Investment strategy September 14

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The Global Investment Committee, at its meeting on 10 September, confirmed its conviction in the existing asset allocation. It consists of an overweight in equities, a strong underweight in bonds and overweights in commodities and hedge funds. A main discussion point was the growing divergence between developed and emerging economies, which has been thrust centre stage by events in China. The committee believes, however, that while other emerging-markets countries may be negatively affected, China’s slowdown will not affect global growth prospects.

Developed markets strengthening but increasing concern for emerging markets

Recent data has been positive for developed markets. Europe, the US and Japan are doing well. Improvements in the eurozone economy are broad and credit growth is now positive. Moreover, consumer demand is strengthening, unemployment is falling and business confidence is improving. In the US, there is a broad swath of improving data, ranging from labour and housing markets, to consumer and business confidence. Industrial output is also expected to strengthen in the months ahead.

Emerging markets, however, are a different story. As the Chinese economy slows, countries that export to China are being hurt. This affects emerging economies more than Europe or the US. And, unfortunately, this is just one of several negative factors to have hit emerging economies. Falling commodity prices, for example, have hurt Indonesia, Malaysia and Thailand. And the depreciation of the yen over the past two years has hurt the competitiveness of Asian emerging markets in general.

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