WEEKLY MARKET VIEW

1 February 2013 Contents

Economic data takes centre stage Look through one-off factors Conclusion Technical analysis Economic & Market Calendar 3-12 month Market Outlook Pg 1 Pg 2 Pg 3 Pg 4 Pg 6 Pg 7

Economic data takes centre stage

Most asset classes took a temporary pause for breath over the last few days, led both by economic data and somewhat stretched market technicals. Relatively disappointing US data, encouraging European data and concerns over export competitiveness in North Asia were key drivers. We continue to believe Q1 will mark the trough of US economic growth, which is likely to be followed by a period of stronger growth. This, in turn, should benefit other regions, particularly Asian exporters. Equities, US high yield bonds and Asia local currency bonds remain

US Treasury yields have returned to 2% levels US 10-year Treasury yields (%)

3.8 3.3
%

our key picks, and we would not delay raising exposure to these asset classes in anticipation of a correction that may or may not materialise. Our B.R.I.D.G.E. framework remains the most appropriate way to approach the construction of a suitable investment portfolio, in our view.

2.8 2.3 1.8 1.3 Jan-08

MACRO OVERVIEW

Jul-09 Jan-11 Jul-12

US economic surprises weakened, led by disappointing GDP and housing data German Ifo struck a positive tone, rising to an 18-month high Indias central bank cut policy rates and is likely to ease further

Source: Bloomberg, Standard Chartered

FIXED INCOME
Key events this week:
Data / Event US Change in Non-farm Payrolls US ISM Manufacturing EC PMI Composite CH Flash Services PMI AU RBA Policy Rate UK BOE Policy Rate EC ECB Policy Rate CH CPI / New Loans
Source: Bloomberg, Standard Chartered

Date 1-Feb 1-Feb 5-Feb 5-Feb 5-Feb 7-Feb 7-Feb 8-Feb

US Treasuries have broken above 1.85%, moving them into a slightly higher range. Keep duration short in USD bond portfolios Take advantage of recent weakness to average into Asia local currency bonds

EQUITIES
Equities remain our preferred asset class. US reported earnings have been positive thus far. Maintain overweight on US and Asia ex-Japan markets

COMMODITIES
Prefer broad exposure to commodities as the most efficient means of capturing potential gains Commodity price impact of Middle-East geopolitical events limited for now, but this remains a risk

Steve Brice

Chief Investment Strategist

Rob Aspin, CFA Head, Equity Investment Strategy Manpreet Gill Suren Chelliah Audrey Goh Victor Teo Head, FICC Investment Strategy Investment Strategist Investment Strategist Investment Strategist

CURRENCIES
Lack of reaction to BoJ initiatives by JGB market raises further doubts on sustainability of JPY weakness in the short term Use recent weakness in Asia ex-Japan currencies to add exposure

This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank

Weekly Market View

Look through one-off factors

Benchmark (USD) performance w/w*
JP Morgan Cash Index MSCI AC World Daily TR Net USD Index Citigroup World BIG Index DJ UBS Commodities Index DXY Index ADXY Index -1.50 -0.93 -0.42 -0.50 % 0.50 1.50 -0.25 0.95 0.01 0.56

It was a mixed bag for economic data over the past week. US data disappointed relative to expectations, though the broader trend continues to be one of improvement. In Asia, however, both policy actions and data were far more supportive. Together, the tone appears to be firmly in support of our view of 2013 as a year of transition towards stronger growth. US GDP data a surprise, though details are more upbeat than the headline. US Q4 GDP contracted unexpectedly by -0.1%, led lower by a sharp decline in military spending (which fell a little over 22%) and inventories. We note, however, that both are due to one-off factors and that, excluding these two components, GDP growth would have otherwise accelerated. Given these details, it is understandable why markets appear relatively less concerned about the negative print. We continue to believe the trough in GDP growth is likely to occur in Q1 2013 (when the rise in payroll taxes kick in), but growth is only likely to accelerate thereafter as the recovery broadens. Fed acknowledged activity paused over recent months, but no imminent change in policy or outlook appears likely. While the Feds monetary policy statement took note of the recent pause in activity, there was little material shift in its existing stance. Markets are instead likely to be more sensitive to (a) the release of the minutes of this meeting, which may illustrate the ongoing debate on just how long quantitative easing should continue, and (b) Fed Chairman Bernankes mid-February testimony to the US Congress, where any comments on future Fed policy on quantitative easing are likely to be closely watched. Germanys Ifo turned encouragingly higher, suggesting the German and European growth outlook is not entirely bleak. The business sentiment survey rose to an 18-month high, mirroring improvements in other sentiment surveys such as the ZEW. While this by no means suggests a strong recovery is imminent across the Euro area, it does argue that the growth outlook is somewhat better than the bleak scenario often painted by markets.

*week of 24th January to 31st January Source: Bloomberg, Standard Chartered

Economic surprises have turned sharply higher in Europe and lower in the US Economic surprise indices
130 80
Index

30 -20 -70 -120 Jan-11 Apr-11 Jul-11 US

Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Europe China

Source: Bloomberg, Standard Chartered

India Policy Rates likely to be cut further India RBI repo rate (%)
9.5 9 8.5 8 7.5 7 6.5 6 5.5 5 4.5 Jan-07

Korean growth data remains strong despite weaker Japanese Yen. South Koreas industrial production data for December remained strong, growing at 1.0% m/m, despite exporters facing competitive pressure from a weakening Japanese Yen. While we recognise this data is relatively backward-looking, it does suggest sensitivity of Korean growth to the relative value of the Korean Won and Japanese Yen may be less than reports would have us believe. The rise in the KRW/JPY exchange rate already appears to have been arrested, and this data suggests relatively modest moves may be sufficient to retain Korean competitiveness.

Apr-08

Jul-09

Oct-10

Jan-12

Source: Bloomberg, Standard Chartered

Indias central bank cut rates in response to somewhat softer inflation. The Reserve Bank of India (RBI) cut its policy rate by 25bp while simultaneously cutting its reserve ratio by 25bp. While the rate cut did not seem to surprise the markets, the accompanying statement suggested a shift in tone by the central bank away from a focus on inflation risks alone. We expect more rate cuts by the RBI this year.

Weekly Market View

What does this mean for investors? Markets appear to be taking a breather on the back of US economic S&P500 company earnings largely surprising to the upside Q4 S&P500 earnings surprises
Technology Financials Utilities Telecommunications Consumer Services Health Care Consumer Goods Industrials Basic Materials Oil & Gas 0 10 20 30 No. of companies Inline Negative 40 50

data disappointments, upcoming elections in Italy and concerns over the impact of a weaker JPY. However, we emphasise that a temporary pause is not the same thing as a correction. Investors waiting for a correction face a real risk that such an event does not occur. We would not be patient in raising portfolio exposure to our preferred asset classes to overweight levels. US corporate earnings continue to surprise firmly on the upside. About half of S&P500 companies have reported earnings so far, and most have surprised positively. The bulk of technology sector earnings have also beaten expectations. We remain overweight equities on attractive valuations relative to bonds, and overweight the technology sector on attractive valuations, rising mobile device penetration and an improving capex cycle. Rise in US 10-year yields takes us above recent ranges. 10-year yields briefly rose to 2.00%, taking them firmly out of the 1.40%-1.85% range within which they have been contained for most of 2012. We are still some distance away from breaking out of the 30-year bond bull market yields would likely

Positive

Source: Bloomberg, Standard Chartered

JGBs not yet responding to BoJ statements US Treasury and Japan Government Bond yields
4.5 4 3.5 3
%

need to rise well above 2.4% for that to occur but the US bond market does appear to be beginning to respond to an incrementally better economic outlook. What this move does highlight, however, is the continued presence of interest rate risk which applies to all investors in USD-denominated bonds, not just those investing in government bonds alone. We reiterate our view that investors are likely best served by keeping maturity profiles of USDdenominated bond portfolios short to help mitigate the risk of higher yields. Japanese bond markets, however, do not appear to be responding to

2.5 2 1.5 1 0.5 Dec-07 Dec-08 Dec-09 Dec-10 UST 10yr Dec-11 JGB 10yr Dec-12

the BoJs higher inflation target. 10-year Japan Government Bond yields (JGBs) have remained largely unchanged despite the Bank of Japans (BoJ) higher inflation target and commitment to open-ended asset purchases from 2014 onwards. In our view, this reflects the perceived lack of credibility of the BoJs 2% inflation target, hence our concern that recent JPY weakness may be overdone. We continue to believe there is a risk the JPY could reverse its recent losses in the short term.

UST - JGB Spread

Source: Bloomberg, Standard Chartered

Asia ex-Japan FX weakness led primarily by KRW ADXY and USD/CNY

119 118 6.25 117
Index

Recent Asian currency weakness is not surprising. We would use the opportunity to average into local currency bonds. The KRW has led
6.2

Asian currencies lower, which isnt surprising considering Korean authorities concern over the impact the jump in KRW/JPY may have on export competitiveness. However, we believe this weakness likely offers an entry opportunity into Asian currencies (and local currency bonds) because (a) weakness appears to be disproportionately impacting North Asian currencies; last years laggards like the INR have held up well, and (b) further JPY weakness is not a done deal, in our view, which is likely to limit further downward pressure on North Asian currencies. Key events next week: US: ISM manufacturing, Non-farm payrolls; Europe: BoE & ECB policy rates; Asia: China flash PMI, CPI inflation. Conclusion: We continue to favour equities, commodities, Asia local currency bonds and US high yield bonds within our B.R.I.D.G.E. framework. For those underweight these asset classes, we would not be patient in raising exposure to overweight levels. 3

116 115

6.3

6.35 114 113 Jan-12 6.4 Mar-12 May-12 Jul-12 Sep-12 USD/CNY Nov-12 Jan-13 ADXY

Source: Bloomberg, Standard Chartered

Weekly Market View

Technical Analysis
S&P 500 The S&P 500 is moving towards our target range of 1520 1550. However, overbought technical indicators may force a temporary pullback with support now placed at 1436.
1550 1552.3 1500 1450 1400 1436

Index

1350 1300 1250 1200 1150 Nov-11

Feb-12

May-12
S&P 500 50 dma 100 dma

Aug-12
200 dma

Nov-12

Hang Seng China Enterprises Index Hang Seng China Enterprise Index can rally further to around 12800. However, short term technical indicators suggest a correction is overdue. 11600 is near term support.
12400 11900 11400 10900 11600

Index

10400 9900 9400 8900 Nov-11

Feb-12

May-12
HSCEi Index 50 dma 100 dma

Aug-12
200 dma

Nov-12

Euro Stoxx 600 Positive momentum is likely to continue and the Index may rally to 296 in the short term. However, a minor correction cannot be ruled out as technical indicators are overbought and are beginning to reverse.
300 296

290

280

Index

270

265.1

260

250

240

230 Dec-11

Mar-12
Stoxx Euro 600

Jun-12
50 dma 100 dma

Sep-12
200 dma

Dec-12

Source for all charts: Bloomberg, Standard Chartered

Weekly Market View

Brent Crude The longer-term outlook is improving after prices held above 105 over the last few months. Brent is expected to remain within a 105 116.5 range for now given neutral momentum indicators.
130 125 120 115 116.5

USD

110 105 105 100 95 90 85 Dec-11

Mar-12
Brent oil

Jun-12
50 dma 100 dma

Sep-12
200 dma

Dec-12

Gold Gold may stage a minor recovery after finding multiple supports at 1644 in the short term. In the medium term, stronger supports exist at 1560-1620. The underlying positive bias remains intact, in our view.
1800

1750 1715.4 1700

USD/Oz

1650 1644

1600

1550

1500 Dec-11

Mar-12
Gold

Jun-12
50 dma 100 dma 200 dma

Sep-12

Dec-12

US Treasury 10-year yields Scope for further upside has increased in the short term as the breakout above 1.85 has added momentum to the rally. Technical indicators argue for a gradual rise in yields.
2.5 2.407

2.3

2.1

1.9

1.8501

1.7

1.5

1.3 Dec-11

Mar-12
US 10YR

Jun-12
50 dma 100 dma

Sep-12
200 dma

Dec-12

Source for all charts: Bloomberg, Standard Chartered

Weekly Market View

Economic & Market Calendar

1 February 2013
Next Week: February 4 - February 8
Event MON JN JN EC US US UK PK SI TUE Official Reserve Assets Monetary Base (YoY) Euro-Zone PPI (YoY) ISM New York Factory Orders Halifax House Prices sa (MoM) CPI (YoY) Purchasing Managers Index Period Jan Jan Dec Jan Dec Jan Jan Jan Expected ----0.90% -7.70% 48.9 Prior $1268.1B 11.80% 2.10% 54.3 0.00% 1.30% 7.93% 48.6 US US US EC TH

This Week: January 28 - February 1

Event Durable Goods Orders Pending Home Sales YoY Dallas Fed Manf. Activity Euro-Zone M3 s.a. (YoY) Mfg. Production Index ISIC NSA (YoY) Period Dec Dec Jan Dec Dec Actual 4.60% 4.90% 5.5 3.30% 23.4 Prior 0.70% 8.80% 2.5 3.80% 82.3

GE EC EC UK US TA PH CH HK AU ID PK

PMI Services PMI Services PMI Composite PMI Services ISM Non-Manf. Composite CPI YoY% Consumer Price Index (YoY) HSBC Services PMI Purchasing Managers Index RBA CASH TARGET Annual GDP Benchmark Interest Rate

Jan F Jan F Jan F Jan Jan Jan Jan Jan Jan 5-Feb 2012 5-Feb

----55.5 ----3.00% 6.30% --

55.3 48.3 48.2 48.9 56.1 1.61% 2.90% 51.7 51.7 3.00% -9.50%

US US IN IN NZ

S&P/CS Composite-20 YoY Consumer Confidence India REPO Cutoff Yld Cash Reserve Ratio Trade Balance

Nov Jan 29-Jan 29-Jan Dec

5.52% 58.6 7.75% 4.00% 486M

4.21% 66.7 8.00% 4.25% -590M

WED

GE AU

Factory Orders YoY (nsa) Retail Sales s.a. (MoM)

Dec Dec

-0.70% 0.30%

-1.00% -0.10%

EC US US US JN SK

Euro-Zone Economic Confidence ADP Employment Change GDP QoQ (Annualized) GDP Price Index Retail Trade YoY Industrial Production (YoY)

Jan Jan 4Q A 4Q A Dec Dec

89.2 192K -0.10% 0.60% 0.40% 0.80%

87.8 185K 3.10% 2.70% 1.20% 3.20%

THUR

JN UK UK UK UK EC US US AU AU

Machine Orders YOY% Industrial Production (YoY) Manufacturing Production (YoY) BOE ANNOUNCES RATES BOE Asset Purchase Target ECB Announces Interest Rates Nonfarm Productivity Initial Jobless Claims NAB Business Confidence Unemployment Rate

Dec Dec Dec 7-Feb Feb 7-Feb 4Q P 2-Feb 4Q Jan

---0.50% 375B 0.75% -0.50% ----

0.30% -2.40% -2.10% 0.50% 375B 0.75% 2.90% 330K -2 5.40%

US GE JN CA US US NZ JN TA PH AU MA

FOMC Rate Decision Unemployment Rate (s.a) Vehicle Production (YoY) Gross Domestic Product YoY Initial Jobless Claims Chicago Purchasing Manager RBNZ Official Cash Rate Industrial Production YOY% GDP - Constant Prices (YoY) Annual GDP (YoY) Private Sector Credit YoY% Overnight Rate

30-Jan Jan Dec Nov 27-Jan Jan 31-Jan Dec P 4Q P 2012 Dec 31-Jan

0.25% 6.80% -17.20% 1.30% 368K 55.6 2.50% -7.80% 3.42% 6.60% 3.60% 3.00%

0.25% 6.90% -8.40% 1.10% 330K 50.0 2.50% -5.50% 0.98% 3.90% 3.50% 3.00%

FRI

JN GE US CH CH CH

Current Account Balance YOY% Exports SA (MoM) Trade Balance Consumer Price Index (YoY) New Yuan Loans Money Supply - M2 (YoY)

Dec Dec Dec Jan Jan Jan

---$46.3B 2.00% 950.0B 14.00%

-276.40% -3.40% -$48.7B 2.50% 454.3B 13.80%

UK EC US US US US SK CH CH ID TH ID

PMI Manufacturing Euro-Zone Unemployment Rate Change in Nonfarm Payrolls Unemployment Rate U. of Michigan Confidence ISM Manufacturing Consumer Price Index (YoY) Manufacturing PMI HSBC Manufacturing PMI Inflation (YoY) Consumer Price Index (YoY) Total Trade Balance

Jan Dec Jan Jan Jan F Jan Jan Jan Jan Jan Jan Dec

------1.50% ------

51.4 11.80% 155K 7.80% 71.3 50.2 1.40% 50.6 51.5 4.30% 3.63% -478M

Previous data are for the preceding period unless otherw ise indicated Data are % change on preivous period unless otherw ise indicated p- preliminary data, f- final data, sa - seasonally adjusted YoY - year on year, MoM - month-on-month
Source: Bloomberg, Standard Chartered

Previous data are for the preceding period unless otherw ise indicated Data are % change on preivous period unless otherw ise indicated p- preliminary data, f- final data, sa - seasonally adjusted YoY - year on year, MoM - month-on-month

Weekly Market View

3 - 12 Month Market Outlook

Central bank policy rates
Spot
US Europe UK Japan Australia China Taiwan Malaysia Indonesia South Korea India Philippines Thailand 0.25 0.75 0.50 0.10 3.00 6.00 1.88 3.00 5.75 2.75 7.75 3.50 2.75

Q1 2013
0-0.25 0.75 0.50 0.10 3.00 6.00 1.88 3.00 5.75 2.75 7.50 3.50 2.75

Q2 2013
0-0.25 0.50 0.50 0.10 3.00 6.00 2.00 3.00 5.75 2.50 7.25 3.50 2.50

Q3 2013
0-0.25 0.50 0.50 0.10 3.00 6.00 2.13 3.00 6.00 2.50 7.00 3.50 2.50

Q4 2013
0-0.25 0.50 0.50 0.10 3.25 6.25 2.25 3.25 6.25 2.50 7.00 4.00 2.50

Q1 2014
0-0.25 0.50 0.50 0.10 3.75 6.75 2.38 3.25 6.25 2.75 7.00 4.00 2.50

Q2 2014
-

Forex
Spot
EUR/USD GBP/USD USD/JPY USD/CAD USD/CHF AUD/USD NZD/USD USD/CNY USD/SGD USD/MYR USD/IDR USD/KRW USD/INR USD/THB USD/PHP 1.36 1.59 91.77 1.00 0.91 1.04 0.84 6.22 1.24 3.11 9765 1088 53.23 29.84 40.70

Q1 2013
1.29 1.55 88.00 0.99 0.95 1.03 0.82 6.21 1.23 3.02 9,950 1,055 54.50 29.50 40.00

Q2 2013
1.27 1.55 91.00 1.00 0.98 1.04 0.83 6.18 1.22 3.00 10,100 1,050 55.00 30.25 41.00

Q3 2013
1.30 1.59 92.00 0.98 0.96 1.06 0.86 6.14 1.21 2.97 9,800 1,045 53.50 29.75 40.50

Q4 2013
1.35 1.63 93.00 0.98 0.93 1.07 0.89 6.10 1.20 2.90 9,500 1,025 53.00 29.50 39.00

Q1 2014
-

Q2 2014
-

Commodities*
Spot
Gold Silver Brent Oil WTI Oil Copper Aluminium Corn Soybeans Wheat 1,662 31 116 97 8,165 2,091 741 1,470 779

Q1 2013
1,725 32 109 94 8,000 2,100 800 1,550 920

Q2 2013
1,800 34 109 97 8,250 2,100 780 1,500 880

Q3 2013
1,800 34 114 104 8,250 2,100 760 1,450 800

Q4 2013
1,900 35 115 106 8,800 2,200 780 1,500 850

Q1 2014^
2,107 39 114 109 9,500 2,300 790 1,350 880

Q2 2014^
2,107 39 114 109 9,500 2,300 800 1,400 850

Source: Bloomberg, Standard Chartered Global Research (1 February 2013 Economics Weekly) * Period averages for each quarter. ^ Q1 2014 and Q2 2014 commodity forecasts from the 7 Dec 2012 Commodity Roadmap

Weekly Market View

Disclosure Appendix
This document is not research material and it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. This document does not represent the views of every function within the Standard Chartered Bank, particularly those of the Global Research function. Standard Chartered Bank is incorporated in England and Wales with limited liability by Royal Charter 1853, Reference number ZC 18. The Principal Office of the Company is situated in England at 1 Aldermanbury Square London EC2V 7SB. Standard Chartered Bank is authorised and regulated by the Financial Services Authority under FSA register number 114276. In Dubai International Financial Centre (DIFC), the attached material is circulated by Standard Chartered Bank DIFC on behalf of the product and/or Issuer. Standard Chartered Bank DIFC is regulated by the Dubai Financial Services Authority (DFSA) and is authorised to provide financial products and services to persons who meet the qualifying criteria of a Professional Client under the DFSA rules. The protection and compensation rights that may generally be available to retail customers in the DIFC or other jurisdictions will not be afforded to Professional Clients in the DIFC. Banking activities may be carried out internationally by different Standard Chartered Bank branches, subsidiaries and affiliates (collectively SCB) according to local regulatory requirements. With respect to any jurisdiction in which there is a SCB entity, this document is distributed in such jurisdiction by, and is attributable to, such local SCB entity. Recipients in any jurisdiction should contact the local SCB entity in relation to any matters arising from, or in connection with, this document. Not all products and services are provided by all SCB entities. This document is being distributed for general information only and it does not constitute an offer, recommendation, solicitation to enter into any transaction or adopt any hedging, trading or investment strategy, in relation to any securities or other financial instruments. This document is for general evaluation only, it does not take into account the specific investment objectives, financial situation, particular needs of any particular person or class of persons and it has not been prepared for any particular person or class of persons. Opinions, projections and estimates are solely those of SCB at the date of this document and subject to change without notice. Past performance is not indicative of future results and no representation or warranty is made regarding future performance. Any forecast contained herein as to likely future movements in rates or prices or likely future events or occurrences constitutes an opinion only and is not indicative of actual future movements in rates or prices or actual future events or occurrences (as the case may be). This document has not and will not be registered as a prospectus in any jurisdiction and it is not authorised by any regulatory authority under any regulations. SCB makes no representation or warranty of any kind, express, implied or statutory regarding, but not limited to, the accuracy of this document or the completeness of any information contained or referred to in this document. This document is distributed on the express understanding that, whilst the information in it is believed to be reliable, it has not been independently verified by us. SCB accepts no liability and will not be liable for any loss or damage arising directly or indirectly (including special, incidental or consequential loss or damage) from your use of this document, howsoever arising, and including any loss, damage or expense arising from, but not limited to, any defect, error, imperfection, fault, mistake or inaccuracy with this document, its contents or associated services, or due to any unavailability of the document or any part thereof or any contents. SCB, and/or a connected company, may at any time, to the extent permitted by applicable law and/or regulation, be long or short any securities, currencies or financial instruments referred to on this document or have a material interest in any such securities or related investment, or may be the only market maker in relation to such investments, or provide, or have provided advice, investment banking or other services, to issuers of such investments. Accordingly, SCB, its affiliates and/or subsidiaries may have a conflict of interest that could affect the objectivity of this document. This document must not be forwarded or otherwise made available to any other person without the express written consent of SCB. Copyright: Standard Chartered Bank 2013. Copyright in all materials, text, articles and information contained herein is the property of, and may only be reproduced with permission of an authorised signatory of, Standard Chartered Bank. Copyright in materials created by third parties and the rights under copyright of such parties are hereby acknowledged. Copyright in all other materials not belonging to third parties and copyright in these materials as a compilation vests and shall remain at all times copyright of Standard Chartered Bank and should not be reproduced or used except for business purposes on behalf of Standard Chartered Bank or save with the express prior written consent of an authorised signatory of Standard Chartered Bank. All rights reserved. Standard Chartered Bank 2013.

THIS IS NOT A RESEARCH REPORT AND HAS NOT BEEN PRODUCED BY A RESEARCH UNIT.