Monthly Perspectives

For important disclosures, refer to the Disclosure Section, located at the end of this report.

n

No

vem

be

r2

01

2

October has been a positive month for risky

assets. However, the S&P 500 had its first negative

month since May. Euro and US financial stocks

show a robust performance since the beginning of

the year.

The world economy maintains a trend-like growth.

Balance sheet repair, de-leveraging and structural

adjustment (mainly in Europe) are key headwinds.

Emerging economies show growth below the high

rates of the past decade. Nonetheless, recent

economic data in the US and China have looked a

bit better. In China, growth seems to be stabilizing

due to accelerated government infrastructure

spending and better exports.

The 2012 US Presidential Election outcome could

be viewed by markets as a signal for the direction

of policy in some important areas. An adverse

shock is still the possibility that politicians in

Washington will not be able to reach an agreement

on matters of taxation and spending. That would

send the US and probably the global economy

into a new recession. However, if the current level

of uncertainty subsides with a successful

resolution of the US fiscal challenges ahead,

growth could be boosted.

Europe remains a laggard. Fiscal retrenchment,

structural adjustment, and banking sector

weakness, particularly in the peripheral

economies, are the sources of stagnation or even

recession.

On the subject of earnings, the Q3 2012 earnings

season has been poor, with many companies

missing revenues estimates.

Besides the 57th US Presidential Election, two

other important political events will be held in

November: the Communist Party Congress and

the Catalonia regional elections.

October’s Highlights

Asset Performance Review – October 2012• October was a positive month for risky assets. Commodities were an important exception;

• The ECB’s bond buying program continued to support gains in peripheral markets (equities and fixed

income markets). The Greek Athex index rose 8.4%;

• The S&P 500 fell -1.8%, down for the first time since May;

• Core government bonds had a moderately negative month in October.

Source: Bloomberg

Asset Performance Review – YTD 2012• Spanish and Chinese equities are the worst performing assets within our selection;

• Greek equities have produced a YTD performance that is not too different with the performance seen

in the Dax;

• Euro and US financial stocks show a robust performance since the beginning of the year;

• Brazilian equities are barely positive YTD. The Real exchange rate has depreciated.

Source: Bloomberg

80%

90%

100%

110%

120%

130%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2009 2010 2011 2012F 2013F 2014F 2015F 2016F 2017F

General Government Balance and Debt (% GDP)

General Government Balance (% GDP) (LHS)

General Government Debt (% GDP) (RHS)

2%

4%

6%

8%

10%

12%

14%

16%

18%

2%

4%

6%

8%

10%

12%

14%

16%

18%

1998 2000 2002 2004 2006 2008 2010 2012

Unemployment rate (%)

Portugal

Euro-zone

Portugal: Programme is still broadly on track• Portugal’s fifth troika

review: GDP growth

projection has been kept

at -3.0% for 2012.

Economic prospects for

2013 have been

downgraded from 0.2% to

-1.0%;

• Portugal’s budget for 2013

will allow it to meet the

deficit targets set by the

troika. However, public

resistance to austerity

seems to be growing. The

economic downturn

should continue (see

chart);

• The long-end of the

Portuguese government

curve shows an impressive

performance this year.

Source: INE and European Commission Source: Bloomberg

Source: IMF Country Report, October 2012 Source: Eurostat

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

70

75

80

85

90

95

100

105

110

02 03 04 05 06 07 08 09 10 11 12 13

Portuguese EC Economic Sentiment

Indicator & GDP

EC Economic Sentiment Indicator (LHS) GDP (% y/y, RHS)

2%

4%

6%

8%

10%

12%

14%

16%

18%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Jan-12 Apr-12 Jul-12 Oct-12

10-year Government Bond Yields (%)

Portugal

Italy

Spain

0%

1%

2%

3%

4%

5%

6%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Spanish Central Government Borrowing

(% of GDP)

2011

2012

Spain: Economic and fiscal outlook remains poor• GDP fell by -0.3% in Q3. This

marks the fourth consecutive

quarter of falling GDP and puts

the level of GDP 5.6% below its

2008 peak (see chart);

• The country still lacks a banking

system that can actively support

Spain’s economic restructuring;

• Spain’s recent budget intends to

deliver a deficit of 4.5% of GDP

in 2013. However, GDP growth is

expected at -0.5% y/y, which is

probably optimistic;

• The pressure on Spain to enter a

programme – and hence trigger

the ECB’s bond buying plan –

has been eased by the drop in

government bond yields (see

chart);

• Moody’s confirmed Spain at

Baa3, but kept the sovereign on

Negative outlook.

Source: European Commission and INESource: Bloomberg

Source: Spanish Central BankSource: INE, INE, ISTAT and Central Statistics Office of Ireland

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12

Spanish Government Bond Yields (%)

2-year 5-year 10-year

-6%

-4%

-2%

0%

2%

4%

6%

8%

70

80

90

100

110

120

00 01 02 03 04 05 06 07 08 09 10 11 12 13

Spanish GDP & EC Economic

Sentiment Indicator

EC Economic Indicator (LHS)

GDP (%y/y, RHS)

-3.5%

-2.5%

-1.5%

-0.5%

0.5%

1.5%

65

75

85

95

105

115

1998 2000 2002 2004 2006 2008 2010 2012

Euro-zone EC Economic Sentiment

Indicator & GDP

EC Economic Sentiment Indicator (LHS) GDP (%y/y, RHS)

Euro-zone: ECB prompts a period of relative calm

• Activity in Q3 was

probably more resilient

than initially expected;

• Nonetheless, business

and consumer surveys

points to a weak

outlook for Q4;

• The German and French

indices are also at low

levels;

• Euro-zone

unemployment rate

reached a new record

high (11.6%) in

September;

• German unemployment

registered its sharpest

monthly increase since

July 2009, leaving the

unemployment rate at

6.9%.

Source: European Commission and Eurostat

7%

8%

9%

10%

11%

12%35

45

55

65

2005 2007 2009 2011

Euro-zone Unemployment rate

& PMI Composite

Euro-zone PMI surveys Composite (LHS)

Unemployment rate (rev order; RHS)Source: Markit and Eurostat

Source: Finance Ministers

0

10

20

30

40

50

60

70

80

Jul-12 Aug-12 Sep-12 Oct-12 Nov-12

Probability of a Country Leaving the Euro (%)

By end 2012 By end 2013 By end 2014

Source: Intrade

0

10

20

30

40

50

60

70

80

90

0

500

1,000

1,500

2,000

2,500

86 88 90 92 94 96 98 00 02 04 06 08 10 12

Housing Starts & NAHB Homebuilders' Index

NAHB Housing Index (Asv. 4m, LHS)

Housing Starts (000s Annualised, RHS)

0

50

100

150

200

250

300

Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12

Change in Non-Farm

Payroll Employment (000s)

Change in Payroll Employment Three Month Average

-30%

-20%

-10%

0%

10%

20%

30%

0

20

40

60

80

100

120

07 08 09 10 11 12 13

Consumer Confidence &

Capital Goods Orders

University of Michigan Survey of Consumer Confidence Sentiment

US Capital Goods Shipments Nondefense Ex Aircraft Y/Y NSA

US Economy: Still sluggish but stable• The resurgence in the

NAHB index points to

continued growth in

residential construction

spending;

• A faster consumption

growth offset a slower

investment growth;

• The fall in mortgages

rates has supported

mortgage refinancing

and reduced monthly

loan payments;

• Once the media begins

to focus on the fiscal

cliff negotiations, will

households become

more aware of the

potential increase in

tax rates at the start of

2013?

Source: U. of Michigan Survey Research Center and US Census Bureau Source: Bureau of Labor Statistics

Source: Bureau of Economic Analysis Source: US Census Bureau and National Association of Homebuilders

5%

6%

7%

8%

9%

10%

11%

12%

13%

3.9%

4.0%

4.1%

4.2%

4.3%

4.4%

2005 2006 2007 2008 2009 2010 2011 2012 2013

China: Unemployment Rate and GDP

Urban Registered Unemployment Rate (LHS) GDP (y/y, RHS)

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

28

33

38

43

48

53

58

63

2006 2008 2010 2012

China: Exports and PMI New Export Orders

NBS PMI New Export Orders (LHS, 3-month lead) Exports (% y/y, RHS)

5%

10%

15%

20%

60%

70%

80%

90%

100%

110%

120%

130%

140%

150%

2005 2006 2007 2008 2009 2010 2011 2012 2013

China: Industrial Production and

PMI Orders to Inventory ratios

New Orders to Stocks of Finished Goods Inventory Ratio % (NBS) (LHS)

New Orders to Inventories of Raw Materials Ratio % (NBS) (LHS)

Industrial Production (y/y, RHS)

40

45

50

55

60

40

45

50

55

60

2009 2010 2011 2012 2013

China: manufacturing PMIs

NBS PMI

Markit PMI

China: Is the economy gaining traction ?• NBS manufacturing PMI

rose to 50.2 in October

(see chart). It seems the

economy has stabilized;

• The components of new

orders and new export

orders showed further

gains. The corporate

sector’s de-stocking

process could be close to

an end;

• On the external front, the

recovery in export growth

to 9.9% y/y was

encouraging (see chart);

• Q3 GDP growth was 7.4%

y/y. Premier Wen

commented on the likely

achievement of the

government’s target of

7.5% real GDP growth this

year with confidence.

Source: National Bureau of Statistics of China and BloombergSource: National Bureau of Statistics of China

Source: National Bureau of Statistics of ChinaSource: National Bureau of Statistics of China

95

100

105

110

115

120

125

95

100

105

110

115

120

125

Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12

MSCI World Consumer Discretionary and

Staples Indices (LC)

Consumer Discretionary Consumer Staples

Dec. 2011 = 100

10

15

20

25

30

35

88 92 96 00 04 08 12

S&P 500: P/E Market Multiples

Trailing P/E

NTM P/E

51

37

28

1619 17

8 72

-1

12 11 1115 14

Jun

-10

Se

p-1

0

De

c-1

0

Ma

r-1

1

Jun

-11

Se

p-1

1

De

c-1

1

Ma

r-1

2

Jun

-12

Se

p-1

2

De

c-1

2

Ma

r-1

3

Jun

-13

Se

p-1

3

De

c-1

3

S&P 500 Quarterly EPS Growth (% y/y)

Central bank action drove the rally. Earnings are still a concern• The equity rally continues to be

mainly explained by multiple

expansion (see chart). Tail risks

have been reduced after central

bank action. Expanding

multiples may also imply better

growth ahead. Recent economic

data in the US and China have

looked better;

• Relative to long-term averages,

forward P/Es don´t seem to be

expensive (see chart);

• Earnings revision in the US and

Europe have a negative bias. In

the US, Q3 2012 earnings are

expected to be down q/q and

y/y. According to consensus

forecasts, Q3 2012 should be

the trough (see chart). Earnings

growth is expected to accelerate

next year in the US (12.7%) and

in Europe (12.1%).

Source: Bloomberg Source: Bloomberg

Source: Standard and PoorsSource: Standard and Poors

-0.8

-0.4

0.0

0.4

0.8

1.2

2007 2008 2009 2010 2011 2012

Cumulative Estimated Flows to Long-

Term Mutual Funds ($tn)

Equity

Bonds

$112

$113

$114

$115

$116

$117

$118

$119

$24

$25

$26

$27

$28

$29

$30

$31

Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12

S&P 500 Bottom-up Operating

Estimates Over Time

Q3 2012 Est. (LHS)

Q4 2012 Est. (LHS)

2013 Est. (RHS)

10%

15%

20%

25%

30%

35%

40%

45%

50%

Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12

CBOE S&P 500 Volatility Index

10%

20%

30%

40%

50%

60%

10%

20%

30%

40%

50%

60%

Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13

AAII US Investor Sentiment Readings

AAII Bull Index AAII Bear Index

Flows into bonds and out of equities continues

• Despite the current low yield

environment, funds continue

to flow out of equities and into

bonds (see chart) ;

• Sentiment indicators suggest

investors are modestly bullish

(see chart);

• Investor sentiment remains

cautiously positive;

• Volatility in equity indices

continue to trend lower (see

chart);

• Lower tail risks mean lower

risk of a systematic shock.

Idiosyncratic risk is now more

important, which increases the

benefit to stock picking;

• Earnings could be a challenge

for US Equities, especially if

the fiscal cliff headwinds are

confirmed.

Source: Bloomberg Source: Bloomberg

Source: Standard and PoorsSource: ICI

0%

5%

10%

15%

20%

Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12

Portugal-Germany Gov.

Bond Yield Spread

10-year

2-year

1%

2%

3%

4%

5%

6%

7%

8%

1%

2%

3%

4%

5%

6%

7%

8%

Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12

Government Bond Yields

Italy 2-year Italy 10-year

Spain 2-year Spain 10-year

50

100

150

200

250

300

50

100

150

200

250

300

2009 2010 2011 2012

Coporate Spreads: Investment Grade

US IG Corp

EU IG Corp

Spread (bp) Spread (bp)

Credit still benefit from favorable demand-supply technicals

• Credit spreads are a low levels

(see chart). Is further

compression possible? With

valuations not particularly

attractive, return is likely to

come mostly from receiving

the coupon. The risk-return

trade-off looks less attractive.

But, equities need growth

(economic and earnings) to

outperform;

• With low yields across fixed

income, equities seem

increasingly attractive on a

relative yield basis;

• European periphery sovereign

yields have fallen because of

the ECB;

• Periphery yields are probably

already priced for much of the

expected ECB buying.

Source: Bloomberg Source: Bloomberg

Source: BloombergSource: Bloomberg

0

100

200

300

400

500

600

700

0

200

400

600

800

1000

1200

1400

2007 2008 2009 2010 2011 2012

Coporate Spreads:

Europe HY and Asia IG

EU HY Asia Ex-Japan IG Corp

S&P 500 Earnings Update: Q3 2012 as of November 2, 2012• 379 companies have reported (c.80% of total

market cap);

• According to Bloomberg, 71% of companies

reporting have beaten earnings estimates and 28%

have missed estimates. The average EPS surprise

has been 4.07%;

• Revenues disappointed. According to

Bloomberg, only 41% of companies beat sales

estimates, while 59% of companies missed

sales estimates;

• Implications for Q4 2012 have been negative,

with many companies lowering EPS guidance.

DJ Europe 600 Earnings Update: Q3 2012 as of Nov. 2, 2012• According to Bloomberg, 218 companies have

reported Q3 results. The European earnings

season has been weak so far. 53% of companies

reporting have beaten estimates and 45% have

missed;

• On sales, 49% of companies reporting have beaten

estimates and 51% have missed estimates;

• According to Bloomberg, the average sales

surprise has been -2.08%;

• Consensus expects 2012 earnings growth to

be -2.6%. Since the beginning of the year,

consensus expected growth has been revised

down by more than 12 percentage points.

• In November, Eurogroup / EcoFin

meetings will be held (Nov 12th).

No significant measures are

expected to be announced;

• Three important political events

should be highlighted: the 57th US

Presidential Election (Nov 6th), the

Communist Party Congress (Nov

8th) and the Catalonia regional

elections (Nov 25th);

• The Catalonia regional elections

are a key political event in Spain. It

could have an influence on the

timing of the country request for

help;

• The ECB (8th), the BOE (8th) and the

BOJ (20th) will have policy

meetings this month;

• The money supply / new loans

report is a key indicator for China

and will be released Nov 10th.

What we are watching this month:World Calendar

Date Region Event

05-Nov-12 US ISM Non-Manufacturing

06-Nov-12 US Presidential Election

06-Nov-12 Australia RBA monetary policy meeting

07-Nov-12 Euro-zone European Commission Releases Economic Growth Forecasts

07-Nov-12 Greece Greek vote on structural reforms

07-Nov-12 Euro-zone ECB's Draghi speeks at Wirtschaftstag 2012

07-Nov-12 Euro-zone Chancellor Merkel meets MPs in EU parliament

08-Nov-12 China Communist Party Congress

08-Nov-12 Euro-zone ECB Governing Council Policy Meeting and press conference

08-Nov-12 UK Bank of England MPC Meeting

08-Nov-12 Japan Machinery orders

08-Nov-12 Asia Korea, Indonesia and Malaysia monetary policy decisions

09-Nov-12 China CPI and PPI

09-Nov-12 US U. of Michigan prelim. consumer confidence

10-Nov-12 China Monetary data and trade balance

11-Nov-12 Greece Greek parliament votes on austerity measures

12-Nov-12 Euro-zone Eurogroup and Ecofin Meetings

13-Nov-12 Portugal Bank of Portugal releases Autumn Economic Bulletin

13-Nov-12 Euro-zone Zew Survey

14-Nov-12 US Advanced Retail Sales

14-Nov-12 Iberia General Strike in Spain and Portugal

15-Nov-12 Euro-zone GDP

16-Nov-12 US Industrial Production

19-Nov-12 US NAHB Housing Market Index

19-Nov-12 Euro-zone European Union Foreign Ministers meet in Brussels

20-Nov-12 Japan BoJ Target Rate

20-Nov-12 US Housing Starts

21-Nov-12 Europe PMI Manufacturing

22-Nov-12 China HSBC Flash Manufacturing PMI

23-Nov-12 Germany IFO Survey

25-Nov-12 Spain Catalonia Regional Elections

27-Nov-12 US Durable Goods Orders

27-Nov-12 US S&P/Case Shiller Home Price Index

27-Nov-12 US FED's Beige Book

29-Nov-12 US GDP

30-Nov-12 Euro-zone Unemployment rate

Republican

; 53

Democrats

; 47

Current political groups at the

Senate

0

20

40

60

80

100

0

20

40

60

80

100

Abr Mai Jun Jul Ago Set Out Nov

Implied probability, percent Implied probability, percent

Democrats retain Senate majority

President Obama Reelected

Republicans retain House majority

US elections: Status quo

outcome is the most likely…• … and is probably priced into stock prices;

• The 2012 election will have potential policy

outcomes on three areas:

o The resolution of the fiscal cliff;

o The reform of entitlement programs and

the tax code; and

o The leadership of the Federal Reserve.

• A divided government seems to be the most

likely outcome (see chart) ;

• Congress will need to once again increase the

debt ceiling, avoiding a potential government

shutdown in February or March;

• Romney has indicated that he would seek to

replace Fed Chairman Ben Bernanke when his

term expires in early 2014;

• All three of the major ratings agencies have

indicated they will reassess their rating over the

next year or so. Fiscal reform enacted by the

Congress in the next year will probably be

decisive.

Source: Intrade

Republican

; 243

Democrats

; 192

Current political groups at the

House of Representatives

Source: Fincor Source: Fincor

85

90

95

100

105

110

115

Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11

The Fiscal Cliff negotiation vs.

Equity markets

Nasdaq 100

S&P 500

Base 100 = Jan 2011

50

52

54

56

58

60

62

0

50

100

150

200

250

300

Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11

The Fiscal Cliff negociation vs. Economic data

US Non Farm Payroll, m/m change (LHS) US Manufacturing PMI (RHS)

US Elections: What impact

should we expect?• The mid-2011 debt ceiling crisis episode was

associated with a negative economic impact,

falling equity prices and a rally in Treasury

securities (see charts);

• Under a total gridlock scenario (i.e. no

agreement), asset values will suffer, especially

risky assets;

• The most likely outcome is still that most of the

fiscal cliff is averted. However, if there´s a

difficult negotiation, short-term volatility could

increase and uncertainty should dampen

sentiment;

• Higher uncertainty usually leads to a flight to

safe havens, particularly US Treasuries;

• The government cannot go on running high

budget deficits indefinitely. Beyond the fiscal

cliff, equity markets will probably focus on

whether credible and sustainable fiscal reforms

are put into place to address long-term

structural imbalances.

Source: Bureau of Labor Statistics and Institute for Supply Management

Source: Bloomberg

-100

-80

-60

-40

-20

0

20

40

60

80

100

Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12

Citigroup Economic Surprise Index - China

China: 18th Communist Party

Congress – Leadership transition• The formal transition of leadership at the

national level occurs in two key steps:

o The 18th National Congress of the Chinese

Communist Party (Party Congress) in

November 8th: The new leaders will be

formally introduced, including the

Politburo Standing Committee (PSC);

o The 12th National People’s Congress,

probably in March 2013: Where the

transition of the Executive will take place.

A new President and Premier will be

appointed (from the PSC). The new

economic policy will start to be

implemented.

• The fifth generation of leaders comes to power

at an important moment. After being able to

maintain a rapid economic growth, the Chinese

economy faces important challenges, including

income inequality, structural imbalances and

rising costs.

Senior leaders to be elected

National Party Congress National People's Congress

Politburo NPC Standing Commitee

Politburo Standing Committee President/Vice President

General Secretary of the Party Supreme Court President

Secretaries of the Secretariat Procurator-General

Central Military Commission (Party) Central Military Commission (State)

Central Disciplinary Commission Premier/Cabinet Ministers

Source: Xinhua

Source: Bloomberg

65

70

75

80

85

90

95

100

105

2004 2005 2006 2007 2008 2009 2010 2011 2012

Industrial Production (excl. Construction)

Dec. 2004 = 100

Greece is close to generate the €13.5bn of savings

demanded by the troika• We approach the November 12th Eurogroup meeting,

the likely date on which euro-zone finance ministers

will make a decision on the next tranche of Greece’s

loan;

• Labor reforms have proved the most controversial

issue for the three-party coalition;

• Fiscal austerity should continue to hammer GDP

growth (see chart). Debt dynamics seems to be

unsustainable. The Government raised the public

debt to GDP ratio forecast to 192% in 2014, far higher

than the forecast in the original bail-out programme.

Political consensus will probably be necessary for

Greece to have some sort of haircut on its official-

sector debt;

• Nonetheless, August’s Greek industrial production

figures showed an annual growth rate of 2.6% (see

chart). This was the first annual rise recorded since

2008. Are structural reforms and wage reductions

that have taken place over the last few years finally

bearing some fruit?

Source: IMF

Source: Eurostat

-2%

0%

2%

4%

6%

8%

10%

12%

14%

-2%

0%

2%

4%

6%

8%

10%

12%

2004 2006 2008 2010 2012

Euro-zone credit to private sector and

M3 growth rate

Euro-zone Credit to Private Sector (LHS) M3 Annual Growth Rate (RHS)

-80

-60

-40

-20

0

20

40

60

2003 2005 2007 2009 2011 2013

ECB Bank Lending Survey and Loan Demand

Lending to Firms Consumer Credit Mortgage Lending

Demand rising

Demand falling

Eurowatch: Eurogroup meeting (Nov. 12th) and ECB’s Governing

Council Meeting (Nov. 8th)• After last week’s Eurogroup teleconference call,

the euro-zone finance ministers have asked for

“remaining issues” to be resolved between Greece

and the troika;

• Greece is expected to run out of cash by mid-

November. The Eurogroup will probably give a

decision on the next tranche of the country’s loan

on November 12th;

• Can we expect some progress on Spain? Catalonia

will held regional elections on November 25th. This

is an important political event for Spain.

Additionally, there’s still some political stigma

attached to asking for a bailout, particularly in

relation to a probable involvement of the IMF;

• The ECB is likely to remain on standby this month.

The announcement of its Outright Monetary

Transactions programme is still supporting market

sentiment. However, we should focus on whether

the statement shows any shift in tone on the risks

to the outlook for growth and inflation.

Source: ECB

Source: ECB

400

600

800

1000

1200

1400

1600

1800

Jan-12 Mar-12 May-12 Jul-12 Sep-12

Baltic Dry Index

China GDP (% y/y, RHS)

6%

7%

8%

9%

10%

11%

12%

-70%

-30%

10%

50%

90%

130%

170%

210%

2002 2004 2006 2008 2010 2012

China Real GDP vs. China Equities

Shanghai Stock Exchange Composite Index (% y/y, LHS)

China GDP (% y/y, RHS)

Charts we are watching

• Recent data seems to point to better China

macro ahead. September data releases

suggested that the impact of policy easing

measures adopted since April have started to

push aggregate demand. Chinese equities are

showing some signs of improvement. China is

decisive to the outlook for the materials global

sector (metals and mining stocks).

• The Baltic Dry Index has recently improved. It

could suggest a better outlook to global trade.

Latest export data in Korea and Taiwan

inflected higher, though from low levels. This

also hints of global growth stabilizing.

Nevertheless, the fiscal cliff is a risk to growth

and market sentiment. Are investors

underestimating that risk ?

Source: Bloomberg

Source: Bloomberg

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