MII Market Views James Zhang November 1st, 2016

Macro Trends in 2016 Fixed Income Equities Moving towards the tail end of a long and expansive credit cycle Slow and erratic growth has been just enough to keep credit momentum positive Low interest environment drives high yield outperformance Most classes will perform reasonable well as long as Fed gradually increase rates over the next 2 years Low and negative sovereign bond yields in Europe “Good but not great” Healthy balance sheet and income statement returns, yet equities have not outperformed in any sense in 2016. FTSE companies have done well in wake of “Brexit” referendum Valuation does not drive market growth higher; earnings growth does Wages increasing, higher inflation, moving towards full employment, may be squeezing profits Commodities & Emerging Markets Central Bank Policy Fundamental story is indeed improving; Oil, coal prices are slowly bottoming out Negative sentiment was primarily associated with China Commodities-producing EM countries have all taken significant pain in the past 2 years EM debt could potentially look attractive; exposure to commodities upswing Liquidity returning and currencies slow appreciating Diminishing marginal benefits; continuing easing has driven some negative sentiment post-Brexit Central bank policy divergence turned into convergence Low rates could prompt fiscal policy Japan; not too much optimism here  Negative interest rates have completely changed the relationships between lenders and borrowers in European countries