Aberdeen Global Investment Outlook: September 2013

Executive Summary

The point of maximum policy accommodation may now be in sight

• Markets volatile as investors forced to contemplate U.S. Federal Reserve (Fed) exit strategy.

• Slowing growth in China is putting pressure on Asian and emerging markets to develop domestic led demand.

• This time really could be different for Japan - however reflating the economy was never going to be easy.

The latest U.S. Federal Reserve meeting and the pronouncements of Chairman Ben Bernanke on the future direction of monetary policy have had an immediate impact on financial markets across the world. We still however believe that any rise in official interest rates in the U.S. is still a long way off, perhaps not until 2015, or maybe even 2016.

So the good news is that risks of a return to recession have diminished to the point that policymakers can think about easing off some of the insurance against it. But as the outgoing Governor of the Bank of England put it in his recent speech at Mansion House, “although there are indeed signs that a modest recovery is underway there is still a need to support it”. And recent market moves should not be confused with a return to economic normality, however desirable that might be.

‘Abenomics’ within Japan has provided another demonstration of monetary policies ability to alter the value of financial assets, causing Japanese government bonds, equities and the Japanese yen to fall sharply over the second quarter. In reality, the true economic effects of the unprecedented actions will probably take six to 12 months to be felt. The real test, in our view, will be whether these policies will be able to meet expectations and stimulate demand as well as inflation. Emerging markets suffered outflows in the second quarter in reaction to the U.S. Federal Reserve’s commitment to taper easing measures. Fundamentally, wider Asian and emerging market growth slowed in real and nominal terms at the start of this year, although not all constituent economies’ growth rates have fallen. Indonesia and Brazil, for example, have shown some signs of strength recently, although the overall global climate has led to increasing speculation of easing measures being implemented by central banks. We believe China remains the key driver of growth for the region although weak manufacturing and stresses to its financial system have negatively impacted commodity exporters. We do not see inflation posing a major threat to the economy, given that Chinese policymakers have significant room for maneuver.

Some progress has been made in Europe with the Eurogroup approving the transfer of a tranche of aid to Cyprus. Economic indicators have gradually turned less negative recently suggesting the region may be gradually coming out of recession. Political risk had subsided in Italy after Giorgio Napolitano was eventually re-elected as Italy’s president. Major issues still linger though with harmonized austerity hurting aggregate demand and the final amendments to the single supervisory mechanism yet to be finalized. Recent events in Greece also highlight the ability for things to develop unexpectedly, so we believe a cautious outlook is still warranted.

So while there are encouraging signs economically it is also fair to say some uncertainties remain. In our view, public sector debt issues in the U.S. and Europe are likely to take several years to resolve therefore growth is likely to remain low for some time. A pause at least in risk assets is therefore understandable, especially given the Federal Reserve’s most recent statement and the seemingly inexorable rise of markets so far this year. Fortunately though, investment opportunities do remain. However, we believe a discerning and nimble approach is probably prudent in the near term as markets digest and reflect on the latest news.

IMPORTANT INFORMATION

The above is for informational purposes only and should not be considered as an offer, or solicitation, to deal in any of the investments mentioned herein. Aberdeen Asset Management (AAM) does not warrant the accuracy, adequacy or completeness of the information and materials contained in this document and expressly disclaims liability for errors or omissions in such information and materials.

Foreign securities are more volatile, harder to price and less liquid than U.S. securities. They are subject to different accounting and regulatory standards, and political and economic risks. These risks are enhanced in emerging market countries.

Some of the information in this document may contain projections or other forward looking statements regarding future events or future financial performance of countries, markets or companies. These statements are only predictions and actual events or results may differ materially. The reader must make his/her own assessment of the relevance, accuracy and adequacy of the information contained in this document, and make such independent investigations, as he/she may consider necessary or appropriate for the purpose of such assessment.

Any opinion or estimate contained in this document is made on a general basis and is not to be relied on by the reader as advice. Neither AAM nor any of its agents have given any consideration to nor have they made any investigation of the investment objectives, financial situation or particular need of the reader, any specific person or group of persons. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the reader, any person or group of persons acting on any information, opinion or estimate contained in this document. AAM reserves the right to make changes and corrections to its opinions expressed in this document at any time, without notice.

In the United Sates, AAM is the marketing name for the following affiliated, registered investment advisers: Aberdeen Asset Management Inc., Aberdeen Asset Managers Ltd, Aberdeen Asset Management Ltd and Aberdeen Asset Management Asia Ltd, each of which is wholly owned by Aberdeen Asset Management PLC. “Aberdeen” is a U.S. registered service mark of Aberdeen Asset Management PLC.

In Canada, AAM is the marketing name for Aberdeen Asset Management Inc., Aberdeen Fund Distributors, LLC, Aberdeen Asset Management Asia Ltd and Aberdeen Asset Management Canada Limited. Aberdeen Asset Management Inc. is registered as a Portfolio Manager in the Canadian provinces of Ontario, Nova Scotia and New Brunswick.

Aberdeen Asset Management Asia Limited and Aberdeen Asset Management Canada Limited are registered as Portfolio Managers in Ontario. Aberdeen Fund Distributors, LLC operates as an Exempt Market Dealer in all provinces and territories of Canada. Aberdeen Fund Distributors, LLC and Aberdeen Asset Management Canada Limited are wholly owned subsidiaries of Aberdeen Asset Management Inc.

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