed to fund 3m new apprenticeships.

The BRC claims that the rate rises combined with the additional costs of these initiatives would mean retailers have to find an extra £14 billion over the next five years. The impact of a ‘Brexit’ is less quantifiable but potentially more profound.

Sector in FocusUK Retail

The uncertainty in the build up to the referendum may affect consumer confidence, which is already fragile, and may also deter investment plans by large multi-nationals. A letter signed by almost 200 business leaders campaigning to remain in the EU was endorsed by many prominent retailers including the bosses of Asda, M&S, Dixons Carphone and Kingfisher, however, the campaign to leave is not without its own high profile names, such as the boss of Next.

An Investec article recently advised that an ‘out’ decision would “likely be a negative for UK retail demand” in the medium term, because of the uncertainty created by two years of exit negotiations as well as the potential for weaker GDP growth. Investec has identified the possibility of deteriorating shopper demand, sterling weakness, rising labour costs, changes to trade deals and long-term investment decisions as the key issues surrounding a potential UK exit. But the broker also noted that these were likely to be surmountable given that the sector had faced a lot of these issues in the past and was currently in good shape.

Looking out further, the gradual shift from traditional bricks and mortar stores to a comprehensive online presence is likely to dominate the strategic plans of many retailers, with requirements for more sophisticated technology and logistics in order to combine the personal service of traditional retailing and the convenience of using technology.

On aggregate, these factors will place a significant burden on retailers in the next few years. The BRC has warned that the sector is facing up to 900,000 job losses and the closure of thousands of shops in the next decade as structural change takes place, however, those that remain will be more productive and higher earning.

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Unlike the fourth quarter of 2015, the latest quarter under review has seen a sharp fall in bond yields. Central Banks continue to wrestle with the thorny issue that there

remains an excess of saving in the world which continues to hamper global economic growth and pulls real interest rates down. This suggests that the need for monetary accommodation is to be maintained for much longer than most investors expected. The beginning of the year has seen volatile equity market conditions and there has certainly been a spill over into both investment grade corporate bonds and high yield. Certainly as conditions have stabilised towards the end of the quarter there has been a sharp recovery in some of the heavily sold off areas, notably local currency emerging markets bonds. The yield attractions have simply been too tempting.

Europe has seen a lot of attention over the quarter, with the concern that the Banking sector and the real economy are deleveraging too rapidly. Bank assets remain vast, approximately 3x the GDP of the region. Headline inflation rates have been in, or have flirted with, deflation in spite of ongoing economic growth and a steady recovery in labour markets. For instance, the headline Consumer Price Index has been contracting at a year on year rate of 0.2% and has been below the ECB target for over three years. An interesting issue is whether this, seemingly, temporary cost-push type of deflation could have a more long-lasting impact on actual inflation and inflation expectations which could, itself, influence consumption and wage-setting decisions. The ECB should be applauded for the recent policies on stimulating the region’s growth with Draghi keen on ensuring future stimulus was delivered through a range of non-conventional channels rather than simply hitting the banking sector.

In the UK, interest rates now look likely to remain on hold well into 2019, indeed money markets are pricing in the consensus to be August that year.

Since the hawkish stance of last summer, much has happened to convince markets that rate rises will be further off than anticipated. These events include the equity market turbulence, caused by China, in autumn and again in February; weaker UK economic growth; the return of UK deflation in September (although inflation returned to 0.2pc in December); the plunging oil price; More dovish comments from the Bank of England .The Bank of England Inflation Report on 4 Feb, on so-called Super Thursday, boosted the case for the "doves" and markets pushed the forecast for the first rise further back.

The UK’s cooling economy and slower than expected deficit reduction will lead to a £2bn increase in gilt sales in the coming fiscal year as the government tries to balance the books by raising more debt. Credit investors say any alarm at the increased supply of gilts has been counterbalanced by a reduction in UK growth forecasts and expectations of long-term low inflation, both of which make fixed income assets more appealing.

Fixed Income ReportFirst Quarter Review

In the US, the Federal Reserve appears to have become increasingly responsive to changes in financial conditions and indeed the financial markets. Overall, the US economy is resilient however the strong currency and lack of fixed investment remains a drag. The full employment conditions and some pick-up in inflation create the offset and we still feel interest rates will rise over the summer months, although there are likely to be only two rate moves this year rather than the previously estimated four.

There are very early signs that investors have started to ratchet up inflation expectations. The bond market in particular is signalling the upward shift in inflation sentiment, which had been battered five weeks ago with domestic oil prices tumbling to 12-year lows. The yield premium on regular US Treasuries over TIPS, known as inflation breakeven rates, has risen from the weakest levels since early 2009 on signs that domestic core inflation is accelerating.

In China, the Central Bank has pledged to make monetary policy more flexible this year even as it leans more on increased fiscal spending and tax cuts to support economic growth and cushion the pain from structural reforms. Manufacturing output, for instance, in January and February grew at its weakest pace since 2008. Investors remain fearful that a devaluation in the Yuan will unleash mayhem on the global financial markets. We feel the authorities are more than aware of this and would find the scenario unpalatable. The Chinese 10 year bond yield stands at 2.88%, virtually flat on the quarter.

There is no surprise that the collapse and volatility in oil prices has injected fear in the US high yield bond market. Debt issued to energy companies make up approximately 11% of the entire asset class. The financial sector has also been weak, as fears of negative interest rates became more widespread. Negative yields threaten bank profit margins as yield curves flatten worldwide and bank NIM’s (net interest rate margins) narrow. We highlighted in the last report the concerns over liquidity in the asset class and these fears will remain.

For instance, two high-yield bonds sales in February were only completed after the issuers tightened the covenants significantly, more evidence that the market has reached a turning point. In recent weeks Bargain hunters have been attracted by the rise in spreads over Treasuries, with a high implied default rate priced in.


In 1996, petrol only cost 52.9p a litre, The Spice Girls released their first single Wannabe and Independence Day was a hit at the box office but more importantly, a corporate legacy was born. In this year, 20 years ago, in a small office in Castletown, a father, two sons and a small team opened the office doors to Capital International.With their vision of offering the market a fresh and innovative alternative, Peter and Anthony Long set out with a steely determination to build a business renowned for providing a highly personalised service, whilst developing dynamic and flexible client solutions and a commitment to their enduring core values of innovation, integrity and excellence. Fast forward twenty years and it’s these same principles which underpin everything the Capital International Group continues to do.

Since the opening of Capital International Limited’s first office in the Isle of Man, which initially provided custody, nominee and stockbroking services to the life industry, the company has evolved into a global financial services group. The Capital International Group now has over $4.5 billion of assets under management and administration, supported by an integrated range of financial services, systems and solutions with offices in the Isle of Man and South Africa.

The Group, compared to its early days of just 8 people, now employs over 70 staff across two continents. While the Long Family still remain at the helm in terms of direction, day to day control is now largely divested across a broad management team of highly skilled and experienced industry personnel.

By adapting, innovating and investing in the business through significant changes in the economic and regulatory landscape over the last 20 years, the Group has grown to become one of the largest independent financial services companies in the Isle of Man and continues to expand its services across the globe.

Anthony Long attributes the Group’s success to a number of things but there’s one which stands alone as the cornerstone. “Our people! Everyone within the Group helps to nurture and encompasses the ethos and culture of an exceptional business. The passion of our people is unrelenting and their commitment to being better at what we do every year, even after two decades, continues to impress me on a daily basis”.

A key figure in the Group’s rise from the beginning, Mark Wilkinson, Managing Director of Capital International SA, reflects on his time with the company. “True partnerships with our customers and staff are the driving force behind our success. The innovation that has been present from day one still burns strong and we aren’t afraid to constantly create and provide better solutions and tools for our customers and teams.” This is certainly reflected in the expansion of the Group into South Africa at the beginning of 2014. This is an area of the business that is flourishing and opening new opportunities both domestically in the region and as an offshore alternative.

Kirsten Gorry, Chief Operations Officer, joined the company in its early years. Like a proud parent, she looks back on how far the Group has come. “Capital International will always hold a special place for me because of the wonderful culture that has evolved within the business. I have long since held the view that being a growing, evolving Group with a strong value proposition has brought a diverse array of talent and experience to the Group. We have done particularly well in embracing the diverse talent and views of our people to develop strong points of differentiation in the market. This is key to our success in my opinion.”

In further reflection, Anthony is eager to point out that the Capital International Group has always been prepared to try new things, although not all of which have necessarily gone the way they were envisaged. However, that spirit of entrepreneurialism and innovation has been fundamental to the Group’s progress, and indeed has been a cornerstone to its approach in redefining the industry within which we work.

19901996Capital InternationalLimited founded

1998Won Old Mutual investment administration contract

2000Won first Isle of Man Government discretionary mandate

2003Fusion, managed portfolio service launchedSecond Gulf War

2005Won second Isle of Man Government

discretionary mandate

Dot-Com bubble bursts

2001Enron Corp, one of the world’s largest energy companies, files for bankruptcy

2002WorldCom admits it

falsified profit statements and files for bankruptcy

2004Social networking web

site Facebook takes off

Corporate Timeline

1997First discretionary services launched

1999Mill Court acquired

and redeveloped

CELEBRATING

Y E A R S I N B U S I N E S S

Capital International Group

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What does 2016 and the future hold for the Capital International Group?This year we have a number of different plans to mark our twentieth year which will be seen later in 2016. Otherwise for the Group, it is business as usual.

Strategic plans include further significant investment in our fast growing presence in South Africa, the consolidation of the revenue streams we enjoy from the UK, continued development of platform solutions to IFAs worldwide, the delivery of a wider range of more clearly defined investment management solutions to the intermediary market in the Isle of Man, as well as the launch of an exciting new product for the Irish market in conjunction with a successful Irish investment company.

In terms of services for clients, the feedback on our online dealing service launched in 2015 has been excellent; so we will be focusing on adding further valued added reporting services within our online portal during 2016. The Group is also in a trial period of delivering trading and broking within US stockmarket opening hours to extend the time clients can trade via the Group each day.

It is clear to see that the Group is far from resting on its laurels after 20 years and has plenty on the go!

So, it is with enormous pride that this year we celebrate 20 years of business and thank everyone who has been involved in helping the Capital International Group become the organisation it is. We look towards the coming years with complete positivity and determination to deliver on the promises the business was founded on.

Our thanks to everyone at the Capital International Group, from those that were with us in the beginning to those that are with us now:

Alena Vankova; Alex Long; Alison Wilkinson; Andrew Holland; Andrew Vernon-Browne; Anthony Long; Antony Kelsey; Brian Moreton; Caitlin Hammal; Ceri Russell; Chris Bell; Chris Nash; Christopher Bell (Jnr); Cole Hayes; Colin Coole; Craig Dalton; Daren Ward; Darren McDonald; David Craine; David Ford; David Long; Debbie Fox; Doug Hornby; Francesca Mullineaux; Furo Davies; Gill Porter; Graham Fisher; Heather Long; Helen Long; Jacques de Villiers; James Fitzparick; Jay Stevenson; Jeremy Bridle; Jill Harrison; Joe Whitelegg; John Cookson; John Venables; Jonathan Leigh; Juan Quine; Julia Page; Julie-Anne Osland; Justin Ringham; Karen Blackmore; Kerry Austin; Kevin McKay; Kirsten Gorry; Lauren Ormesher; Liam Cain; Mark Gilson; Mark Wilkinson; Martin Jones; Neil Cullington; Olivia Ramsay; Paul Hickey; Paul Martinez; Paul Moran; Pearl Faku; Peter Long; Peter Miller; Phil Knights; Philip Edge; Rachael Butterworth; Rebecca Winter; Rhodes Brown; Richard Atherton; Richard Batty; Robert Dean; Robert Floate; Robert ‘Bobby’ Temple; Ros Lynch; Ryan Wakeford; Sarah Ashworth; Stefanie Cowley; Stephen Corris; Stephen McClements; Steve Black; Steven Woods; Tamsin Webb; Thelma Floate; Wendy Oliver; Zoe Dawson.

And to everyone that has worked with us over the last 20 years.

2006Monthly unit trust deals pass 600

2007Capital Treasury Services

opened its doors in Douglas Capital Liquidity Account

receives Standard & Poor’s AAAf/S1+ rating

Turnover exceeds £3 million

2009Quarterly equity and unit trust

deals pass 6,000Capital Financial Markets, Kinesis

and Spreadbet launchedIn March, the Bank of England cut interest rates to 0.50%, the lowest

level in its 315 year history

2008Implementation of universal investment administration and trading platformTurnover exceeds £4 millionWall Street experiences what many experts label as the biggest economic disaster since the Great Depression

2010Capital Select and Capital Fund Services launchedQuarterly equity and unit trust deals pass 8,000Turnover exceeds £6 millionCapital House acquired and redevelopedCapital International Group wins Isle of Man Company of the Year 2010Won third Isle of Man Government mandate

2011Turnover exceeds £7 millionTotal assets under administration or management at around $4.0 billionMoney transmission licence awarded and Bridge Payment Solution launchedCapital Liquidity Account celebrates Standard & Poor’s AAAf/S1+ rating for fifth consecutive year

2014PRISM, new discretionary

investment management service is launched

Cape Town office openedCapital Liquidity Account

celebrates Standard & Poor’s AAAf/S1+ rating for eighth

consecutive year

2016

2015Capital Liquidity Account celebrates Standard & Poor’s AAAf/S1+ rating for ninth consecutive yearCapital International Fund Managers acquire two CMI FundsWon fourth Isle of Man Government mandate

The Capital International Group celebrates its twentieth year in

business on the Isle of ManTurnover set to exceed £10 million

CapitalInternational Group

Name Capital International GroupType Private Independent CompanyIndustry Financial Services, InvestmentsFounded July 1996Founding Directors Peter Long

Anthony LongMark WilkinsonBrian Moreton

First Traded August 1996Headquarters Capital House

Circular RoadDouglasIsle of ManIM1 1AGT: +44 (0) 1624 654200

Other Office Office NG101AGreat Westerford240 Main RoadRondebosch 7700Cape TownSouth AfricaT: +27 (0) 21 201 1070

Area Served WorldwideIsle of Man Regulator Financial Services AuthorityIsle of Man Regulated Companies

Capital InternationalCapital Treasury ServicesCapital Financial MarketsCapital Fund ServicesCapital International Fund Managers

South African Regulator Financial Services Board South Africa Regulated Company

CILSA Investments (PTY) trading as Capital International SA

Unregulated Companies Capital International GroupCapital SelectMill Yard PropertiesMill Yard Services

Products & Services Trading & StockbrokingGlobal CustodyInvestment AdministrationCash & Investment ManagementFund Administration & ManagementIntegrated Cash & Payment SolutionsInvestment Structuring

AUM US $4.5 billion (31 December 2015)

Number of Employees 75 (68 + 7)

Email [email protected] www.capital-iom.com

2012Turnover approaches £9 millionFirst AAF 01/06 Report

in

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WEDNESDAY | 03 MARCH 2016

The political and financial problems that had Brazil teetering on the edge of a depression, is also having a major impact in what looks to one of the best years for domestic farmers.

A consequence of economic stress in Latin America’s biggest country is a weak currency that has turbo charged export revenue for everything from soyabeans to beef to coffee. Even as global surpluses spark a commodity slump, the drop in the Brazilian Real (plural Reais) against the US Dollar is so steep, that farmers still come out ahead. Agriculture revenue will rise to a sixth straight annual record in 2015 and grow again in 2016, the government predicts.

The rest of Brazil is in a bit of a mess. Annual inflation in Brazil rose to 10.5% in the 12 months to November 2015, the highest rate recorded in 12 years, as the country's economy battles a deep recession amid ongoing political turmoil. The broad consumer price index, or IPCA, rose 1.01% in November, bringing the rate of inflation in 12 months to 10.48%, according to figures from the government's statistics agency, the IBGE. It is the first time that inflation has entered double digits since November 2003, when it exceeded 11%, the Folha de S.Paulo newspaper reported.

November's higher than expected inflation results come on the back of a spike in food prices and the rising cost of fuel, electricity and transport. Food and drink were 1.83% more expensive in November, and a litre of petrol rose 3.21%. The central bank, responsible for countering inflation, is working to ensure the inflation target is not exceeded next year, but with interest rates, the main countermeasure, already at 14.25%, analysts say there is currently scant room for manoeuvre. Economists predicted inflation would end 2015 at 10.44%, and reach 6.7% in 2016, both well above the central inflation target of 4.5%. Brazil's economy is expected to shrink by 3.5% in 2015 and by 2.3% in 2016, amid ongoing economic and political crises.

A sprawling corruption investigation has caused political gridlock in Brasilia, while the budget deficit is swelling. The economy contracted for three straight quarters, the worst since collection of the data began in 1996. Unemployment is growing, and inflation is accelerating. The longest recession since the 1930s is now mutating into “an outright economic depression,” Goldman Sachs Group said in December. But agriculture, which accounts for 23% of the economy and 40% of exports, is still flourishing. The industry expanded 2.1% in the year through September, government data shows, and prospects are improving after the real tumbled 29% this year against the dollar, the currency used for sales outside the country. A strong dollar means more reais for every ton exported. While soybean futures fell 14% this year in the US, touching the lowest since 2009, prices in reais rose 23%.

Brazil, with its vast tropical savannas and jungles, has been expanding food production for more than two decades and is the world’s largest exporter of soybeans, beef, coffee, sugar and orange juice. With the help of higher domestic prices and export sales, agriculture income will reach a record 487.3 billion reais ($128 billion) in 2015 and rise 0.2% in 2016 to 488.1 billion reais, Brazil’s Ministry of Agriculture said in November. Before the real began its slide, farmers were expected to scale back planting because of poor profit margins and low prices, but since July the picture has completely changed with most crops expected to expand.

Shares of SLC Agricola, Brazil’s largest publicly traded farming company, have rose 14% in 2015, and analysts surveyed by Bloomberg are expecting profit excluding some items to almost double next year. By comparison, the benchmark IBrX Index, a measure of top 100 equities on the Sao Paulo Stock Exchange, is down 10%. Farmers now have an incentive to export as much as they can. Brazilian shipments of soybeans, the country’s biggest crop, will rise almost 12% to a record 57 million metric tons, the US Department of Agriculture predicts.

Country in FocusBrazil

Farmers are almost done sowing the crop, which will be harvested starting in January. In the US, the world’s top soy grower, a stronger dollar will lead to a 7% drop in exports from a record the previous year, the agency said.

Meat exporters also are benefiting. Beef export sales at JBS SA’s Mercosul unit rose 9.7% to 2.2 billion reais in the third quarter from a year ago, as the weaker real more than offset an 11% drop in volumes and lower prices in US Dollars. Minerva SA reported that third-quarter profit, before some items, surged 56.4% to a record.

For Brazil’s sugar industry, the world’s largest producers, the depreciation has helped revitalise the industry. After a four-year slump caused by a global surplus, signs of tightening supply led to a rebound in prices from a seven year low in August. Sweetener for export priced in Brazilian Reais jumped 61% since the end of August to an all-time high, more than the 40% gain for futures traded in New York. Over the same period, shares of producer Sao Martinho SA surged to a record, and Cosan SA gained 34%.

The depreciation of the real hasn’t been without its downside. The cost of imports like farm equipment and crop inputs from overseas are now far more expensive. Sales of tractors and harvesters fell 34% in 2015 to the lowest since 2007 as the government cut subsidised credit and raised interest rates to combat inflation. Deere & Co, the world’s largest farm equipment manufacturer, said in November that demands in South America will drop as much as 15% in the year that began in October. Demand for fertilisers slid 6.4% this year, industry data show. Still, for those who bought new machines before this year, rising income in the domestic currency is easing real denominated debt payments for farmers.

Over and above the very weak economic situation, it is political instability that is paralysing the Brazilian economy. While the boom years have not been used to support reform, Brazil is currently experiencing resistance to economic reform, especially with regards to its austerity measures and political ties with state owned enterprises.

Though it is clear that President Rousseff is moving towards tightening policies, the road to reform is not easy in the current political climate. The question of whether Roussef’s impeachment might result in a better outcome for Brazil remains doubtful. All things considered, it can be expected that Brazil will remain subject to economic and political turmoil for quite some time.

Facts & Figures

Capital ■ Largest city

BrasíliaSão Paulo

Official Language(s) Portuguese

Ethnic groups(2010)

47.73% White43.13% Multiracial7.61% Black1.09% Asian0.43% Amerindian

Demonym Brazilian

Government Federal presidential constitutional republic

■ President Dilma Rousseff ■ Vice President ■ President of the Chamber of Deputies

■ President of the Federal Senate

■ President of the Supreme Federal Court

Michel TemerEduardo Cunha

Renan Calheiros

Ricardo Lewandowski


National CongressFederal SenateChamber of Deputies

AreaTotal Area 8,515,767 km2 (5th)

3,287,597 square milesWater (%) 0.65

Population2015 estimate 205,338,000 (5th)Density 23.8/km2 (190th)

62 per square mile





Currency Real (BRL)

Time Zone ■ Summer

BRT (UTC -2 to -5)BRST (UTC -2 to -5)

Drives on the Right

Calling Code +55

Internet TLD .br


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Global equity markets and commodities start the year on a negative note...

Often equity markets start the year on a positive note in anticipation of positive prospects. However, 2016 will go down on record as a year with a negative start with the US leading markets lower. From the end of December to 11th February both the S&P500 and the FTSE-100 declined by 13%. The JSE declined by 10% but bottomed earlier on 21st January. West Coast oil touched a 13 year low of $26 on 11th February.

A number of other base metals and commodities touched multi-year lows in January. At that stage most commodity shares were very over-sold and in some cases were trading at 13 year lows. What commentators did not predict and what was certainly the highlight of the quarter for South African investors, was the dramatic recovery in the share prices of gold and platinum shares as well as some other commodity producers.

But rally hard into MarchThe rally in commodity shares, as can be seen from the table below, was quite spectacular considering that the increases occurred in the space of only 7 or 8 weeks. Of course one must take into consideration the very low base from which the shares have rallied, but most investors would be very pleased to see increases of this magnitude over a few years and not just two or three months.

The big unanswered question, to which we will return, is this all over, or is this the start of a much bigger movement?

In other words was this a “dead cat bounce” or is this the start of a new bull market in commodities?

From the table it is obvious that oil and precious metals all moved in the same direction at the same time. However the percentage increase in gold and platinum shares was many times the percentage move in the underlying metal. The main explanation for this seems to be that the share prices were coming off a very low base.

Regional UpdateSouth Africa

Commodity/Share Bottom Date Price Top Date Price % Rise

$ Oil 11-02-16 26 22-03-16 41.9 61.1$ Gold 14-01-16 1071 11-03-16 1260 17.6Rand Gold 14-01-16 175960 11-03-16 192150 9.2$ Platinum 02-02-16 858 08-03-16 1005 17.1Rand Platinum 02-02-16 138100 08-03-16 154770 12.1Anglo Gold 30-11-15 89 04-03-16 220 147Gold Fields 18-11-15 31 12-02-16 71 129Sibanye 18-11-15 17.5 17-03-16 61 249Harmony 24-11-15 8 17-03-16 62 675Anglo Platinum 07-01-16 160 08-03-16 420 163Impala Platinum 21-01-16 23 08-03-16 50 117ARM 20-01-16 35 07-03-16 110 214Associated Ore 15-01-16 53 08-03-16 165 211Exxaro 12-01-16 40 07-03-16 86.5 116Kumba Iron Ore 20-01-16 25 07-03-16 111 344


Another explanation could be that the shares are anticipating further upside in the metal prices. However share prices are currently retreating from their recent highs which indicates that the run up in share prices was over-done. Also the fundamentals do not yet appear to support a sustained uptrend in commodities. There is a growing surplus of stored oil with no indication that demand is going to increase or that supply is going to decline.

With Iranian production on the increase and Chinese growth still slowing, a sustainable uptrend in oil seems unlikely in the short term. Base metals and minerals are also in over-supply with no imminent increase in demand. Although economic growth in developing countries has been declining for the past few years the IMF expects growth to pick from 4.3% in 2015 to 5.0% in 2016. It is doubtful that this will be enough to start a recovery in commodity prices.

On the other hand one could argue that provided economic growth continues at a reasonable pace it is only a matter of time before commodities recover. If this scenario eventuates there is huge scope for further increases in many commodities shares – see the chart below of Kumba Iron Ore share price.

And, on the other hand (all economists have three hands) if the super cycle in commodities is a thing of the past then maybe commodity prices will not reach previous cycle highs and the recovery in producer share prices will be muted.

However, one analysis of the situation is that there does appear to be scope for significant price increases in selective commodity shares.

Kumba Iron OreShare Price | ZAR

Kumba Iron OreAlthough 63.4% is owned by AngloAmerican, Kumba floats on the JSE and is the fourth largest iron-ore producer in the world and the largest in Africa. Producing high-grade iron

ore, a the key component in steel, used in the construction of buildings and bridges, and manufacturing of vehicles and many household appliances. Their production process consists of: exploration; planning and building; mining; processing and blending; shipping; marketing and selling.

2008 2009 2010 2011 2012 2013 2014 2015 2016

60,000

55,000

50,000

45,000

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000


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For years, sovereign wealth funds (SWFs) – primarily established by oil-rich nations as stabilisation funds and/or inter-generational savings vehicles – amassed huge amounts

of capital as excess reserves were funnelled into these funds. According to the Sovereign Wealth Fund Institute, the world’s SWFs have assets of around $7.1 trillion. That is twice their size in 2007, and more than is managed by all the world’s hedge funds and private-equity funds combined, according to JP Morgan Asset Management.

Of this figure, nearly 60% or $4 trillion is dependent on energy exports – Norway, Abu Dhabi and Saudi Arabia lead the pack with between $600 billion and $850 billion each. Subsequently, their influence on global stock markets is significant, and according to Capital Economics, the ratio of assets managed by SWFs relative to the size of the global equity and bond markets has increased from 5% in 2007 to almost 9% in 2015.

Industry in FocusSovereign Wealth Funds

Sovereign wealth funds (SWFs) may withdraw $404.3 billion from global stock markets this year if crude prices continue to trade at $30-40 a barrel, as oil-rich nations seek to shore up their finances, according to the Sovereign Wealth Fund Institute. The value of listed equities held by the world’s largest wealth funds will probably drop to $2.64 trillion this year, from about $3.04 trillion at the end of 2015, the SWFI said in its report. Withdrawals are set to approximately double from last year, when sovereign funds sold about $213.4 billion of equities.

Furthermore, it is suspected that these forced liquidations are contributing to recent market turbulence. Many of the funds disclose little information about their size, holdings or investment strategy, which makes it hard to gauge the degree of risk, if any, that they pose to the global financial system. As assets grew and yields on government bonds fell, SWFs increasingly bought stakes in less liquid assets such as real estate, large stakes in individual companies and other politically driven investments. As a result, it appears that the more liquid investments are the first to be sold.

SWFs withdrew at least $19 billion from external asset managers during the third quarter of 2015, according to data provider eVestment. Aberdeen Asset Management, Northern Trust, Franklin resources and Old Mutual Asset Management are a number of firms to have reported large redemptions from government funds. Among the few areas to see concentrated inflows were core US fixed income, which attracted $2.7 billion, and US short duration fixed income, with $3.3 billion of inflows.

The unusually high correlation between stock market movements and the oil price exhibited this year was initially ascribed to common drivers such as the slowdown in growth in China and the global strength of the dollar, however, these SWF liquidations and the seemingly indiscriminate nature of the selling appears to have helped to trap the markets in a self-reinforcing cycle.

Russia is investing part of its fund domestically because of a dearth of foreign financing for infrastructure projects. That both undermines the funds' viability and draws them away from international financial markets. The reserves, however of its sovereign-wealth funds, which Russia is already using to fund the budget deficit, still exceed $100 billion.

These shorter-term negative aspects (amongst others) are currently dominating the thoughts of investors, and conflict with the traditional view that a decline in oil prices is good news for many western economies (which are generally net oil importers), as they should receive a boost from the transfer of wealth and purchasing power from producers to consumers.

However, the precipitous fall in the oil price, which began in mid-2014, is causing a significant deterioration in the budgets of export-dependent economies, and the longer this situation persists; the more governments will be pressured to sell SWF assets in order to meet budget shortfalls and social welfare costs. Saudi Arabia is currently running a record high budget deficit for example and Norway is planning to tap its fund (the world’s largest) for the first time since its inception in 1990. Kazakhstan’s $55 billion sovereign-wealth fund helped pull the country through the global financial crisis and offered funding for the country’s bid to host the 2022 Winter Olympics. But the collapse in oil prices has hit Kazakhstan and its fund, Samruk-Kazyna JSC, hard. In October, the fund borrowed $1.5 billion in its first syndicated loan to help a cash-strapped subsidiary saddled with a troubled oil-field investment.

Innovation Integrity Excellence

Page 21

© Capital International Group 2016

Country Fund Name Size $ billion Inception Origin

1 Norway Government Pension Fund - Global 824.9 1990 Oil2 UAE | Abu Dhabi Abu Dhabi Investment Authority 773.0 1976 Oil3 China China Investment Corporation 746.7 2007 Non-commodity4 Saudi Arabia SAMA Foreign Holdings 632.3 1952 Oil5 Kuwait Kuwait Investment Authority 592.0 1953 Oil6 China SAFE Investment Company 474.0 1997 Non-commodity7 Hong Kong Hong Kong Monetary Authority Investment Portfolio 442.4 1993 Non-commodity8 Singapore Government of Singapore Investment Corporation 344.0 1981 Non-commodity9 Qatar Qatar Investment Authority 256.0 2003 Oil

10 China National Social Security Fund 236.0 2000 Non-commodity11 Singapore Temasek Holdings 193.6 1974 Non-commodity12 UAE | Dubai Investment Corporation of Dubai 183.0 2006 Oil13 UAE | Abu Dhabi Abu Dhabi Investment Council 110.0 2007 Oil14 Australia Future Fund 95.0 2006 Non-commodity15 South Korea Korea Investment Corporation 91.8 2005 Non-commodity16 Kazakhstan Samruk-Kazyna JSC 85.1 2008 Non-commodity17 Kazakhstan Kazakhstan National Fund 77.0 2000 Oil18 Russia Russian National Wealth Fund 73.5 2008 Oil19 UAE | Abu Dhabi International Petroleum Investment Company 66.3 1984 Oil20 UAE | Abu Dhabi Mubadala Development Company 66.3 2002 Oil21 Libya Libyan Investment Authority 66.0 2006 Oil22 Russia Russian Reserve Fund 65.7 2008 Oil23 Iran National Development Fund 62.0 1999 Oil24 USA | Alaska Alaska Permanent Fund 53.9 1976 Oil25 Algeria Revenue Regulation Fund 50.0 2000 Oil26 Malaysia Khazanah Nasional 41.6 1993 Non-commodity27 Brunei Brunei Investment Agency 40.0 1983 Oil28 USA | Texas Permanent School Fund 37.7 1854 Public Lands29 Azerbaija State Oil Fund of the Republic of Azerbaijan 37.3 1999 Oil30 Oman State General Reserve Fund 34.0 1980 Oil & Gas31 France Strategic Investment Fund 25.5 2008 Non-commodity32 Republic of Ireland National Pensions Reserve Fund 23.5 2001 Non-commodity33 New Zealand New Zealand Superannuation Fund 20.2 2003 Non-commodity34 USA | New Mexico New Mexico State Investment Council 19.8 1958 Non-commodity35 Canada | Alberta Alberta Heritage Savings Trust Fund 17.5 1976 Oil36 USA | Texas Permanent University Fund 17.2 1876 Public Lands37 Timor Leste Timor-Leste Petroleum Fund 16.9 2005 Oil & Gas38 Chile Social and Economic Stabilization Fund 15.2 2007 Copper39 United Arab Emirates (Federal) Emirates Investment Authority 15.0 2007 Oil40 Russia Russian Direct Investment Fund 13.0 2011 Non-commodity41 Bahrain Mumtalakat Holding Company 11.1 2006 Oil42 Peru Fiscal Stabilization Fund 9.2 1999 Non-commodity43 Chile Pension Reserve Fund 7.9 2006 Copper44 Mexico Oil Revenues Stabilization Fund of Mexico 6.0 2000 Oil45 Oman Oman Investment Fund 6.0 2006 Oil46 Italy Italian Strategic Fund 6.0 2011 Non-commodity47 Botswana Pula Fund 5.7 1994 Diamonds & Minerals48 USA | Wyoming Permanent Wyoming Mineral Trust Fund 5.6 1974 Minerals49 Trinidad & Tobago Heritage and Stabilization Fund 5.5 2000 Oil50 Brazil Sovereign Fund of Brazil 5.3 2008 Non-commodity

$7,103.2 billionSource: Sovereign Wealth Fund Institute Febraury 2016

Top 50 Sovereign Wealth Funds

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MONDAY | 25 JANUARY 2016

UK house prices experienced another year of solid growth on aggregate last year. Of the two major house price indices, one, the Halifax, saw growth of 9.5% during 2015,

taking the average house price to £208,286 and marking the fastest annual increase in nine years. However, other lenders, such as Nationwide, put the rate of increase much lower. It said prices rose by 4.5% to an average of £196,999, less than half the Halifax estimate. Most forecasters had predicted an increase in the low to mid-single digits.

Sector in FocusUK Housing Market

Despite both measures exhibiting strong growth, the lack of consensus in the readings indicates that the general picture is becoming more uncertain and suggests that accurate forecasting may be difficult to achieve going forward, with the aggregate figures masking wide regional variations. According to the Office for National Statistics (ONS), prices typically increased by 10.4% in the east of England over the past 12 months. The south-east was close behind on 9.5% and London prices were up 7.7% over the year. At the other end of the spectrum, annual price growth in Wales and Scotland was just 1% and 0.9% respectively.

According to Nationwide and the ONS, the rate of price growth has generally been decelerating in the short-term, however, the measures introduced by the chancellor in his autumn statement (which included a 3% surcharge on stamp duty on purchases of buy-to-let properties and second homes from April 2016), may cloud the picture in the short-term as deals are pushed through before the taxes come into effect, therefore, providing a temporary boost.

Once again, increases in house prices outpaced wage growth, resulting in some affordability measures looking stretched as they move away from long-run averages (see over).

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UK House PricesYear on Year % Change

Halifax 9.5%Nationwide 4.5%


A ratio above five to six times is seen by many as a natural ceiling to further price appreciation, especially when reinforced by recent mortgage regulation which, by stress testing affordability, caps the amount people can borrow relative to incomes. However, other affordability measures such as the percentage of earnings spent on mortgage servicing (see below), remain fairly low by historical standards, given the continuation of the low interest rate environment.

An interesting trend that has developed over the past decade has been the proportion of mortgages taken out with a term of over thirty years. Over the next few years, around 25% of new mortgage applications are expected to be for this longer term, from around 5% in 2005. This helps in terms of affordability at the outset of the mortgage by lowering the monthly payments; however, the interest costs are considerably more onerous over the whole term.

Despite recent government-backed initiatives, the number of first-time buyers fell slightly from 311,700 in 2014 to 310,000 in 2015, according to the Halifax. Their report also indicated that the average deposit paid by a first-time buyer was 13% higher in 2015 than a year ago. The average first-time buyer deposit in 2015 was £32,927, compared with £29,094 in 2014 and 88% higher than the average deposit in 2007 at £17,499.

2016 is likely to see first-time buyers encounter further difficulties, as growing rent costs eat away at their income and ability to save for a deposit. Furthermore, stamp duty is generally seen as a disincentive to buying a property as it creates further upfront costs. In particular, Lloyds says more are being caught in the stamp duty net which starts for homes worth more than £125,000, with the proportion of home movers paying stamp duty now at 83%, compared with 76% in 2005. Despite these struggles, indications are that an increasing number of younger renters are looking to own their own home. However, circumstances may be against them as some reports suggest the majority of under-40s will be renting within the next decade or so, having been effectively priced out of the market. George Osborne recently highlighted this issue when he stated “15 years ago, around 60% of people under-35 owned their own home, next year it’s set to be just half of that.”

On the supply side, there continues to be a dearth of homes coming onto the market for sale according to recent figures from the Royal Institution of Chartered Surveyors (RICS). This situation is unlikely to change significantly in the short term, leading to an increase in prices that is likely to outstrip any rises in household income. Despite housing gaining increasing prominence on the government’s agenda, it has consistently missed targets for producing new housing stock and there exists a backlog of nearly half a million homes across England that are still waiting to be built or finished after being given planning permission, according to analysis released by the Local Government Association.

Furthermore, smaller house builders, once a mainstay of the industry, have been increasingly forced out of the picture due to increasing planning costs and tighter lending requirements by the banks, restricting access to finance. Until now, it has only been larger housebuilders who have the financial ability to develop sites - something that has led to half of all 'new builds' built by just eight of the biggest house builders.

In summary, the general consensus for 2016 seems to be a continuation in recent weakness at the top end of the property market, particularly in London, due to overvaluation, stamp duty increases, possible baby-boomer downsizing etc. However, the ‘core’ property market should experience another year of solid gains, as supply fails to keep pace with robust demand. Sentiment will also be boosted by the Bank of England probably keeping interest rates unchanged for the entire year.

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MONDAY | 18 JANUARY 2016

After a tumultuous December with Jacob Zuma’s firing of Finance Minister Nene we can look back at this moment as one where South Africans thought this was one step

too far. Notably, very few other key politicians and interested parties were notified prior to the action.

South Africans, throughout society, were very very angry and something snapped in the nation’s patience that Wednesday (9 December ’15) night. Replaced with Van Rooyen(an unknown figure who was again replaced by a third finance minister in five days, the former finance minister who held the role between 2009 and 2014 before becoming minister of cooperative governance and traditional affairs in May 2014). It was more widely known the next day, but anger and shock was visible and noticeable everywhere from radio programmes, television bulletins and twitter feeds with the famous #ZumaMustFall twitter rebuke of Zuma’s action.

The #ZumaMustFall comes not long after the #FeesMustFall, which have seen widespread unrest at university campuses all throughout South Africa which will probably last well into 2016, with reports already in of fresh protests at registration points of the University of the Witwatersrand. Surprisingly protests even continued after President Jacob Zuma announced that there would be no fee increments for 2016; however this did little to calm the qualms many students were having and vowed to continue their strike in the New Year. In actual fact what the president said was that there will be no fee increments, and this means that fees are not falling but that they are frozen.

Secondly most universities make use of outsourced labour, and outsourced labour stood in solidarity with the protesting students as has been witnessed in October last year, a week before #FeesMustFall began, when student movements from various universities such as Rhodes, UCT and Wits held a solidarity march calling for the ending of outsourced labour in universities. Parallel to the aforementioned actions there are a few agendas being pushed by student movements throughout South Africa.

A lot of the protesting is carried out and arranged under the guise of so called “decolonisation” although a lot of the change is initiated by the “born frees”(born since the first fully democratic elections in 1994 and making up approximately half of SA’s population). So it is fair to argue that they have not really experienced either colonisation or apartheid but yet the duality of the ANC’s African society causes enough unhappiness for these protests to come to the boil.

If one looks at the pillars of the South African economy you can look at four of the critical elements or pillars:

1. The rand (ZAR): the rand is becoming a credit-driven currency moving towards sub-investment grade and this will probably lead to more volatility than in 2015, all in part to the Fed’s rate hiking cycle in the US and part to the domestic political woes. The South African Reserve Bank (SARB) rate hikes will probably act to stabilise the currency so as to prevent total freefall.

Country in FocusSouth Africa


Facts & Figures

Capital

■ Largest city

Pretoria (executive)Bloemfontein (judicial)Cape Town (legislative)Johannesburg

Official languages11 languages

Afrikaans, Northern Sotho, English, Southern Ndebele, Southern Sotho, Swazi, Tsonga, Tswana, Venda, Xhosa, Zulu

Ethnic groups(2014)

80.2% Black8.8% Coloured8.4% White2.5% Asian

Demonym South African

Government Unitary constitutional parliamentary republic

■ President Jacob Zuma ■ Deputy President Cyril Ramaphosa


National People's CongressNational CouncilNational Assembly

AreaTotal Area 1,221,037 km2 (25th)

471,443 square milesWater (%) Negligible

Population2015 estimate2011 census

54,956,900 (25th)51,770,560

Density 42.4/km2 (169th)109.8 per square mile


2015 estimate$725.004 billion (30th)$13,215 (90th)


2015 estimate$323.809 billion (35th)$13,215 (88th)

Currency South African Rand (ZAR)

Time Zone South African Standard Time(UTC+2)

Drives on the Left

Calling Code +27

Internet TLD .za

2. The economy: estimates of economic growth vary but many have been downgraded from the region of 1.6% to under 1% with a pickup in growth now forecasted to take hold later than first anticipated in 2017, but also slightly downgraded from previous estimates

3. The South African Reserve Bank (SARB) : there is an expectation of a rate rise in January by 50 basis points to account for the sharp weakening in the ZAR and with inflation expectation grinding higher. (The last time the Reserve Bank adjusted interest rates by more than 25 basis points was in January 2014, when it raised borrowing costs by 50 basis points. Since then, the bank has limited moves to quarter-point increases at three meetings, the most recent in November 2015 when the repurchase rate was boosted to 6.25 percent. Traders have increased bets that the Reserve Bank will raise rates by more than 25 basis points at the next policy meeting on January 27-28. Forward-rate agreements starting in one month, used to speculate on borrowing costs, show investors are pricing in about 40 basis points of rate hikes compared with 27 basis points on Friday.).

4. Fiscal policy: for 2016 it looks still okay but there are concerns and it looks like tax rises might be on the horizon, least of all to pay for all the tuition fees that have been frozen, let alone reduced. VAT will probably not be put up just before local elections in February. Oversight into the budget process needs to be increased, be it from the opposition in parliament or by some other way, but stronger oversight can only be good for the South African fiscus

South Africa still struggles with massive unemployment, discouragement, poverty and inequality to name but a few. There is a notion that South Africa is still a capitalist market economy, with perhaps a heavy social overlay, but truth is that this is not the reality anymore. With industrial policy prescription to whom and what may be “rewarded” with a salary or appointed, hired or subcontracted, when, and rewarded how much, our Rubicon was crossed years ago.

Yet the solution stares us in the face in the way of being less prescriptive and instead recognise property rights (that cash belongs to someone, and it isn't the state). Be more supportive to business and create a policy framework within which corporate business owners can recognise themselves. And watch the magical moment unfold into a country of prosperity. Instead we have insistence on state initiative (China, Russia alike), state ownership threatening mining, agriculture, and land rights in general and state shaping with stark demographic dispensations.


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TUESDAY | 12 JANUARY 2016

We often refer to animals in our everyday life and the financial services is certainly not short of its own references.

When it comes to wildlife, stock market investors can immediately identify with bulls and bears. Possibly the most widely used terms are bull and bear markets, which describe upward and downward market trends, respectively, and can be used to describe either the market as a whole or specific sectors and securities. The names perhaps correspond to the fact that a bull rampages forward, while a bear symbolises preparing for winter and hibernation.

Another animal often found frequenting the financial markets along with the bulls and the bears is the stag. This is where investors are not interested in a bull or a bear run but their sole aim is to buy and sell shares in very short intervals and make a profit from the fluctuation.

The most memorable example is Jordan Belfort, convicted on charges of stock fraud in his penny stock operation and stock market manipulation. His crimes and lifestyle are depicted in Martin Scorsese’s 2013 film The Wolf of Wall Street. A wolf market is sometimes used to describe the acts of various individuals working together to manipulate the market. For instance, a group of investors may employ ‘wolf hunting’ tactics to drive a company’s stock into the ground by selling the stock short.

Behavioural economists coined the term ‘the ostrich effect’ to describe the way investors stick their heads in the sand during bad markets hoping that their portfolio is not severely hit. In the investment context, ostrich is based on the misconception that when this large bird senses danger it buries its head in the sand. Similarly, investors who exhibit ostrich-like behaviour ignore negative news in the hope that it will go away. After all, if you don’t know for sure how your portfolio did, you can always retain the hope that it somehow fared alright.

The animal references aren’t limited to just land-based creatures, a monetary hawk, or hawk for short, is a term used to describe someone who places keeping inflation low as the top priority in monetary policy. The term contrasts with a monetary dove, which describes someone who emphasises other issues, especially low unemployment, over low inflation.

Market JargonIt's not a jungle out there...

But there are other animals in the stock market jungle too. Normally found on the farm although they can run wild are chickens and pigs, although their usage in financial terms is pretty self-explanatory – chickens refer to individuals who are fearful of the stock market and stay away. Their fear overrides their need to make profits so they stick to conservative instruments such as bonds, bank deposits or company deposits. Their risk tolerance in investment terms is very low. On the other hand, the pigs embrace risk. They are impatient, willing to take a high risk, invest based on hot tips and want to make a quick buck in a hurry.

Continuing the safari the wolf has been employed as an analogy to powerful individuals who could employ criminal or unethical means to make money. Such rapacious or ferocious individuals are behind scams that jolt the market when it comes to light.

The two terms are commonly used in the US to describe members and nominees to the Federal Reserve Board of Governors, who have major influence on US monetary policy both as Federal Reserve Governors and as members of the Federal Open Market Committee. The terms are also used outside of the US, and are beginning to become common usage in places such as the UK and India. Also, the term pigeon has been used to describe individuals who take positions between those of hawks and doves.

Doves generally are more in favour of expansionary >monetary policy, including low interest rates, while hawks tend to favour ‘tight’ monetary policy. For example, doves in the US tend to favour quantitative easing, seeing it as a way to stimulate the economy, while hawks tend to oppose quantitative easing, seeing it as a distortion of asset markets. Additionally, hawks tend to project higher future inflation, and hence see more risk from inflation and a greater need for tight monetary policies, while doves tend to predict lower future inflation, and hence see more need for expansionary monetary policies.

So, really, it’s not a jungle out there... It’s more like a safari!


SATURDAY | 06 FEBRUARY 2016

The Capital International Group were invited to sponsor the ‘International Passion for Speed’ race day at Killarney Race Track in Cape Town – which was host to the long

anticipated Cape leg of the Formula Junior Diamond Jubilee World Tour on Saturday 6th February.

David Long, Chief Investment Officer from the Isle of Man office, joined the Cape Town team and guests in supporting the International drivers in the VIP lounge at the circuit.

The action packed racing programme included Isle of Man Motorcycles (TT Championship), Grand Prix cars of the 50’s and 60’s, Extreme Supercars and Invitation Cars Challenge, to name just a few. The heat and dust, the roar of the engines, and the excitement of the jam packed racing programme made for a fun filled, enjoyable day.

Group Sponsorship Passion for Speed

SUNDAY | 13 MARCH 2016

On Sunday a team of five people from both the South African and Isle of Man offices took part in the Cape Argus Cycle around Cape Town – 109 km and 35,000 bikes later, all

team members finished despite the high temperatures and are pictured with Mark Wilkinson, Managing Director of Capital International SA wishing them on their way…

Cape Argus Cycle Race

28 Page

CapitalInternationalCapitalInternational

TUESDAY | 01 MARCH 2016

The Capital International Group is extremely pleased to welcome back and announce the appointment of Ros Lynch as Group Chief Compliance Officer.

Ros originally joined the Group’s investment team as an undergraduate in 1999 before moving to Dublin to pursue a career in compliance, regulation and risk management. Most recently, she was Head of Compliance at Tilman Brewin Dolphin, in Dublin and her previous roles included working for the Central Bank of Ireland in theirMarkets and Stockbrokers Supervision Division as well as in their Client Asset Specialist Team. Ros relocated back to the Isle of Man towards the end of last year and brings with her a wealth of knowledge and experience to her new role at the Capital International Group.

Ros’ appointment will further strengthen the statutory and regulatory compliance function across the Group’s regulated companies as well as enhancing the Group’s wider governance and risk management framework. As the Chief Compliance Officer she will lead a strong team of seven compliance professionals and she has also taken on the additional responsibilities of the Group’s Money Laundering Reporting Officer.

Chairman and Chief Executive for the Capital International Group, Anthony Long said: “Ros originally joined us as our first undergraduate internship appointment back in the late 90’s and it is wonderful to see her return to the business after all these years in such a senior and significant role. The international regulatory and risk management knowledge and experience that she has gained during the intervening years will be invaluable to the continued development of the Group, both on and off the Island. Ros is a superb addition to the team and I am delighted to welcome her back.

Ros joins us at an exciting time for the Group as we celebrate 20 years of doing business from the Isle of Man this year. This appointment, some recent staff promotions and several other new starters over recent months are all key to enhancing our delivery of exceptional customer service and to continuing to develop our core values of innovation, integrity and excellence.”

New AppointmentsRos Lynch

TUESDAY | 01 MARCH 2016

Capital International Group, one of the Isle of Man’s leading financial services groups, has expanded its team as part of its commitment to growing its international

presence from the Isle of Man. As the Group continues to evolve, its focus still remains tightly on its clients providing crucial services and support at all levels from within the business. To this end the Group has further enhanced its investment management services by appointing a key individual to this role.

Richard Batty has been appointed investment manager, bringing with him over a decade of experience, having previously advised clients on global investment opportunities and providing investment solutions tailored to their individual financial goals. Richard’s experience, having worked for two leading financial services companies as an investment manager, will add strength and depth to our own team. With a strong background in portfolio construction and maintenance, encompassing top-down asset allocation and stock selection, he will take on responsibility for our Fusion managed portfolio service. Richard’s knowledge and experience is founded on him being a Chartered Fellow of the Chartered Institute for Securities and Investment and a Chartered Wealth Manager – two aspirational achievements within the financial services.

Chairman and Chief Executive Anthony Long said “Richard joins us as we begin a new year, one which will undoubtedly bring new challenges and opportunities. His wealth of experience and commitments to service excellence, integrity and innovation, which we all share within the Group, will prove invaluable as we take advantage of new opportunities. This appointment and those throughout 2015 follow the significant expansion of our team in South Africa since the Capital International Group open its Cape Town doors in early 2014. Together we will continue to develop the combined businesses within the Group and deliver exceptional customer service.”

Richard Batty

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This document has been prepared for information purposes only and does not constitute an offer or an invitation, by or on behalf of any company within the Capital International Group of companies or any associated company, to buy or sell any security. Nor does it form a constituent part of any contract that may be entered into between us.

Opinions constitute our judgement as of this date and are subject to change. The information contained herein is believed to be correct, but its accuracy cannot be guaranteed.

Any reference to past performance is not necessarily a guide to the future. The price of a security may go down as well as up and its value may be adversely affected by currency fluctuations.

The company, its clients and officers may have a position in, or engage in transactions in any of the securities mentioned.

The regulated activities are carried out on behalf of the Capital International Group by its licensed member companiesCapital International Limited, Capital Treasury Services Limited, Capital Fund Services Limited Capital Financial Markets Limited and Capital International Fund Managers Limited are all licensed by the Isle of Man Financial Services AuthorityCILSA Investments (PTY) Ltd, trading as Capital International SA, is licenced by the Financial Services Board in South Africa as a Financial Services Provider (FSP No 44894)Capital International Limited is a member of the London Stock ExchangeRegistered Address: Capital International Group, Capital House, Circular Road, Douglas, Isle of Man, IM1 1AGRegistered Address: CILSA Investments (Pty) Ltd, Office NG101A, Great Westerford, 240 Main Road, Rondebosch 7700, South Africa

Isle of Man | Head OfficeCapital International GroupCapital HouseCircular RoadDouglasIsle of ManIM1 1AG

www.capital-iom.com

T : +44 (0) 1624 654200 F: +44 (0) 1624 654201 E: [email protected]

South Africa OfficeCapital International SAOffice NG101AGreat Westerford240 Main RoadRondebosch 7700South Africa

www.capital-sa.com

T : +27 (0) 21 201 1070 E: [email protected]


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