Market outlook for 2013 and 2014

Equity market outlook and important financial information for the next 12 months:

• The global growth forecast for 2013 was cut to 3.3%, (2.1 DM and 6.7 EMA).
• Expected nominal returns (based on a global ERP[3] analysis) to be in the region of 8.8%.
• Unemployment:

1. In the US, unemployment figures improved surprisingly well during the 1st quarter. We expect however that the readings will be negative once again in the quarter ahead.
2. In Europe, we expect the figures to increase further as consumer sentiment in France (which has held up well for the time being) has dramatically changed.

• Consumer spending:

1. US: to remain stable throughout 2013;
2. Europe: to be negative for the quarters ahead, however this is well priced-in by the market.

• Inflation:

1. No immediate pick-up in inflation as this factor is well controlled through monetary policy arrangements

• Investment opportunities and investment trends:

1. US: Shale gas and relate.
2. Europe: Dividend strategy.

• Risks: We identified the following areas of concern:

1. FWD equity valuations remain attractive; however earnings quality must confirm the ERP.
2. Lack of growth acceleration into 2014.
3. Consumer sentiment to drop (in the US, private consumption represents about 70% of the GDP).
4. The reappearance of the EMU crisis.

Longer-Term:
US consumers continue to drive the economy and are subsequently impacting the world’s equity markets. So far, US consumers have benefited from low inflation rates, a better employment market, a slightly better housing market, and most importantly over the last decades, declining interest rates.

In the absence of a more balanced world, US consumers are the gauge for higher or lower stock market indices. It is therefore important to note that consumer spending is not as robust as it was in the past. Therefore, overall equity market performance could slide lower at any point in the future as the recent advances were built on rather attractive forward looking company valuations, i.e. on assumed EPS figures yet to be confirmed

The economic recovery witnessed so far is not the product of growth acceleration but rather an adjustment of valuation to long-term average levels. We expect that worldwide average GDP growth will not exceed 3% for the years to come. The nature of the present economic recovery is much slower than most similar events that have occurred in the past. One possible reason, is that no physical reconstruction was yet to be made.

Yet, in the absence of any other valid investment allocation and financial performance indicators, the outlook for the immediate quarter remains valid based on the presently available EPS and GDP figures. The market is neither overvalued, nor undervalued and we give trust to our financial trend indicator Alphega.