1. Balancing risk and opportunities Han de Jong Chief Economist May 2014

2. Statement 1. The global economy is set to Strengthen Weaken Continue at its recent pace 2

3. Statement 2. In 2014, risky assets will provide Above average returns Below average returns Average returns 3

4. Statement 3. My biggest worry for 2014 is: China Ukraine/Russia The ‘vulnerable 5’, (emerging economies) Disappointing growth in US/UK/Eurozone Deflation Tapering Overvalued asset markets Re-escalation of euro crisis Scottish independence 4

5. Headwinds abating Balance-sheet repair progressing Austerity easing Stress financial sector easing Inflation lower Pent up demand unlocked 5

6. 6 DM private sector balance sheets back in health US assets minus liabilities % GDP, 100 = long-term average Source: Thomson Reuters Datastream

7. Eurozone bank deleveraging 7 Financial institution assets, % yoy Source: Thomson Reuters Datastream

8. Bank lending survey 8 Source: Thomson Reuters Datastream

9. World PMI and GDP 9 Source: Thomson Reuters Datastream

10. Business confidence 10 Index Source: Bloomberg

11. Signs of moderate recovery of eurozone capex Industrial production of capital goods, % yoy Source: Thomson Reuters Datastream 11

12. US: non-defense capital goods, ex-aircraft 12 % yoy Source: Bloomberg

13. US, eurozone and UK car sales 13 % yoy Source: Bloomberg

14. Statement 4. The euro crisis is over Yes No 14

15. How Europe is beating the crisis 15 LTRO European Semester MIP OMT SRM Two pack GLF EFSM Fiscal Compact Bail-out Bail-in SMP IDR SSM DGS ESM Six pack BRRD EFSF AQR

16. 16 Portugal: confidence 16

17. Statement 5. Over the next 24 months, important parts of the global economy will See a significant rise of inflation Fall into deflation 17

18. Inflation 18 % yoy Source: Bloomberg

19. Statement 6. A hard landing in China is during the next 12 months is: Likely Unlikely 19

20. China’s problems Corporate debt levels Shadow-banking system Lack of discipline among investors Pollution Corruption They need jobs 20

21. China’s solution(s). Xi and Li and their reform agenda Step by step Squeeze shadow banking Allow defaults New urbanisation approach Fight corruption Low level of central-government debt and huge FX reserves My conclusion: slower growth, but not much slower, no systemic shocks 21

22. Risks from excessive debt in China Source: CICC, PBoC, ABN AMRO Group Economics Total debt to GDP, %

23. Corporate debt high compared to other large EMs Source: CICC, PBoC, ABN AMRO Group Economics Corporate debt to GDP, %

24. China: key indicators point to resilience Electricity production, % yoy Source: Thomson Reuters Datastream

25. EM exports starting to move higher 25 Source: Thomson Reuters Datastream Index

26. 26 Positive EM fundamentals: FX reserves FX reserves to short-term external debt Source: IIF, ABN AMRO Group Economics

27. Statement 7. Tapering and the reversal of monetary policy will have a big impact on financial markets this year Yes No 27

28. Who is afraid of tapering? 28 Tapering and US 10yr UST Source: Thomson Reuters Datastream

29. Who is afraid of tapering? 29 Source: Thomson Reuters Datastream Tapering and S&P500

30. Who is afraid of tapering? 30 Source: Thomson Reuters Datastream Tapering and VIX

31. Who is afraid of tapering? 31 Source: Bloomberg Tapering and EM equities

32. Who is afraid of tapering? 32 Source: Thomson Reuters Datastream Tapering and CRB Index

33. Who is afraid of tapering? 33 Source: Bloomberg Tapering and EUR/USD

34. Bonds Monetary policy changing direction Very low inflation Default risk easing Valuation: expensive 34

35. Valuation equities 35 Source: Thomson Reuters Datastream PE

36. Equities Improving growth picture will support earnings Valuation not cheap / not expensive Investors still somewhat cautious What are the alternatives? 36

37. Statement 8. Carlo Ancelotti Juergen Klopp Louis van Gaal Diego Simeone Ryan Giggs 37

38. 38 ABN AMRO Group Economics on het internet https://insights.abnamro.nl/category/economie/https://insights.abnamro.nl/category/economie/ – Dutch publications https://insights.abnamro.nl/en/category/economy/https://insights.abnamro.nl/en/category/economy/ – English publications NEW: App voor de iPad (Insights) – see app-store (also for English docs) Follow Han de Jong on www.handejong.nl (Dutch only) This material is provided to you for information purposes only. Before investing in any product of ABN AMRO Bank NV, you should inform yourself about various consequences that you may encounter under the laws of your country. ABN AMRO Bank NV. has taken all reasonable care to ensure that the information contained in this document is correct but does not accept liability for any misprints. ABN AMRO Bank NV reserves the right to make amendments to this material. This material which is subject to change without notice is provided for informational purposes and should not be construed as a solicitation or offer to buy or sell any securities or related financial instruments. While ABN AMRO makes reasonable efforts to obtain information from sources, which it believes to be reliable, ABN AMRO makes no representation or warranty of any kind, either express or implied as to the accuracy, reliability, up-to-dateness or completeness of the information contained herein. Nothing herein constitutes an investment, legal, tax or other advice nor is it to be relied on in any investment or decision. Certain services and products are subject to legal restrictions and therefore may not be available for residents of certain countries. You should obtain relevant and specific professional advice before making any investment decision. The past performance is not necessarily a guide to the future result of an investment. The value of investments may go up or down due to various factors including but not limited to changes in rates of foreign exchange and investors may not get back the amount invested. ABN AMRO disclaims any responsibility and liability whatsoever in this respect.