INVESTMENT OUTLOOK

July 2018

“ The first half of 2018 has been much harder work for investors. Volatility and sideways movement may have been predictable but they create a tough environment.”

By Tom Stevenson, Investment Director

In this issue: ■ Asset allocation: be diversified

■ Japan remains our regional pick

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Important information: Please be aware that past performance is not a reliable indicator of what might happen in the future. The value of investments and the income from them can go down as well as up, so you may not get back what you invest. When investing in overseas markets, changes in currency exchange rates may affect the value of your investment. Investments in small and emerging markets can be more volatile than those in other overseas markets. Reference to specific securities or funds should not be construed as a recommendation to buy or sell these securities or funds and is included for the purposes of illustration only. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment. Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity. Fidelity does not give personal recommendations. If you are unsure about the suitability of an investment, you should speak to an authorised financial adviser.

Executive summary

Please note the views in this document should not be seen as investment advice. If you are unsure about the suitability of an investment, you should speak to an authorised financial adviser.

Asset classes

Current View

3 Month Change

Equities Investors are questioning whether the first quarter was as good as it gets. But valuations are not stretched after strong earnings growth.

Bonds The bull and bear cases for bonds are evenly balanced. Inflation and rising interest rates call for caution but secular pressures will keep yields low.

Property Income in a low-interest-rate world remains the main attraction. But too much money is chasing too few opportunities. Tread carefully.

Commodities q Although commodities do well at the end of the cycle, oil has had a good run and trade wars threaten metal prices. The dollar is a headwind.

Cash The returns on cash remain unexciting and will stay that way in the UK. But higher volatility makes some dry powder look attractive.

Equity regions

Current View

3 Month Change

US The US economy is well supported by tax cuts and fiscal stimulus. The downside of this is upward pressure on interest rates and the dollar.

UK In the short-term the rally from the March low leaves the UK stretched. But decent economic fundamentals and income warrant inclusion.

Europe q A more mixed picture than at the beginning of the year. Growth has slowed and the euro is a headwind. Valuations provide some support.

Asia Pacific ex-Japan q The tightening of financial conditions due to rising US yields is unhelpful.

A good long term structural story but markets ran a long way last year.

Japan There are political risks to the Japan story, internal and external, but valuations are still attractive given the underlying economic strength.

Current View: Positive Neutral Negative

3 Month Change (since the last Investment Outlook): Upgrade Unchanged Downgrade

For more market data including full 5 year performance figures see page 10

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Acknowledgements I would like to thank the many knowledgeable and experienced people within the wider Fidelity organisation who have helped me develop the ideas in this Investment Outlook. Although the views expressed here do not represent the shared opinion, or house view, of Fidelity’s investment team, the combined expertise of over 380 investment professionals in 13 countries is a very significant resource on which I have been able to lean. In particular, I would like to thank Bill McQuaker, Portfolio Manager, Ayesha Akbar, Portfolio Manager, Sonia Laud, Head of Equities, Gary Monaghan, Investment Director in Hong Kong, Jeremy Osborne, Investment Director in Tokyo, Matthew Jennings, Investment Director for UK equity, Leigh Himsworth, UK Portfolio Manager, Adrian Benedict, Real Estate Investment Director, Curtis Evans, Head of Investment Directing, European Fixed Income, Kasia Kiladis, Investment Director, US, Rebecca McVittie, Investment Director, Emerging Markets, Natalie Briggs, Investment Director, Europe.

Summertime blues

Other 24.2%

Korea 3.8%

UK 3.6%

China 12.4%

Mexico 12.3%

Japan 6.2%

Canada 11.7%

Euro area 16.7%

US trade by country

Source: Thomson Reuters Datastream, as at 5.6.18

2014Brent WTI

2015 2016 2017 2018

$120

$100

$80

$60

$40

$20

Source: Thomson Reuters Datastream, as at 5.6.18

Spread between Italian and German 10yr bond yields

Jan 18 Feb 18 Mar 18 Apr 18 May 18

3.0%

2.5%

2.0%

1.5%

1.0%

Source: Thomson Reuters Datastream, as at 5.6.18

Past performance is not a reliable indicator of what might happen in the future. When investing in overseas markets, changes in currency exchange rates may affect the value of an investment. For full 5 year performance figures please see page 10.

Trumping trade: the return of protectionismTrade wars were the dog that didn’t bark in 2017. Donald Trump arrived in Washington vowing to label China a currency manipulator and stand up for American workers as he turned his deal-making skills to global trade relations. Last year was a phoney war but this spring the drum-beat of protectionism has been louder. As ever with the President, it is difficult to see where he’s going with his on-off-on-again tariff announcements but the imposition of steel and other levies looks worryingly indiscriminate. China is his main target, but Europe and Canada, which account for more than a quarter of US trade, are also in the cross-hairs. Trade wars are a lose-lose game. The peace and prosperity of the post-war era has been built on free trade and globalisation. It is not without its victims but, as Churchill might have said, it’s the least bad option.

Oil on troubled watersPouring oil on troubled waters is supposed to calm them. Adding the highest price of crude for four years to an already choppy market and economic situation has been anything but soothing. It’s been a perfect storm for the oil price. Saudi Arabia, its OPEC partners and Russia have been super-disciplined about cutting production over the past 18 months. Venezuela’s production has collapsed along with the rest of its troubled economy. US Shale is able to pump more oil but the pipelines and storage facilities are full. And now President Trump has Iran in his sights. The question now is at what point the higher oil price starts to crimp consumption. Big oil users like the airlines and commodity producers are starting to squeal. On the forecourts, higher petrol costs are squeezing real incomes yet further. In time the price will correct, but it might be painful getting there.

The Italian jobAll of a sudden, politics matters again. The benign electoral outcomes in 2017 in France, Holland and Germany had lulled investors into complacency. Italy’s general election in March 2018 was a wake-up call. The two parties with the biggest share of the vote – the Five Star Movement and Lega (League) – are anti-EU low-taxers and high-spenders. That’s a combination guaranteed to spook investors – especially as President Mattarella intervened to block the appointment of a new finance minister and threatened a second election with Italy’s EU future as the primary focus. That risk seems to have been averted for now, but the chart shows the difference in the cost of borrowing for the Italian and German governments. Investors are naturally demanding a lot more to compensate them for the risk of lending to Rome.

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Asset classes

EQUITIES

Moving sideways: shares are not stretched

200

150

100

150

2000 2002

NIKKEI 225 STOXX Europe 600 S&P 500 FTSE 100

2004 2006 2008 2010 2012 2014 2016 2018

0

Source: Thomson Reuters Datastream, 5.6.18 in local currency

Past performance is not a reliable indicator of future returns. When investing in overseas markets, changes in currency exchange rates may affect the value of your investment.

We have been neutral on equities since last autumn, which may have been a fraction early but has subsequently been justified by volatile and sideways moving markets in 2018 to date. The feeling that the first quarter may have been as good as it gets in terms of economic and corporate earnings growth is now widely held.

The investment fundamentals that we keep an eye on have all deteriorated during the first half-year. Growth has disappointed, notably in Europe. The US has decoupled thanks to the pre-Christmas tax breaks but even here the leading indicators are

less encouraging. When it comes to inflation, the rise in the oil price is the principal concern. Interest rates are still going up and overall policy easing looks like peaking this year.

Unsurprisingly this has led to more volatility in equity markets and investors have been less willing to shrug off other concerns like the rising dollar, trade war fears, geo-political instability in the Middle East and Korea and, most recently, political uncertainty in Italy.

The response to better than expected first quarter earnings reports was instructive. Growth at more than 20% in the US was stellar, especially at this stage in the cycle, but investors were more interested in what companies had to say about the outlook. Any sign of caution (Caterpillar was the prime example) has been hammered.

The counter argument is that stock markets tend to peak six to nine months ahead of the onset of recession and there is currently no sign of this. The tax cuts may well extend the economic cycle even further, giving the equity bull market one last hurrah. It is too early to turn negative on shares as an asset class, not least because it is hard to identify a plausible alternative. After the first quarter earnings hike, valuations are also close to the long-term average. Finally, with the exception of the US, as the chart shows, equities have broadly moved sideways over the past 20 years. They are not stretched.

All of that said, we are a bit closer to the end of the post-crisis bull run and investors should be taking advantage of the extension to position themselves more defensively. In particular, the outperformance of cyclical sectors looks to have run its course. Return of capital is, at this stage, just as important as return on it.

PROPERTY

With income remaining a scarce commodity, commercial property continues to be attractive to investors. This is particularly true in Europe as investors become concerned about rising interest rates and stretched valuations in North America. Even in Europe, however, concerns are increasing about the length of the current cycle of falling yields and the weight of money that has fuelled the market in recent years.

For now, the still supportive European Central Bank, with no rate rises expected before the middle of next year at the earliest, and continuing healthy tenant demand mean the fundamentals of the market justify the fund flows. Supply has also lagged demand in most places as new developments have been snapped up. That’s the good news.

The more worrying picture for investors is that property is an inherently cyclical business and this is now one of the longest cycles in recent history. At this mature end of the cycle, the potential for mis-pricing is significant and the risk/reward balance

for investors is increasingly unattractive. The spreads between primary and secondary property yields remain above those reached at the previous peak but the compensation for greater tenant default risk is pretty thin today.

In the UK, the picture is even more worrying as the uncertainty around Brexit makes delaying a big property decision an easy one for many companies. The retail sector, a big part of many investors’ real estate portfolios, is suffering at the same time from a seemingly unstoppable assault from online retail. Retail sales are in the doldrums and many retailers simply cannot remain profitable at today’s rents. Something will have to give.

Important information: Funds in the property sector invest in property and land. These can be difficult to sell so you may not be able to cash in the investment when you want to. There may be a delay in acting on your instructions to sell your investment. The value of property is generally a matter of a valuer’s opinion rather than fact.

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BONDS

Making the case for higher rates

3.0%

2013 2014

US headline CPI (LHS) US unemployment rate (RHS)

2015 2016 2017 2018

8%

7%

6%

5%

4%

3%

2.5%

2.0%

1.5%

1.0%

0.5%

0.0%

-0.5%

Source: Thomson Reuters Datastream, 5.6.18

Past performance is not a reliable indicator of future returns. When investing in overseas markets, changes in currency exchange rates may affect the value of your investment.

The cases for and against bonds are pretty balanced at the moment. The bearish argument is easy to make. Growth remains on a pretty strong footing, especially in the US where tax cuts are adding fuel to the already smouldering fire. The fiscal deficit is set to increase steadily, necessitating the issue of growing volumes of Treasuries. Inflation is on the up and could reach 2.7% later in the summer. It is unsurprising in these circumstances that the yield on the 10-year government bond should have risen above 3% for the first time in several years.

But little of this is new news and the counter argument, for lower yields and higher bond prices, is persuasive. While the hard data is still positive, forward-looking surveys are less

convincing. The rise in yields so far has clearly had an impact on financial conditions and equities and corporate bonds have responded accordingly. This shows how sensitive the economy is to higher financing costs. Clearly yields cannot rise too far too fast before they start to have a negative impact on growth. Further uncertainty in Europe or the Middle East could see a flight-to-quality boost to US Treasuries.

Overall, this means the lower-for-longer thesis remains intact. The secular themes of a still massive debt overhang and ageing populations seeking to generate a safe and predictable retirement income will keep yields in check.

Investment grade credit still remains the sweet spot for fixed income investors, with the gap between government and corporate bond yields wide enough to provide a safety cushion for investors. However, returns have been disappointing as sovereign yields have risen, offsetting a marginal tightening in spreads. As monetary support begins to evaporate, we should expect volatility to rise.

High yield bonds issued by less robust companies have been more resilient. Corporate fundamentals remain strong, with low default rates, but relative valuations look a bit stretched for this stage in the credit cycle. By contrast, emerging market debts may offer some interesting opportunities after sentiment was hit by the rise in the dollar and wobbles in vulnerable countries like Argentina and Turkey. The risk/reward balance is better in emerging markets than in high yield.

Important information: There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall..

COMMODITIES

Commodities have been a mixed bag so far in 2018. While oil has continued to rise sharply, industrial commodities have been volatile and gold remains a disappointment. A key driver of all prices has been geo-political uncertainty. While that has been a boost for oil, the threat of trade wars has held key metals like copper back. Gold has been reined in by the strength of the dollar.

The fundamentals of the energy market remain positive. Multiple factors point to the oil price holding onto its recent highs above $75 a barrel. Production restraint by OPEC and Russia has combined with a real supply shortfall in places like Venezuela and the threat of one in Iran to keep prices rising. Shale still has the potential to be the swing element in the global supply/

demand equation but until the distribution network catches up with the drilling capacity then it will struggle to put too much downward pressure on the price.

The other key factor for oil, of course, is demand. This remains strong, rising by more than 1.5m barrels a day in 2017 and likely to do the same this year. China is a key contributor to demand growth and the health of its economy has surprised on the upside.

The main threat to commodity prices is the dollar. Strong growth in America, boosted by fiscal stimulus, gives the Federal Reserve little excuse not to raise rates steadily. Of course, a rising dollar would squeeze other assets, gold included.

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Equities – a regional perspective

UK

The pound is driving markets110

100

90

80

70

60

1990

Sterling trade weighted index

1995 2000 2005 2010 2015

EU Referendum23rd June 2016

Source: Thomson Reuters Datastream, 5.6.18

Past performance is not a reliable indicator of future returns.

The UK stock market has experienced quite a round trip so far in 2018. After a strong January, the volatility in February and March hit domestic shares hard and the market lost more than 10%, the usual definition of a correction. That put a definitive end to the benign conditions that had prevailed throughout 2017. Since then, however, there has been a spectacular recovery, with the All Share up by about 15% from its low.

It’s worth looking at what’s driven that. Principally, it is the oil price and the depreciation of sterling. Neither of these are within the control of companies and none of the rally can really

be attributed to better corporate fundamentals. It suggests that in the short term the market may be rather stretched and it probably shouldn’t be chased too hard at today’s level.

That said, I’m loath to go too defensive on UK shares for a few reasons. First, the economy is not in bad shape when you consider the high degree of uncertainty around Brexit. Unemployment is low and wage growth is starting to come through. There is some inflation, which is helpful because it persuades consumers to spend. Monetary policy is also still easy and likely to remain so. Bond yields, which determine the cost of borrowing for both companies and individuals, may have troughed but they remain low.

When it comes to valuations, there is also no really compelling reason to turn your back on the domestic market. At 16 times expected earnings, the market is neither cheap nor expensive. That multiple can be maintained which means that total returns won’t be far off the combination of earnings growth of about 8% and the UK’s attractive dividend yield of 3-4%. A low double-digit return would be more than acceptable at this stage in the cycle.

The real challenge for investors is deciding where in the market to be invested. There has been quite a cyclical rally, which makes value stocks look less obviously interesting than the staples and other defensives they have outperformed over the past couple of years. I would, therefore, look to have a good balance between value and growth, which fortunately the Select 50’s UK funds provide.

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US

Back to full employment

12%

10%

8%

6%

4%

2%

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

US unemployment rate

Source: Thomson Reuters Datastream, 5.6.18

Past performance is not a reliable indicator of future returns.

We’ve been neutral on the US for some time now, torn between punchy valuations on the one hand and the obvious cyclical and structural attractions of the American equity market. That stance has been justified by the performance of Wall Street in the first half of 2018 – pretty volatile and ultimately going sideways over the past six months.

In the short term there is clearly support for the US economy. Tax cuts and other fiscal stimulus may be storing up problems for the future but for now they are doing what they were designed to. Unemployment is as low as it was at the height of the technology boom in the late 1990s and, that period aside, has not been lower since the 1970s. Recent industrial surveys have also been remarkably strong. The silver lining of a higher oil price is the encouragement it gives to Shale producers who have been a significant contributor to US growth in the past few years.

That is the good news. The flip side of US economic resilience is that it increases pressure on both interest rates and the dollar.

We have already seen the first signs of stress in emerging markets from a higher US currency. What we have not seen yet is the impact it might have on US exporters. The most recent results season saw an earnings growth bonanza, with US companies growing their profits on average by more than 20%. If the dollar remains at today’s levels that may well be as good as it gets.

That is certainly a key consideration for stock market investors and goes some way to explaining the disconnect between the headline newsflow and the trajectory of the S&P 500. Any CEO warning that growth may be topping out has seen a savaging of his share price this spring. It is no surprise in this environment that smaller US companies, more domestically-focused and less concerned about the level of the dollar or trade war fears, have been outperforming.

As for interest rates, there seems little reason for the divergence between the US and the rest of the world not to continue. Whether the Fed raises rates three or four times this year is not really the point. The fact is that US rates are heading higher and in the rest of the world they are not.

Another interesting aspect of the US market’s performance this year has been the sectoral split. Technology continues to find support and the FAANGs have recently hit new highs while defensive staples have retreated. This may, however, be investors sticking with what they know in the face of growing geo-political uncertainty and the perception that tech will be less affected by a trade war. On the one hand this looks like a move away from defensiveness but it may simply be a different attempt to protect against a downturn.

On the valuation front, the US still looks to be the world’s priciest market although the surge in earnings in the first quarter has certainly brought the average multiple down to manageable levels. The pressure is still on earnings to justify high teens price to earnings ratios but the hike in profits has probably bought a bit more time for this long-in-the-tooth cycle.

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JAPAN

Tokyo market: pause for breath

2016 2017 2018

2,000

1,900

1,800

1,700

1,600

1,500

1,400

1,300

1,200

TOPIX

Source: Thomson Reuters Datastream, 5.6.18, total returns in local currency

Past performance is not a reliable indicator of future returns. When investing in overseas markets, changes in currency exchange rates may also affect the value of an investment.

The Nikkei suffered a wobble in the first quarter. That has taken the shine off a good couple of years for the Tokyo market, which has served us well. For a number of reasons, I think the past few months are a pause not a reversal and I am sticking with the positive view on Japan.

The principal issue this year has been the first negative growth reading in nine quarters. Partly that’s just payback after eight strong periods of growth. Weather was a factor too, with a lot of snow this year. Sentiment also took a hit thanks to the increase in trade tensions. Japan is particularly sensitive to the global economic cycle. This is compounded when there is uncertainty by the yen’s status as a safe haven currency which makes Japanese exports less competitive.

It’s by no means all bad news on the economic front, however. Japanese wages are growing at the fastest pace in 15 years. That’s a positive in a country where incomes have stagnated for a generation. Tourism is also growing strongly, with the number of inbound holidaymakers growing at the fastest rate ever. The Tankan survey of business sentiment has also turned positive again. Crucially, the Bank of Japan remains highly accommodative, contrary to worries in the first quarter that it was reining in its stimulus.

When it comes to valuations, the Japanese market is still one of the most attractive in the world. The Topix index trades on around 13 times earnings, which is the same multiple as back in 2012. There is quite a range, with banks, autos, trading companies and utilities priced at roughly half the level of pharmaceuticals, retail and services businesses but there are still plenty of opportunities for stock-picking.

There are risks, of course, investing in Japan. The biggest is a significant trade slowdown, so it is worth keeping an eye on the ongoing negotiations between China and the US. The second is the level of the yen. If it stays at 110 yen to the dollar then there could be some upside to current single-digit earnings growth forecasts. If the yen appreciates closer to 100 then exporters will suffer. The third risk is a leg up for the oil price – Japan is a big importer. Finally, the Abe government looks a lot less secure than it did, with allegations that the Prime Minister may have misled parliament.

All in all, however, the concerns are probably priced in to this out-of-favour market. If shares can break through the strong resistance at about the current level then investors can hope for further gains to come as the long deflationary slump is finally laid to rest.

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EUROPE

Currency: less of a headwind

US$ to Euro

1.30

1.25

1.20

1.15

1.10

1.05

1.002016 2017 2018

Source: Thomson Reuters Datastream, 5.6.18

Past performance is not a reliable indicator of what might happen in the future. When investing in overseas markets, changes in currency exchange rates may also affect the value of an investment.

Europe has been hogging the headlines recently, thanks to Italy’s political upheavals. The implied threat to the eurozone (and indeed the whole European project) of an avowedly anti-EU coalition was taken badly by the bond, equity and currency markets. At the time of writing, the pressure seemed to have

eased somewhat but we have been reminded that 2017’s relative political calm in the region was a pause in the Euro-drama not a resolution of it.

Europe has also been out of favour this year because of a slowing in growth and fears about the strength of the euro. These are real issues but the outlook for the region is a lot better than newly-pessimistic investors seem to have concluded. A key positive is stronger credit growth as banks move on from rebuilding their balance sheets to focusing on their key lending function. Given that Europe is much more credit-driven than the US, this should be a strong tailwind for corporate earnings.

The currency issue is probably less of a problem than investors perceive it to be. For one thing, the widening gulf between Fed and ECB monetary policy should lead to a stronger dollar and weaker euro. The region anyway has a track record of outperforming during periods of euro strength such as in the years before the financial crisis.

Valuations in Europe are cheaper than in the US but not so cheap that the region is quite the obvious play that it seemed at the beginning of the year. The lack of technology and the exposure to global trade are headwinds. Because of this we will rein in the overweight recommendation to match the neutral positions for both the US and UK.

ASIA-PACIFIC EX-JAPAN/EMERGING MARKETS

Asia and emerging markets enjoyed a fantastic year in 2017. This year has inevitably been a bit of a disappointment by comparison. Even if nothing had changed it would have been near impossible for the MSCI China to match the 70% or so gain from the start of last year to January’s peak. And, of course, things have changed this year.

First and foremost, the global trade outlook has deteriorated as the Trump White House has started to deliver on its America First campaign promises. Second, the dollar has strengthened, making life tougher for those developing countries with debts denominated in the US currency. Third, the oil price has soared, hard for countries that are big energy importers (like India). It has become clear this year that emerging markets are not in charge of their own destinies.

The good news is that emerging economies are nothing like as vulnerable as they were during the taper tantrum five years ago. Current accounts are under control and inflation is less of a worry. Meanwhile the long-term structural case for investing

in the developing world remains intact. Asia has 60% of the world’s population, is responsible for 40% of GDP growth and probably accounts for less than 10% of our portfolios.

The opening up of the Chinese A-share market is a step in the right direction which will attract more foreign capital and encourage more institutionalised behaviour among investors. India is also making important structural advances, bringing more people into the formal economy via demonetisation and harmonising tax rates to make it easier to do business. GDP growth is now faster than in China.

The risks are higher than they were, though. Financial conditions have tightened for emerging markets thanks to rising US yields. Currency weakness is forcing central banks to raise interest rates faster than they would like to prevent imported inflation. Argentina and Turkey have been high profile examples but the story is similar from Brazil to Indonesia as well. After last year’s stellar run, this is certainly a time to be more cautious across emerging markets.

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INVESTMENT VALUATION AT A GLANCE

Price-earnings ratio 2018E

Dividend yield 2017

Equities %

US 17.4 1.9

Europe 14.8 3.6

UK 14.0 4.3

Japan 13.9 2.2

Asia Pac ex Japan 13.4 3.0

Emerging Market Asia 12.7 2.5

Latin America 13.0 3.4

Central East Europe, Middle East & Africa

10.3 4.1

Redemption Yield

Bonds %

ML Global High Yield 6.2

German 10-Year Bunds 0.3

ML Global Corporates 2.9

UK 10-Year Gilts 1.6

US 10-Year Treasuries 2.8

Market data

INVESTMENT PERFORMANCE AT A GLANCE% (as at 7th June) 3 m 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

Equities

S&P 500 2.1% 21.1% 9.5% 3.2% 17.7% 16.1%

FTSE All Share 8.8% 12.2% 4.6% -3.5% 22.8% 7.9%

FTSE 100 9.1% 10.9% 2.8% -4.0% 23.7% 7.3%

FTSE 250 8.1% 18.9% 13.5% -1.5% 17.7% 10.3%

FTSE Small Cap 5.7% 19.4% 9.2% -1.2% 24.9% 10.5%

Euro STOXX 5.0% 25.5% 10.2% -10.0% 20.9% 0.9%

Shanghai SE -5.0% -8.2% 147.5% -41.6% 7.0% -1.0%

Shenzhen -2.7% -5.6% 97.6% -32.1% 1.2% 2.4%

MSCI Emerging Markets -2.7% 9.3% -3.4% -12.5% 24.8% 16.2%

Nikkei 225 8.2% 19.0% 37.8% -16.9% 22.1% 16.4%

MSCI Latin America -20.6% -1.7% -25.8% -13.7% 19.8% -4.5%

MSCI UK Bank 0.5% -6.5% -0.2% -29.0% 31.0% 1.8%

TOPIX 5.0% 16.8% 35.0% 0.0% 19.1% 12.0%

MSCI China 3.2% 4.8% 30.8% -28.3% 28.4% 31.8%

MSCI India 3.8% 25.5% 4.2% 1.5% 12.8% 10.6%

Bonds

US 10-Year Treasuries 0.1% -0.7% 4.0% 8.6% -2.3% -4.2%

UK 10-Year Gilts 1.0% -0.7% 8.2% 10.2% 5.5% -2.0%

German 10-Year Bunds 1.8% 5.1% 6.0% 9.3% -0.7% -0.6%

JPM Emerging Markets Bond Index -2.5% 6.8% -1.4% 8.0% 8.5% -2.7%

ML Global High Yield -1.1% 10.3% -2.7% 2.1% 11.8% 2.8%

ML Global Corporates -1.9% 5.7% -4.2% 5.9% 2.7% 0.9%

Italian 10-Year Government Bonds -8.0% 12.8% 4.9% 8.8% -5.4% -5.1%

Commodities

CRB Commodities Index 3.1% 6.2% -27.1% -13.4% -8.3% 15.2%

Crude Oil (Brent) 15.6% 4.6% -44.7% -17.7% -5.1% 59.8%

Oil (WTI) 9.7% 13.9% -45.5% -33.6% -21.1% 44.2%

Gold Spot -2.2% -9.5% -6.4% 6.1% 3.5% 0.8%

LME Copper 6.1% -7.0% -11.5% -23.0% 22.5% 31.1%

GSCI Soft Commodities 0.6% 2.6% -27.9% 13.0% -16.0% -1.2%

Silver 2.0% -13.6% -17.0% 1.4% 5.6% -5.6%

Source: DataStream, 7.6.18. in local currency terms. Valuations: Source Citigroup Global Equity Strategist – Citi Research, MSCI, Worldscope, FactSet Consensus estimates as at 31.5.18. Bond Yields: Source DataStream as at 31.5.18.

Please be aware that past performance is not a reliable indicator of what might happen in the future. When investing in overseas markets, changes in currency exchange rates may affect the value of your investment. Investments in small and emerging markets can be more volatile than those in other overseas markets.

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