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Kleinwort Benson CIO Dinner. Oct 2013

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Interesting numbers from Kleinwort Benson CIO dinner. House price to wage index is scary - London houses sell for 6.9 times average wage. In Beijing, the figure is 22 times.

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Kleinwort Benson CIO Dinner. Oct 2013

  1. 1. CIO Dinner - Cambridge 23 October 2013
  2. 2. Centuries, decades and years of average real returns Credit Cash Equity 5.70 1800s (1902-1999) Bonds 6.20 1900s (1900-1999) 0.90 1.50 2.40 1.60 8.80 1910s -2.50 -4.50 -2.30 1920s 5.80 6.60 Real Estate 7.50 1900s (1900-1909) Commodities 16.90 1930s 9.00 2.40 5.80 2.50 1940s -2.70 -5.30 -2.90 3.50 1950s -1.10 -0.10 -1.40 16.70 1960s -0.80 1.60 0.10 5.20 1970s -1.20 -1.00 -1.70 -1.30 12.80 2.40 1980s 7.60 3.20 6.70 11.80 5.30 6.20 1990s 5.30 2.00 4.80 15.10 1.00 2.80 2000s (2000-2009) 5.20 0.10 4.10 -3.40 2.50 4.70 2010-2013* 3.64 -2.07 1.93 6.36 -3.91 14.62 Average 2.77 0.57 2.02 6.68 3.54 5.77 Median 3.64 0.90 1.76 6.28 2.50 4.30 44 42 33 25 20 0 Miss Rate (%) Source: Kleinwort Benson; Datastream, Ilmanen (2011) - Expected returns: An investor's guide to harvesting market rewards 3.90 2
  3. 3. Central banks The Japanese have arrived to the “high-stakes” QE game late, and they’re all in Central banks balance sheet (% of nominal GDP1)  The Fed and the BoJ have had notable increases in their balance sheets over the second quarter of 2013  The Bank of Japan claims that it will double its money supply within 24 months – though it is starting from a much more burdened position  All central bank balance sheets have expanded in 2013, with the exception of the UK 39% 2007 Data Latest 4Q GDP 26% 26% 22% 21% 17% 7% UK 6% US Eurozone Japan Source:Bloomberg, Office of National Statistics, Bureau of Economic Analysis, Eurostat, Economic and Social Research Institute, National Central Banks 1. Balance sheet and GDP data as Q2 2013. 3
  4. 4. Mountains of debt Deleveraging? It is more like re-leveraging Gross Government Debt as % of GDP  Since 2007, the US, UK, Germany, France and the PIIGS have increased their government debt by $12 trillion  Government debt in the UK has increased by £760 billion in five years, raising debt as a percentage of GDP from 44% to 93% 2007 108 107 2013 100 95 94 67 92 2017 66 44 US 42 41 39 UK Eurozone BRIC 4 Source: IMF, Bloomberg 1. 2013 and 2017 figures are IMF forecasts
  5. 5. Equity valuations Equities are at pre-crisis valuations Global equities: price to book ratio 1980 – Sep 2013* Expensive 3.0 2.2x 2.0 1.8x 1.9 1.0 P/B Average pre-1995 Average post-1995 Cheap 0.0 1980 1991 2002 2013 5 Source: Datastream, Kleinwort Benson calculations * As of 1 September 2013
  6. 6. The Great Depression ...had some great years too US Equity Returns 1929 - 1939 51% 39% 27% 23% 0% -3% -15% -18% -32% -38% -48% 1929 1930 1931 Source: Barclays Equity Gilts Study 2012 1932 1933 1934 1935 1936 1937 1938 1939 6
  7. 7. The Great Depression After a horrific loss, stocks rallied over 250% from a deeply undervalued position US Equity Returns ($100 invested in 1928) 1929 - 1939 $100 100 90 80 70 $66 60 50 $49 40 30 $25 20 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 7 Source: Barclays Equity Gilts Study 2012
  8. 8. IMF house price to wage ratio Chinese Tier 1 cities are more expensive than developed market cities 25 22.3 20 15.9 15 12.6 9.2 10 5 4.4 5.1 5.5 5.7 6.2 6.3 6.9 10 12.7 10.3 7.2 0 Source: IMF, Credit Suisse research 8

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