1. The Great Debate: Three topical investment Issues
NEW ZEALAND | Investment Briefing 2016
The Great Debate: Three topical investment Issues
Dave Stuart,
Chair of the Global Dynamic Asset Allocation Committee and
Chief Strategist for the Mercer Funds, Pacific
Philip Houghton-Brown,
Investments Business Leader, NZ

2. Vote now!
The great debate

3. Bull or bear? Three topical investment issues1
DEFLATION IS YESTERDAY’S STORY: It’s time to worry about inflation! GLOBALISATION IS NOT THE ANSWER: It’s time for a re-think! NEW ZEALAND EQUITIES: Still the “All-Blacks” of global shares! 2 3

4. THE CASE IN FAVOUR DEFLATION IS YESTERDAY’S STORY
It’s time to worry about inflation!
THE CASE IN FAVOUR

5. Why is no one worried about inflation?
What’s changed?
DISINFLATION35 years
Inflation expectations very low
DEFLATION fears
Inflation
Bulls
slain!
Time
to Act?
Commodities bottoming
Commodity prices collapse
Wages rising
Weak labour markets
Inflation turning point?

6. us inflation: down but not out?
Source: Datastream

7. Commodity prices: bottoming out?
Source: Datastream

8. Unemployment down: Wages rising
Source: Datastream

9. Inflation is rising!

10. But markets are still complacent…
Source: Federal Reserve Bank of St Louis

11. And not just in the US:
Source: Bloomberg

12. Forget deflation it’s time to worry about inflation
Are you prepared for higher inflation?
Wages rising
Commodity prices bottoming
Long-term investing in a short-term world
Inflation expectations very low

13. THE CASE AGAINST DEFLATION IS YESTERDAY’S STORY
It’s time to worry about inflation!
THE CASE AGAINST

14. We live in a deflationary world… … for a host of reasons
GLOBALISATION
TECHNOLOGY
AGEING POPULATIONS
HIGH DEBT

15. Global debt keeps rising

16. Price inflation is disappearing … interest rates remain rock bottom
Share of countries with low inflation
UK short rates
Source: IMF
Source: Lawrence H. Officer, "What Was the Interest Rate Then?" MeasuringWorth.com

17. deflation have we reached the tipping point?
PERSISTENTLY WEAK GROWTH
MAXED OUT
DEBT SERVICE
RATIOS
CYCLICAL/
SECULAR
CHINA
SLOWDOWN
IMPOTENT
CENTRAL
BANKS
CHRONIC
DEMAND
DEFICIENCY

18. DEFLATION IS YESTERDAY’S STORY
It’s time to worry about inflation!

19. DEFLATION IS YESTERDAY’S STORY It’s time to worry about inflation!
Vote now!
It’s time to worry about inflation!
Vote now!

20. THE CASE IN FAVOUR GLOBALISATION IS NOT THE ANSWER It’s time for a
re-think!
THE CASE IN FAVOUR

21. Why globalisation should be good
TRADE GROWTH
IMPROVED RESOURCE ALLOCATION
SPREAD OF TECHNOLOGY

22. globalisation so why does it create losers?
We are not all equally blessed (in different ways) Human behaviour isn’t always benign There can be highly negative side effects

23. globalisation … results in significant income inequality
Source: McKinsey

24. The importance of income equality
HEALTH AND SOCIAL PROBLEMS ARE
WORSE IN MORE UNEQUAL COUNTRIES
Low
High
INDEX OF HEALTH AND SOCIAL PROBLEMS
INCOME INEQUALITY
USA
Portugal UK
Greece
Ireland
France
Germany
Austria
New Zealand
Australia
Italy
Canada
Spain
Switzerland
Netherlands
Sweden
Japan
Belgium
Denmark
Norway
Finland
Index includes
Life expectancy
Maths & literacy
Infant mortality
Homicides
Imprisonment
Teenage births
Trust
Obesity
Mental illness (inc. drug and alcohol addiction)
Social mobility
Source: Kate Pickett, Richard Wilkinson

25. Globalisation … leads to political upheaval
Index of political freedom – Countries with net declines/gains
Source: Freedom House

26. The consequences of globalisation … its time for a re-think
SOCIAL COHESION
POPULIST POLITICS
BREXIT

27. THE CASE AGAINST GLOBALISATION IS NOT THE ANSWER It’s time for a
re-think!
THE CASE AGAINST

28. Globalisation is not new
Global trade to gdp
: Second wave of globalization
2008-?: De-globalization
: First wave of globalization
: Interwar period
Source: Morgan Stanley

29. This is how world looks in terms of income and life expec-tancy
RW: ok
This is how world looks in terms of income and life expec-tancy
Source:

30. This is how it has changed
Source:

31. Huge move out of poverty in globalisation decades
Source:

32. Trump’s globalisation myths
REALITY
Free trade costs jobs
Technological change can cost jobs
Free trade causes trade deficits
Free trade boosts exports
Free trade hurts the poor
Exporters pay higher wages
Cheaper imports help the poor more than the rich

33. US Participation rates by educational attainment
Unemployment not caused by free-trade
US Participation rates by educational attainment
Source: Bureau of Labor Statistics, Current Population Survey (Annual Social and Economic Supplement); CEA calculations

34. Globalisation must be supported:
Free trade is beneficial for the world, particularly poorer countries
Free trade is not the cause of job losses
Import restrictions mainly hurt the poor
Inter-country trade reduces political tensions
Globalisation leads to immense improvements in global health and wealth
Globalisation is the answer!

35. GLOBALISATION IS NOT THE ANSWER
It’s time for a
re-think!

36. GLOBALISATION IS NOT THE ANSWER It’s time for a re-think
Vote now!
It’s time for a re-think
Vote now!

37. THE CASE IN FAVOUR NEW ZEALAND EQUITIES:
Still the “All-Blacks” of global shares!
THE CASE IN FAVOUR

38. New Zealand Equities: The “All-Blacks” of global shares:
Performance of nz50
relative to msci world (Hedged)
Source: Thomson Reuters Datastream

39. Equity market valuations vs growth fundamentals
Source: Datastream

40. Nz economic scorecard GDP Growth 2017 2.7% 1.8% Unemployment rate 2017
New Zealand
Developed markets
GDP Growth 2017
2.7%
1.8%
Unemployment rate 2017
5.5%
6.1%
Government debt/ GDP
25%
108%
Negative interest rates No
Yes
Ginormous central bank balance sheet
Confidence  
WRC champions & 3rd most Olympic medals per capita  

41. Other countries have a problem cb asset purchases continue to rise
Source: Wellington, Deutschebank

42. Nz equity market cycles
Source: Statistics NZ, Datastream, IRESS, First NZ Capital

43. THE CASE AGAINST NEW ZEALAND EQUITIES:
Still the “All-Blacks” of global shares!
THE CASE AGAINST

44. Strong Performance has been driven by re-rating:
Source: Thomson Reuters Datastream

45. Strong economy has been fully discounted:
Source: Thomson Reuters Datastream

46. Performance driven by global search for yield – but is it sustainable?
Source: Thomson Reuters Datastream

47. Are we close to the top?
Source: Credit Suisse, Bloomberg

48. The All-blacks: Still the best in the world

49. But what if they only had 7 players?

50. NEW ZEALAND EQUITIES:
Still the “All-Blacks” of global shares!

51. Still the “All Blacks” of global shares!
NEW ZEALAND EQUITIES
Vote now!
Still the “All Blacks” of global shares!
Vote now!

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