Global Investments
International Limited

UK

USA

• The UK market recovered some of its recent losses last week, with the FTSE 100 and the FTSE Mid 250 bouncing by 2.2% and 0.7% respectively in US dollar terms.
• The earnings season continues to unfold satisfactorily. HSBC and BAA were among the companies issuing positive reports over the past week.
• We held our quarterly stocks and sectors meeting last week and made a few changes to our sector strategy. We have decided to add to our holdings in the oil and minerals sectors, with a preference for the latter on earnings visibility and valuation grounds.
• .Meanwhile, supply constraints make the steel sector attractive and we are also adding here.
• These moves are being funded by reductions in our exposure to construction (victim of higher interest rates) and telecoms (limited earnings growth).

• Following a period of lacklustre returns, the market was in better form last week, with the S&P 500 and the NASDAQ rising by 2.1% and 2.9% respectively in US dollar terms.
• Q2 earnings reports are now mostly in, and the quarter has produced another set of healthy numbers.
• However, with the exception of energy and telecoms, all sectors have experienced net negative revisions going forward, illustrating the mature stage of the economic cycle at which we find ourselves.
• Our funds are overweight in energy and have recently increased their exposure to telecoms, where the regional bell companies are benefiting from AT&T's withdrawal from their market.
• Elsewhere, we have added packaging company Crown Holdings to the core list, illustrating the value that is still available in selected cyclical stocks.

• The European market rallied from the bottom of its year-to-date trading range last week as risk appetite recovered a little. The FTSE World Europe ex UK Index ended the week 1.0% higher in US dollars.
• A positive stream of earnings reports helped the market to move higher. Among those beating expectations were ABB, EADS, Renault and Puma. The flow was not universally positive, however: Schneider and Pernod Ricard both disappointed.
•  We continue to think that investors are underestimating the positive impact of corporate restructuring and the economic recovery. These factors make us positive on the market. In the short-term, however, the recent range appears well set and we are continuing to add to preferred names at the bottom and trim towards the top.

• Mainstream Japanese equities trod water last week, with the TOPIX ending the week just 0.04% higher in US dollar terms.
• This modest movement was not for lack of news flow, however. On the political front, the Cabinet Secretary made a statement suggesting that consumption tax was likely to be raised during the life of this government. If true, this would be a classic example of the authorities stifling an economic recovery in its infancy. There has been some backtracking since, and we are hopeful that the tax will be increased over a longer time frame, allowing the recovery to develop.
• Elsewhere, Sumitomo Mitsui has initiated spoiling tactics on MTFG's proposed takeover of UFJ. We believe that the MTFG deal would be positive and remain overweight in the stock.

FAR EAST & EMERGING MARKETS

BONDS

• The FTSE World Asia Pacific ex Japan Index ended the week virtually flat in US dollar terms.
• Following the region's disappointing recent performance, we have been kicking the tyres on our earnings forecasts and have concluded that they remain eminently achievable. We are particularly confident in the banking sector, where this week's results from HSBC and DBS Group (South East Asia's largest lender by assets) vindicate our view.
• Elsewhere, we have added mining company Rio Tinto to our Asian core list. This company has been lagging its regional rival BHP Billiton (where we are also overweight) recently despite offering strong cash flows thanks to ongoing demand from China. Sound capital management has reduced financial gearing and the outlook appears solid.

• Bond markets were dominated by the latest GDP reading from the US last week.  The report came in softer than expected, with weakness concentrated on the consumer sector. This weakness is being offset by ongoing strength in the corporate sector, however, with capital expenditure continuing and inventory building boosting activity.
• The question that the market is grappling with is whether the corporate strength can continue to offset an accelerating slowdown in the consumer. While the market sought an answer, treasury yields edged lower but the market remains stuck in a range and a hostage to economic data. The next big release is the latest cut of jobs data, due later this week.
• There was a stronger tone in corporate bonds last week. Here, we continue to favour high yield over investment grade issues.