Outlook - as at February 2012

Market

Positives

Negatives

Outlook

View

Positive +

Neutral =

Negative -

UK equities

Market offers reasonable value

Strong balance sheets

UK market buoyed by improving US economy

Weak consumer

Weak banking sector

Risk of recession in Europe/UK

Peripheral European cash flow problems looming

Corporate sector in good shape

Eurozone policy response is key

=

UK bonds

Gilts a safe haven from concerns about the eurozone

Signs of UK economic slow down

Inflation finally coming down

Heavy gilt issuance to fund large government deficit

Lowest gilt yields since 1890's

Significant positive and negative factors

Bonds waiting for themes for 2012 to emerge

=

European equities

Strong corporate balance sheets

Valuations low

Government deficits a drag

Stress in Spain, Ireland, Greece and Portugal

Growth moderating

Export markets stronger than domestic markets

Sovereign debt levels problematic

=/-

US equities

Corporate sector very strong

Fed remains aggressive

Can growth be sustained?

High unemployment a concern

Some concerns about sustainability of growth

+

Asia Pacific ex Japan equities

Strong corporate balance sheets

Better economic fundamentals than developed economies

Valuations cheap

Central banks reacting

Exports to developed markets to fall sharply

Economic growth to slow moderately

China continues to ease policies

Sentiment affected by developments in eurozone

+

Japanese equities

Stronger corporate and consumer balance sheets than other economies

Valuations in attractive territory

Supportive fiscal stimulus expected

Strong currency could hurt exporters, earnings and competitiveness

Earnings at exporters dependent on a continued global economic recovery

Earthquake reconstruction supportive of growth

Sensitive to the global economic growth environment

+

UK commercial property

Property income yields remain favourable compared to UK equities and gilts

UK interest rates and government gilts to remain low, underpinning the pricing of property

Some retailer administration has occurred, but not as great as feared

Expectations of some capital loss in the first half of 2012 mainly focused on secondary product

Still faced with head winds due to eurozone crisis and deleveraging adjustment

Occupier profit margins under pressure, having some impact on the affordability of rents

=/-