The "Henley Market Outlook" gives our current assessment of the six Henley asset classes. For more information please email ts@thehenleygroup.com.hk

1. Henley Market Outlook
June 2013
Hong Kong | Singapore | Shanghai
THE WEALTH MANAGEMENT PROFESSIONALS
When it gets serious,
you have to lie

2. The Henley Outlook June 2013
Hong Kong, Singapore & Shanghai
Equities
Global Overview .............................................................................................................................................. 3
Cash & Currencies .............................................................................................................................................. 5
Fixed Income ...............................................................................................................................................6
Property .............................................................................................................................................. 7
Equities US ...................................................................................................................................... 8
Japan ................................................................................................................................. 8
UK ........................................................................................................................................9
Europe Ex UK .................................................................................................................. 9
Australia ........................................................................................................................ 10
ASEAN ........................................................................................................................... 10
Greater China................................................................................................................ 11
India .............................................................................................................................. 11
Other Emerging Markets ......................................................................................... 12
Commodities Energy...............................................................................................................................13
Precious Metals.............................................................................................................13
Industrial Metals.......................................................................................................... 13
Agriculture...................................................................................................................... 14
Alternative Investments .............................................................................................................................................15
2
Content
The Investment Committee
Peter Wynn Williams
Investment Director
& Partner
Andrew Kelly
Partner
George Rippon
Partner
Simon Liu
Head of Investment
Research
Paul Brady
Partner
Chris Skinner
Partner
The Henley Investment Committee combines more than 110 years’ experience and
is unique in being backed by a full-time team of five investment professionals to
optimise asset allocation and manager selection.

3. Equities
3
“May you live in interesting times.” Well, we all know there is no shortage of interesting these
days. What there is a shortage of, however, is honesty – honesty in our politicians, our mainstream
media, our financial institutions, our markets and our regulators – to name but a few. As asset
allocators, we are left as best we can to see through the smoke and mirrors and offer prudent
advice to our clients.
At a conference in April, 2011, Jean-Claude Junker, President of the Eurogroup of ministers, said
into a microphone (referring to touchy economic subjects): “When it gets serious, you have to lie.”
Referring to Europe’s debt crisis, he once also said: “We all know what to do, we just don’t know
how to get re-elected after we’ve done it.” Since he is the longest-serving democratically elected
current head of any government in the world, I guess he has not been doing what needs to be
done for a long time. But I digress.
One of the biggest lies doing the rounds at the moment is the idea that the US Federal Reserve
can “taper” or exit its quantitative easing (QE) program. Last month, both the International
Monetary Fund and the Bank of International Settlements (BIS) issued reports saying that the
risk/return profile of QE was no longer in its favour and that the risks of continuing were growing.
The BIS even went as far as to say in effect that QE does not work. These reports follow the
Federal Reserve’s own report, “Crunch Time,” published in February, which said that rising bond
yields could wipe out the Federal Reserve’s capital base many times over, and that the risks would
grow substantially if QE continued into 2014.
It was against this backdrop that Federal Reserve Chairman Bernanke testified to Congress last
month. As far as I could tell, he said the Fed may begin to “taper” or they may instead choose to
increase the size of QE. It could be soon but maybe not. It would be “data dependent,” although
those data may be the unemployment rate or GDP or CPI or something else. When the Fed
eventually decides to “taper,” they may then decide to reverse course depending, again, on
various factors that no one can clearly articulate because there is no consensus view as to how to
manage this phase of the monetary experiment. Sir Humphrey would have been weeping tears
of pride!
The Fed knows it is trapped and cannot exit QE without precipitating precisely the disorderly
collapse to which QE was supposed to be the solution. As soon as the market detects any whiff
that the flow of freshly-printed confetti will diminish or stop, bubbles will pop left, right and
centre as everybody else rushes to sell before bond yields rise any further and before equity
markets crater. A bad thing.
Meanwhile over in Japan, they expect us to believe that their bold monetary experiment will
lead them to the Elysian Fields and not to bankruptcy. Given the government’s commitment to
increase the rate of inflation from the current rate of minus 0.9% per annum to plus 2% (and to
double the size of the monetary base) in two years, it is logical to expect bond yields to rise to
between 2% and 3%.
As the Texan hedge fund manager, Kyle Bass, said recently, the rational thing to do would be to
sell. There is an awful lot of selling to be done: there are about one quadrillion yen worth of bonds
out there – most of them held by Japanese institutional and retail investors. Japanese banks, the
largest of them on a par with some of America’s largest, hold bonds worth about 900% of their
core capital. If the yield on the Japanese national debt rose to 2.8%, then the cost of servicing
that debt would equal 100% of Japanese tax revenue. Has your mind boggled yet?!
Global Overview
Peter Wynn Williams
Investment Director
pww@thehenleygroup.com.hk

4. Equities
The Henley Outlook June 2013
Hong Kong, Singapore & Shanghai
4
Global Overview
Peter Wynn Williams
Investment Director
TheChargeOfTheYenBrigade
Cannon to right of them,
Cannon to left of them,
Cannon in front of them
Volley’d and thunder’d;
Storm’d at with shot and shell,
Boldly they rode and well,
Into the jaws of Death,
Into the mouth of Hell
Rode the six hundred.
Alfred, Lord Tennyson, Poet Laureate,
1854.
There appears to be no turning back. Given Japan’s commitment to raising bond yields, its debt
trajectory, its ageing demographics and shrinking tax base, it is hard to see how Japan can avoid
default, probably in the form of a hyperinflation – just like the last time it tried something similar
in the 1930s. The Japanese government is aware of the risks but, after twenty years of deflation,
believes there is no choice. Now that’s a dilemma with some big pointy horns!
In just one week at the end of last month, the yield on the ten-year Japanese government bond
doubled to 1%. That may not sound like a big deal, but the last time the world saw a bond market
crash, in 1994, it was caused by a rise in bond yields of “only” 50%. So it is by no means a surprise
to see volatility of the kind we have recently seen in Japanese markets. Expect more, and worse.
Into the valley of death rode the six hundred!
Gold mining funds are already there. Sentiment is bearish to an extraordinary degree. In
recent months, investors have preferred to invest in the mirage of economic recovery and a
strengthening dollar, leaving the gold-mining funds to plunge. It feels extremely unpleasant for
those who have bought in the last couple of years; but these are the sorts of bargain-basement
opportunities which the sector sometimes provides for long-term investors. Looking forward,
the fundamentals have not changed. Patience will be rewarded, but it is ironic that we have to
endure so much short-term volatility to secure our long-term peace of mind.

5. Equities
5
HENLEY ASSESSMENT
Negative
Mostly negative GBP, followed by
JPY. USD and EUR to still fare poorly
over medium-to-long term against a
trade-weighted basket of currencies
given that these currencies are
debasing and devaluing through
significant quantitative easing (QE).
We still favour SGD as a safe haven,
and commodity currencies for yield.
Summary
■■ After a poor March for GBP, the limelight was taken off it by the events in Greece, again
showing the flaws in the EUR. Economic indicators all over Europe look weak and the prospect
of a rate cut grows with the ever more painful austerity measures taking hold.
■■ AUD remains rangebound with the USD.
■■ EUR has pulled back from its strength against the USD post the Cyprus debacle.
■■ SGD remains steadily strong. Expectations are that the current gradual appreciation policy
will continue as it is.
Cash & Currencies

6. Equities
The Henley Outlook June 2013
Hong Kong, Singapore & Shanghai
6
Points of General Interest
■■ US investors will pull an estimated USD1tn — or 13.5% of US assets professionally managed
in fixed income — out of core, core-plus, government and fixed-income index funds over the
next three to five years because of fears over rising interest rates, according to Casey, Quirk
& Associates.
Government Bonds
■■ ECB head Mario Draghi is defending a central bank program that has been credited with
calming market turmoil over the continent’s debt crisis, ahead of closely watched hearings
in a court challenge to the program in the second week of June with Germany’s Bundesbank
being one of the most outspoken critics of this policy.
■■ In the last week of May13, Italian bonds advanced, with 10 year yields dropping from a six-
week high, after the nation met its target amount at a debt auction, signaling higher demand
for the securities.
■■ The US Treasury stopped re-investing in a retirement fund, a major step in its efforts to avoid
exceeding the debt ceiling, according to a letter to lawmakers from Treasury Secretary Jacob
Lew.
■■ On May 23, the yield on ten-year Japanese government bonds touched 1%, three times higher
than before the BoJ’s April announcement of shock and awe and on the same day Japanese
stocks plunged, with the Nikkei 225 index dropping by 7%.
Corporate Bonds
■■ Global bond markets posted their biggest monthly losses in nine years in May as the USD
rallied and stocks reached record highs amid speculation a strengthening US economy will
allow the Federal Reserve to reduce its monetary stimulus.
Offshore Bank Accounts- Best Buys (at the time of writing)
■■ Interesting to note that these rates are steadily dropping which is an indication that general
consensus is that rates in the UK will remain flat or even go lower under the new BoE regime
under new incoming governor, Mark Carney.
■■ No Notice Account- Britannia International – 2%pa
■■ 60 day Notice- Britannia International- 1.75%pa
Fixed Income
HENLEY ASSESSMENT
Neutral/Negative
While there may be some short-
term relief in fixed income from the
volatility seen in equity markets
and also a comparative positive
return when compared to holding
straight cash in the short term,
we are of the opinion that such
short-term relief has the potential
to come at a costly price in the
medium to long term. With the
developed economies committed
to the path of continued monetary
easing, we believe that inflation
will become a serious concern in
the future. Such an environment
would see the relatively low yields
enjoyed by fixed interest assets
over-run by the cost of goods.
There may be an argument to
seek short-term safety in specific
emerging market bonds but we see
serious danger in accepting the
debt of the developed economies
both on a sovereign default front
(especially within Europe) and on a
return vs inflation front.
There is also potential in the short
term for growth within these assets
as retail investors look to hedge
their equity exposure through fixed
interest investments; sadly this
is probably not the safe location
that economic text books suggest
and could well be the catalyst for
another global economic crisis
when investors begin to believe
that the current debt levels are
utterly unsustainable.
It is for this reason that we are
neutral on these assets in the very
short term but strongly negative in
the long term.
Source: Japan Department of Treasury

7. Equities
7
Positives
■■ According to Hometrack, London homes changed hands at the fastest pace since 2007, at an
average of 4.6 weeks, with prices also rising 0.7% MOM. Investors from regions such as the
Middle East and the euro area continue to drive residential property prices up as they seek a
haven from economic and political unrest at home. Foreign money seems to regard London
property as an appropriate place for investment during a crisis.
■■ In the US, Bloomberg reported that the medium price of existing homes rose 11.8% YOY (from
USD164,800 to USD184,300), the most since November 2005. The upward trend in prices is
likely to continue due to factors as a lack of supply, high demand, low prices and record low
mortgage rates.
■■ In Singapore, home sales rose to 2,793 in Mar13, rebounding from a 14-month low of 712
sales in Feb13 and the highest since the Urban Redevelopment Authority started releasing
information in Jun07. As a result, there is concern that the government could introduce an
eighth round of cooling measures (the last round of curbs in Jan13 included an additional
increase in homebuyer stamp duty of 5% to 7%; the total stamp duty cost for foreigners
to purchase residential property is now 18%). However, it is worth bearing in mind that the
housing supply will be doubled in 2013 from 2012, which may limit price rises, although the
low interest rate environment and global liquidity will also continue to support prices.
■■ In Australia, confidence is returning to the residential property market after several interest
cuts by the RBA. Westpac reports that its index of house price expectations (meaning
expectations of house price rises less falls), has risen from 26.7% in Jan13 to 53.9% in Apr13,
the highest reading since 2010.
Negatives
■■ In Hong Kong transaction volumes for residential and commercial property have fallen steeply
after some banks raised interest rates on mortgages and also as a result of the latest anti-
speculation measures effective from Feb 13. Sales of second-hand homes have fallen 70%
and prices by 5% so far. Under the new measures, the stamp duty payable by most buyers of
property valued in excess of HKD2m has doubled. This change was in addition to the 15% tax
levied on non-local and corporate property buyers that came in at the end of 2012. As a result
of the government actions to curb property prices, Savills have predicted a 20% fall in prices.
■■ In the UK, home sellers have raised asking prices for a fourth consecutive month for a total
increase of 6.9% amid a shortage of homes for sale. Rightmove reports that home prices rose
2.1% MOM, and 0.4% YOY. Although the scarcity of homes for sale is supporting prices, the
very slow economic growth in the UK is masking weak demand in many areas. As a result of
this the UK government pledged GBP3.5bn of loans, plus GBP130bn of loan guarantees in the
Mar13 budget to spur housebuilding and assist residents struggling to afford a home.
Source: U.S Housing Affordability
Property
HENLEY ASSESSMENT
Neutral
Property prices generally, after
significant falls in 2009, stabilised
in 2010 and 2011. Property prices
in many areas have weakened in
2012 and 2013 YTD, as economic
conditions remain difficult. Property
values have, however, recovered in
selected areas such as Singapore,
Hong Kong and London. Additionally
weareseeingsignsofarecoveryinthe
US housing market. We still consider
some specialised property assets,
such as student accommodation,
to merit inclusion in our portfolios.
Other than these investments, we
would suggest that clients do not
invest further at this time.

8. Equities
The Henley Outlook June 2013
Hong Kong, Singapore & Shanghai
8
Positives
■■ Japan’s economy grew faster than expected in Q1. GDP grew at annualised rate of 3.5% on
the back of private consumption and rise in exports after aggressive monetary and fiscal
stimulus. Gain is mainly a result of improved expectations behind rising domestic demand.
Negatives
■■ Abe has yet to deliver structural reforms promised as part of his three-pronged growth
strategy. A high support in the July upper house poll would help his bid for an economic reform
in Japan.
EQUITIES
UNITED STATES
JAPAN
HENLEY ASSESSMENT
Negative
Chances of Congress and the White
House addressing the long-term
solvency issues of the US government
in a meaningful manner remain nil.
The changes required to balance the
system are too politically painful,
so a currency crisis within the next
couple of years seems the most likely
outcome, especially if there is a black-
swan event, such as an assassination,
a COMEX default or a bomb on Iran.
Meanwhile the economy continues
to bottom bounce, fundamentals
continue to deteriorate, and markets
– for the time being – continue not
to care, buoyed by a rising tide of
confetti (and nothing else). Better to
be out of this market a long time early
than one minute late.
Positives
■■ QE to infinity will inflate asset prices for the time being.
■■ The US Federal Reserve has forecast rates will remain unchanged until at least 2015.
■■ In the long term, demographics and returned energy self-sufficiency bode well.
Negatives
■■ National debt: USD16.8tn and rising; debt to GDP: 107% and rising. This is absurdly
unsustainable.
■■ QE to infinity promises currency debasement, rising prices and lower discretionary spending.
■■ Data continue to disappoint almost across the board.
■■ QE to infinity may result in a currency crisis in couple of years.
HENLEY ASSESSMENT
Neutral
Topix Index (TPX) shares tumbled
3.8%, a week after plunging
down 6.9%, the most since Mar11
earthquake and tsunami. TPX gains
over past six months pared to 45%,
from as much as 63% earlier in
May. Sliding prices in stocks and
rising yield in Japanese Government
Bonds (JGB) raise the stakes for the
prime minister’s restructuring plan as
officials sought to sustain confidence.
IHS Global insight and wells Fargo Securities, LLC

9. Equities
9
UNITED KINGDOM
EUROPE EX UNITED KINGDOM
EQUITIES
HENLEY ASSESSMENT
Neutral
Whilst there has been slightly more
positive macro news for the UK
economy this month, the major story
has been the GBP5bn bid the water
company Severn Trent received and
rejected, stating it undervalued the
company. This bid actually valued the
company at 20 times earnings, and
shows how desperate investors are
for yield. The potential takeover came
from a consortium of the state of
Kuwait’s investment arm, a Canadian
infrastructure investor and one of the
UK’s largest pension funds, all looking
for long-term inflation linked returns,
exactly what water companies offer
and exactly what UK Gilts do not
offer in the current environment. This
type of activity could help to drive the
FTSE much higher than its current
position.
Positives
■■ Bank of England Governor Mervyn King declared a UK recovery is now “in sight” as he
presented his final forecasts with an improved outlook for the economy. “Of most significance
today is that there is a welcome change in the economic outlook,” King said as he presented
his 89th press conference at the central bank in London. “This hasn’t been a typical recession,
and it won’t be a typical recovery.” King said that the more optimistic outlook on economic
growth and inflation was the first such improvement he has been able to forecast since the
financial crisis struck.
Negatives
■■ High inflation has cost the UK economy GBP10bn over the last three years, says an influential
report. And with inflation averaging 3.5%, instead of the government’s target 2% rate, high
inflation will remain “a permanent fixture”, says the Ernst & Young ITEM Club. This has had a
“corrosive impact on the UK economy”, the report concludes, as household spending power
has shrunk. The group does not expect inflation to dip below 2.5% before 2017. Consumers
have been struggling to cope with food prices that have risen 40% since 2007, as well as rising
fuel and education costs, whilst real take home salaries have simply not kept up this pace.
HENLEY ASSESSMENT
Strongly negative
“It’s like opening the windows
in a convertible when the top’s
already down”. That is how
one market commentator has
described the ECB’s widely
anticipated rate cut. Welcome,
maybe, but unlikely to bring a big
change in the weather for the
periphery economies currently
locked in the boot. Official figures
showed the euro zone is now in
its longest recession on record.
Nine of the 17 EU member states,
including Spain, are mired in
recession. As a whole, the euro
zone economy contracted for its
sixth straight quarter between
January and March, shrinking by
0.2%.
Positives
■■ ECB lowered its benchmark interest rate to 0.50% from 0.75%, the first cut in 10 months. It
said it was “ready to act if needed”, should more be required to boost the euro zone’s economic
health. The ECB also extended its cheap loans to banks until at least July 2014.
■■ Mario Draghi stated that the ECB was “technically ready” to take the interest rate on its
deposit facility into negative territory – in other words, to charge banks to park their cash with
the central bank.
Negatives
■■ Euro zone GDP fell 0.2% in 1Q13, after a 0.6% drop in the previous three months. Recession in
euro zone continued into record sixth consecutive quarter.
■■ Heads of Portugal’s two biggest banks – Millennium BCP and Banco Espírito Santo – said they
were concerned that the precedent set by Europe’s treatment of Cyprus’s recent troubles had
increased nervousness across the euro zone to dangerous levels.
■■ France has entered its second recession in four years after the economy shrank by 0.2% in
1Q13. The French unemployment rate is running at 10.6% and is forecast to rise further next
year.

10. Equities
The Henley Outlook June 2013
Hong Kong, Singapore & Shanghai
10
ASEAN
AUSTRALIA
EQUITIES
HENLEY ASSESSMENT
Neutral
Economic data has been mixed. The
key business confidence measure,
which is clearly a very important
factor for the Board, remains soft.
On the other hand there was an
encouraging boost to housing finance
approvals largely consistent with the
two competing forces described in
the minutes. The employment report
is best described as “neutral” whereas
the wage inflation pressures eased
further in the March quarter.
Positives
■■ RBA Governor Glenn Stevens indicated that he has scope for further reductions after lowering
the key rate to a record 2.75%. Meeting minutes showed that surprise drop in inflation and
ongoing weak business sector prompted the decision to cut rates.
Negatives
■■ Governmentdatareleasedthismonthshowedretailsalesandbuildingapprovalsunexpectedly
dropped in Mar13, while a private report revealed that business confidence dropped to -2 in
Apr13 with sentiment in the mining industry at its lowest since the GFC.
■■ Australia’s benchmark bond yield is offering the smallest premium over US notes in 11 months
as the sharpest predicted growth slowdown in four years spurs bets on further interest rate
cuts.
■■ The government also forecast slower growth last week when it released federal spending
plans for the fiscal year starting Jul13. Treasurer Wayne Swan is seeking to raise more money
from businesses after lower tax revenue led the government to scrap plans to return the
budget to surplus this year.
HENLEY ASSESSMENT
Positive
Japan is strengthening ties with
countries in the region as it tries to
revive growth and as tensions with
China escalate over a territorial
dispute. Japanese companies are
increasing investment in the 10
members of the ASEAN group as they
seek to counter the fallout from the
row with China that’s damaged a
USD340bn trade relationship.
Positives
■■ Thailand may seek to cut rates to halt THB gains.
Negatives
■■ The IMF lowered its projection for Vietnam’s growth to 5.2% this year from 5.8% previously,
and to 5.2% in 2014 from 6.4% in its report on 29Apr13 . The reduction of this year’s forecast
is the biggest cut among Southeast Asian countries after Singapore, while the 2014 cut is the
biggest downward move for any Asian country. This cut is mainly due to slow restructuring of
Vietnam’s banks and state companies.
■■ Unemployment rate in the Philippines climbed to 7.1%in Jan13 from 6.8% the previous month.
About 660,000 positions have been lost since Oct11, even as the economy expanded 6.6%
last year. Tackling unemployment has become the prime objective of Aquino’s government.

11. Equities
11
Positives
■■ A recent survey shows the new home prices rose in 68 out of 70 major cities in China despite
the new capital gain tax which the government introduced earlier this year. The survey also
suggested that 68% of Chinese local residents still consider that price could jump further, as
prices climbed 13.5% YOY in Guangzhou, 10.3% YOY in Beijing and 8.5% YOY in Shanghai.
■■ China industrial production growth accelerated but is still below expectation. Industrial
growth accelerated to 9.3% YOY in April from March’s 8.9%.
■■ Retail sales growth accelerated slightly to 12.8% YOY in April from March’s 12.6% YOY.
Negatives
■■ China growth outlook cut by IMF – GDP forecast for 2013 is down to 7.5% YOY from 8% YOY
earlier to reflect the risks from a record expansion of credit, with the unexpected economy
slowdown in first quarter.
■■ China’s official manufacturing PMI fell to 50.6 in April from 50.9 in March, which shows the
foundation for China’s economic recovery is not solid enough.
■■ The value of Chinese commercial banks’ outstanding non-performing loans (NPL) reached
RMB525.5bn (USD84.92bn) in the first quarter. The China Banking Regulatory Commission
(CBRC) said the NPL ratio of Chinese commercial banks stood at 0.96% in Q113, slightly up
from the 0.95% in Q412, marking the sixth straight quarter of rises since Q411.
India
GREATER CHINA
EQUITIES
HENLEY ASSESSMENT
Neutral
Although China’s Q1 GDP data came
out disappointingly due to slower
than expected transmission of
growth total social financing into real
economic growth but the recovery
trend remains intact. We continues
to believe that the broad trend of
growth recovery in H2 this year will
be more clear and bright, which is
supported by on-going destocking,
possible credit relaxation and slower
RMB appreciation, a pick-up in
real estate investment, a recovery
in export demand, and improved
landscape in A-share market.
HENLEY ASSESSMENT
Neutral
Markets reacted to the withdrawal of
an ally (DMK) last month but showed
no signs of euphoria after the RBI
rate cut. It seems India is now in a
stagflation-like situation wherein
the growth stagnates but inflation
remains at an elevated level.
Positives
■■ The fall in gold prices is expected to bring down the current account deficit from 4.3% to 3.9%
of GDP; USD100/oz fall will compress the deficit by about USD3bn.
■■ The country’s central bank, the RBI, cut the repo rate by 25 basis points to 7.5%.
Negatives
■■ Owing to the power outage and fall in new business orders the manufacturing sector witnessed
the slowest growth in 16 months with the PMI in March standing at 52, down from 54.2 in
February.
■■ CPI inflation climbed to 10.9% in February with wholesale price inflation at 11.4%.

12. Equities
The Henley Outlook June 2013
Hong Kong, Singapore & Shanghai
12
HENLEY ASSESSMENT
Negative
Bank of Korea decided to cut the base
rate by 25bps to 2.5%. The latest
drop in the JPY may have pushed the
central bank into action. There were
three key takeaways from Governor
Kim’s press conference – the rate cut
was “appropriate to help government
effortstoboosttheeconomy.”Second,
the central bank had “considered rate
cuts by ECB and Australia”. Third,
“Japan’s monetary easing has a big
impact on South Korea”. All true.
But the KRW has risen by 7% against
the yen in the last six weeks, taking
its appreciation over the past seven
months to around 20%. The numbers
speak for themselves.
Other Emerging Markets (South Korea, Russia, Brazil)
EQUITIES
Positives
■■ Central Bank of Brazil increased the benchmark SELIC rate by 25bps, ending an easing cycle
that lasted nearly two years. Central bank President Tombini reiterated that policy makers will
“do what’s needed” to contain inflation.
Negatives
■■ Russia’s central bank, Bank Rossii, left the refinancing rate at 8.25% for an eighth month,
brushing off government calls for lower borrowing costs to stimulate the economy.
■■ Russia’s economic growth slowed to 2.1% in the fourth quarter from a year earlier. That
prompted the Economy Ministry to lower its forecast for expansion this year to 2.4%, down
from a projected 3.7%. The inflation rate rose to 7.2% in Apr13 from 7% increase in Mar13,
remaining more than 1% higher than the central bank’s target.
■■ The weaker JPY is slowly hampering South Korea’s growth momentum, with the country’s
industrial output falling 2.6% in Mar13 from Feb13.
Source: Thomson Reuters

13. Equities
13
Positives
■■ The US government
continues to devalue
the USD through QE
which remains a positive
for precious metals and
gold in particular.
■■ Consumer demand and
continued central bank
buying provides support
for gold prices.
■■ There is the prospect
of future inflation
due to central banks’
continuing policy of
printing money.
Negatives
■■ Bullish sentiment towards US (and global stock markets) will continue to depress precious
metals.
Energy
Precious Metals
COMMODITIES
HENLEY ASSESSMENT
Neutral
Increasing US gasoline stockpiles
and weak economic data out of
China have continued to depress
energy markets in the short term.
However, the sector has good upside
potential in the long term considering
incremental demand from Asia and
continued expansionary monetary
policies.
Positives
■■ A floor in oil prices appears to be close which may result in a bounce of crude prices.
Negatives
■■ Excess supply over demand keeping energy prices low.
HENLEY ASSESSMENT
Positive
It is worth noting the comments of
Marcus Grubb, Managing Director,
Investment & Global Strategist at
The World Gold Council. When asked
whether or not if, after 12 years of
outperformance, a fund manager
would be sacked for one year of poor
performance, he suggested “no”. In
context, this is the position with gold.
After a positive run since 2002, the
current drop needs to be viewed in
relation to the longer term. Gold has
been pushed below its equilibrium
price by speculators. In an interesting
dichotomy, demand for gold from
private consumers is extremely
buoyant and it is reasonable to
expect a bounce back. Likewise silver.
According to LLoyds TSB, silver has
produced the best gains since 2002 of
any commodity (source: Wealthdaily
Silver Report 2013). As such, there is a
need to balance short term concerns
with longer term positives.
Crude Oil Prices
PastTrendPresentValue&FutureProjection
WestTexasIntermediate.USDollarsperbarrel.
Source: the Financial Forecast Center
Source: Christian A. DeHaemer

14. Equities
The Henley Outlook June 2013
Hong Kong, Singapore & Shanghai
14
Positives
■■ Warren Buffett’s investment
powerhouse Berkshire
Hathaway and 3G Capital
have announced they will take
over US tomato sauce and
baked beans maker Heinz,
in a deal worth USD23bn.
This could lead to broad
cost-cutting measures across
the industry and a possible
rerating in the valuation of
similar companies.
■■ UN’s Food and Agriculture Organization estimates there will be over nine billion mouths to
feed on the planet by 2050.
■■ Middle class consumers in BRICS economies are increasingly demanding more varied and
protein-rich foods. As affluence increases, protein from sheep, poultry, pigs, cows and fish may
in turn displace grains in diets.
■■ Urbanisation and life expectancy is expected to increase.
Negatives
■■ Prices are subject to many uncontrollable risks, e.g., weather and natural disasters, politics
and other pests.
■■ Due to recent drought conditions in the American Mid-West and Russian Black Sea regions
we have seen corn, wheat and soy prices increase on average over 50% within a few months.
Commodities
Agriculture
Industrial Metals
HENLEY ASSESSMENT
Neutral
Iron ore slumped into a bear market
on concern that slowing economic
growth in China, the world’s biggest
buyer, will hurt the outlook for
demand. One leading mining firm
believes prices will decline as supplies
expand over the long term. In the US,
The Fed’s stimulus program has been
a major support to growth-related
assets such as base metals in recent
years.
Positives
■■ Continuation of QE in the US may help support prices.
Negatives
■■ Weak numbers out of China having a negative impact on base metal prices.
HENLEY ASSESSMENT
Positive and Negative
There are two very different markets
playing out in the agriculture sector –
physicalandequity.Manyphysicalsoft
commodity prices have exploded due
to changing global weather patterns
over the past few months, however
these sharp price increases tend to be
followed with just as sharp falls; there
is a very seasonal and cyclical pattern
with these movements. Currently with
many soft commodity prices at or
near record highs we have a negative
view on investing at these levels and
encourage profit taking. On the equity
side, the largest weighting funds
have to this sector is via fertilizer and
seed companies. These industries are
having a significantly more important
role to play to help increase yield
and in the case of seed companies,
invent seed which is more tolerant to
changing global weather patterns.
We remain positive agriculture equity
funds.

15. Equities
Positives:
■■ The hedge fund industry continuously extended YTD returns – the HFRX index finished April
with +0.6%, taking YTD return to +3.8%. Performance was generated positively across a range
of styles, strategies.
■■ April was another large positive month for the Nikkei 225, strongly outperforming the global
equity indices. Japanese managers with a long bias were the strongest performing managers,
capturing profits from the rise in the indices.
■■ Long-term trend followers appear to have recorded the strongest returns of any strategies in
April. The increasingly short commodities position plus long positions in equities and bond
produced favorable result this year so far.
Negatives
■■ Conversely, short-term trend traders held relatively flat positions in commodities, largely
missed the sharp sell-off, but then built a short position too late and suffered in the subsequent
rebound.
■■ The market conditions for Global Macro managers are getting unattractive due to people
backing to fundamental trades.
■■ Thebearishsentimentforcommoditiesarecontinuouslyhurtingsomemanagers’performance
if they stick to their long bet accordingly.
Alternative Investment
HENLEY ASSESSMENT
Neutral
Under current market conditions
the outlook for hedge funds looks
better than half a year ago. With the
normalisation of the US economy
asset class correlations, it seems the
headaches of political influence on
the market appears to be reducing.
Therefore, the increasing markets
dispersion indicates equities and credit
securities moving towards company-
specific risk, and commodities pricing
acting as a result of fundamental
supply and demand metrics.
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The Henley Group Limited (“The Henley Group”) has produced this document for your private use only and you must not distribute it to any other person. Re-distribution or reproduction in whole or in part of this document by any means is strictly
prohibited and The Henley Group accepts no liability for the actions of third parties in this respect. Notwithstanding that the information contained herein has been obtained from sources which The Henley Group believes to be reliable, The Henley
Group makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy, completeness or correctness. The information in this document, including any expressions of opinions or estimates, should neither be
relied upon nor used in any way as indication of the future performance of any financial products, as prices of assets and currencies may go down as well as up and past performance should not be taken as indication of future performance. Neither
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16. The Henley Outlook June 2013
Hong Kong, Singapore & Shanghai
Equities
16
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Henley Market Outlook
JUNE 2013