The Henley Market Outlook publication gives our assessment of the six Henley asset classes.

1. Hong Kong | Singapore | Shanghai | London
THE WEALTH MANAGEMENT PROFESSIONALS
Henley Market Outlook
August 2013
On the cusp

2. The Henley Outlook August 2013
Hong Kong, Singapore, Shanghai & London
Equities
Global Overview .............................................................................................................................................. 3
Cash & Currencies .............................................................................................................................................. 5
Fixed Income ...............................................................................................................................................6
Property .............................................................................................................................................. 7
Equities US ...................................................................................................................................... 8
Japan ................................................................................................................................. 8
UK ........................................................................................................................................9
Europe Ex UK .................................................................................................................. 9
Australia ........................................................................................................................ 10
ASEAN ........................................................................................................................... 10
Greater China................................................................................................................ 11
India .............................................................................................................................. 11
Other Emerging Markets ......................................................................................... 12
Commodities Energy...............................................................................................................................13
Precious Metals.............................................................................................................13
Industrial Metals.......................................................................................................... 13
Agriculture.............................................................................................................. 14
Alternative Investments .............................................................................................................................................15
2
Content
The Investment Committee
Peter Wynn Williams
Investment Director
& Partner
Andrew Kelly
Partner
George Rippon
Partner
Simon Liu
Head of Investment
Research
Paul Brady
Partner
Chris Skinner
Partner
The Henley Investment Committee combines more than 110 years’ experience and
is unique in being backed by a full-time team of five investment professionals to
optimise asset allocation and manager selection.

3. Equities
3
“Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the
end of the beginning.”
Sir Winston Spencer Churchill, KG (1874 - 1965), wartime speech, November 1942
We are on the cusp of great financial change. Largely unnoticed, all sorts of ducks are moving
quietly into a row. The few who do notice usually scratch their heads and wonder what might be
going on, lacking the tools to join the dots. Let us have a look at a few of those dots.
The ever-present problems in Europe, while out of sight and out of mind in recent months, have
continued to deteriorate, and have now burst back into the open. The inevitable has happened:
as a result of both fiscal and monetary contraction, the PIIGS public debt levels have rocketed
and there is now talk of more bailouts, bail-ins and debt restructurings. This time around,
however, there will be no taxpayer-funded handouts. Losses will fall on deposit holders (YOU!),
bondholders and other creditors – perhaps even including central banks and sovereigns, ie, tax
payers.
First, however, there is the matter of getting Chancellor Merkel re-elected in the German federal
elections on 22nd September. They need at all costs to hold Europe together until then. Will the
PIIGS try to take advantage of the situation and try to wring concessions out of Germany ahead
of the elections? They should, because after the elections, the gloves will come off and moves
will finally be made to resolve the intertwined banking and sovereign debt crises, now nearly five
years old.
Over in the US, Detroit’s bankruptcy (with debts and unfunded liabilities for retired employees’
pensions, health care, etc, totalling more than USD18bn) is not the first, but it is the biggest and
will certainly not be the last. The American economy continues to bounce along the bottom
despite trillions in life support over the last five years. Only 47﹪ of adults have a full-time job
at this point, and 53﹪ of all American workers make less than USD30,000 a year. Real average
earnings have fallen a further 5% since 2010.
China and Japan each has its own set of challenges. China is trying to re-balance its economy
away from export dependence to domestic consumption, while at the same time trying to tame
the alarming explosion in its shadow-banking sector. Japan, on the other hand, amid much
sound and fury, is trying hard to husband inflation and growth for itself through a vigorous burst
of money printing. The more likely result will be bankruptcy.
Against this troubled background in all the major trading blocs, the Shanghai Cooperation
Organization (SCO) countries, led by China and Russia, continue to work to undermine the dollar
as the settlement currency for global trade, including oil. They also continue to accumulate the
gold, which, until very recently, the western central banks appeared
happy to dishoard for them. China’s network of yuan swaps with
trading partners all over the world is a precursor to yuan convertibility,
which Chinese officials have committed publicly to achieving by
2015. Recently, speculation has resurfaced that China’s currency
strategy might include partially backing the yuan with gold.
Russia is president of the G20 this year. The G20 will hold a leaders’
summit in St Petersburg at the beginning of September. Spurred on
by the SCO countries, the G20 has been working on “international
financial architecture reforms.” Our current financial system is a house
of cards built on a foundation of risk, leverage and debt. Reform is
certainly a nettle which needs to be grasped. Plans are thought to
include a gold-based trade settlement system and possibly a gold
trade note (rather like a bank letter of credit), potentially greatly
undermining the dollar’s importance in international trade.
Global Overview
Peter Wynn Williams
Investment Director
pww@thehenleygroup.com.hk
G20 International Financial Architecture Reform Working Group,
Moscow, February 2013

4. Equities
The Henley Outlook August 2013
Hong Kong, Singapore, Shanghai & London
4
Global Overview
Peter Wynn Williams
Investment Director
Gold, silver and the associated mining funds have been making a tentative recovery in recent
weeks after their double drubbing at the hands of the western central banks in April and June.
The signs of shortage of metal (which probably sparked the April smash) have only strengthened
since then, perhaps reflecting a reduced willingness on the part of the western central banks to
supply as much as the market would like. The slow-motion run on the highly-leveraged paper
gold market, which began early this year, may lead to the market’s collapse and a forced switch
to cash-only settlement – in effect, the death of the paper gold market. What would be the point
of a gold market with no gold? This would be a dramatic event, and the consequences for the
dollar could be even more dramatic.
How timely of the G20 to be working on alternative arrangements!

5. Equities
5
HENLEY ASSESSMENT
Neutral
US Dollar Index Spot dropped to its
lowest level in four months at 81.8 vs
a basket of major currencies after US
Federal Reserve pledged to continue
buying USD85bn worth of bonds per
month. We have seen considerable
volatility in currencies in recent weeks,
though not so much in the headlines.
Summary
■■ Capital flows out of Asian and emerging markets have caused considerable stress, especially
in Brazil and China, and have affected the JPY carry trade.
■■ SGD remains steadily strong. Expectations are that the current gradual appreciation policy
will continue as it is.
Cash & Currencies

6. The Henley Outlook August 2013
Hong Kong, Singapore, Shanghai & London
Equities
6
Points of General Interest
■■ Investors yanked USD43.8bn from taxable-bond funds and USD16.4bn from municipal-bond
funds in June, making the month the worst on record for bond fund outflows.
■■ Detroit defaulted on its debt and highlighted fundamental issues within America at present
and the likely scenario should the Fed stop buying its own debt.
■■ The fallout from Detroit has resulted in further scrutiny to municipal debt in the US; scrutiny
that is likely to highlight the significant issues facing a number of other cities in the US and
highlights that municipal debt can no longer be viewed as a risk-free asset class.
Why Did Detroit Fail So Spectacularly?
Government Bonds
■■ Italy defied its political landscape and held a smooth debt auction at the end of July.
■■ Foreign investors account for 30% of all Russian bond purchases.
■■ Bond issues by Guangdong province are expected to set a record this year, even as the central
government launches a national audit of local government liabilities to address concerns
about rising debt from overly-ambitious development projects.
Cash on Deposit
■■ As is often the case, speculation within the financial markets has not been translated into
the retail sector. The concern that rates will rise has caused no such spike in the interest rates
offered by the banks to retail savers.
Fixed Income
HENLEY ASSESSMENT
Neutral/Negative
After a terrible month in June for
this asset class, we have seen a
steadying of the ship in July as
markets appeared to either come to
terms with the idea that there could
be tapering to the US bond buying
programme or that with everybody
away for the summer holidays, the
concerns that a departure from QE
for fixed interest has been put on hold
until September.
We believe that it is a little bit of both;
as June highlighted the 30-year bull
run within fixed interest is at threat
from the halting of QE. However,
old habits die hard and with QE still
being very much a part of current
Federal Reserve policy, investors are
returning, albeit fairly cautiously, to
this asset class.
The lessons to take from the June
crash is that not even fixed interest
can be viewed as a safe haven asset
given the global economies’ reliance
on continued QE to inspire confidence;
proceed but proceed with caution
when investing within this asset class.

7. Equities
7
Positives
■■ The S&P/Case-Shiller
US Home Price Indices
increased 11.6% and
12.1% for 10 and 20 cities
respectively in the 12
months ending Apr13.
MOM gains were 2.6%
and 2.5% respectively.
However, both indicies are
still 26-27% lower than the
Jul06 housing peak, with
current market values at
their early 2004 levels.
■■ One area of concern in
the continued recovery of
US home prices is further
mortgage rate rises. After the US Federal Reserve suggested in June that it is considering
scaling back its bond buying programme, bond prices fell sharply pushing the cost of a 30-
year fixed mortgage up from 3.5% to 4.5%, roughly a two-year high.
■■ TheChestertonsHumbertPrimeLondonCapitalValueIndexrecordeda2.3%increasein1Q13.
Given a more favourable mortgage market and an economy forecast to return to growth this
year, the prime London property market is likely to continue rising, with Chestertons Humbert
predicting a total gain of 8.2% for 2013. Further momentum will be provided by overseas
purchasers, who in some cases are enjoying a 30% currency discount due to GBP weakness
relative to their home currencies.
Negatives
■■ UK home prices in England and Wales increased 0.4% MOM and 0.8% YOY, according to
property researcher Hometrack Ltd. Property prices have been supported by BoE’s Funding for
Lending Scheme (which has helped ease credit strains and loosened the supply of mortgages)
and by Mark Carney’s statement that interest rates are likely to remain low for a few more
years. Whilst the recent property price rises appear to be due to improved confidence in both
the housing market and the economy, a subdued economic background and weak income
growth are expected to weigh on the market.
■■ In Hong Kong, the US Federal Reserve’s plan to consider cutting stimulus is affecting sentiment
in residential property prices, as investors fear rising interest rates. Property consultants
believe prices could fall another 5 to 10% over the next six months and transaction volumes
could fall sharply as buyers withdraw from the market. This uncertainty comes on top of many
property market cooling measures brought in by the Hong Kong government over the last few
years.
■■ Dubai residential property prices have slumped 64% since the 2008 global financial crisis.
However, Knight Frank reported prices were up by 19% last year with the recovery mainly
limited to better locations. However, there is also a fear of over supply again, as 40,000 new
residential units are expected to be completed in the next few years.
Property
HENLEY ASSESSMENT
Neutral
Property prices generally, after
significant falls in 2009, stabilised
in 2010 and 2011. Property prices
in many areas have weakened in
2012 and 2013 YTD, as economic
conditions remain difficult. Property
values have, however, recovered in
selected areas such as Singapore,
Hong Kong and London. Additionally
weareseeingsignsofarecoveryinthe
US housing market. We still consider
some specialised property assets,
such as student accommodation,
to merit inclusion in our portfolios.
Other than these investments, we
would suggest that clients remain
cautious.

8. The Henley Outlook August 2013
Hong Kong, Singapore, Shanghai & London
Equities
8
Positives
■■ Prime Minister Abe cemented control of government with his party taking the majority in
the upper house of Japan’s National Diet. It will provide much needed support for Abe to
overcome resistance in deregulation and reestablish order in government finances.
■■ Japan business sentiment turned positive given a weaker JPY and stronger domestic demand.
Business confidence among large manufacturers rose to +4, from -8 in March, the first positive
figure since Sep11.
■■ Outstanding loans held by Japanese banks rose 1.9% in June from a year earlier. It is the
20th straight month of increase and posting the biggest gain since Jul09. BoJ’s aggressive
monetary stimulus is perhaps creating demand for fresh investment.
Negatives
■■ Abe has yet to deliver structural reforms promised as part of his three-pronged growth
strategy. Implementation of economic restructuring has so far been disappointing.
EQUITIES
UNITED STATES
JAPAN
HENLEY ASSESSMENT
Negative
Financial markets are dangerous,
unstable, short of collateral and
drowning in debt. Growth is largely
a mirage and top-line sales continue
to disappoint. For as long as this
continues, the risks remain more
important than the returns. In a
stark reminder of how “Alice-in-
Wonderland” the markets have
become, the S&P500 and the DJIA
hit new all-time highs on the same
day last month that Detroit became
the largest US city ever to declare
bankruptcy, with debt and unfunded
liabilities of more than USD18bn.
With the Federal Reserve seemingly
losing control of both the bond
and the gold markets, the risks of a
collapse of the dollar grow closer by
the day. Who can blame Bernanke for
wanting to retire?! Better to be out
of this market a long time early than
one minute late.
Positives
■■ Any experiment with tapering QE will be short-lived and likely lead to resumption at even
higher levels.
■■ Federal Reserve has forecast rates will remain unchanged until at least 2015.
■■ In the long term, demographics and returned energy self-sufficiency bode well.
Negatives
■■ National debt: USD16.8tn and rising; debt-to-GDP: 107% and rising. This is absurdly
unsustainable.
■■ QE to infinity promises currency debasement, rising prices and lower discretionary spending.
■■ Possible imminent collapse of paper gold market would collapse dollar.
HENLEY ASSESSMENT
Neutral
Been here, done that! We have seen
upsurges (as well pullbacks) in stock
prices – refer to the graphs right. We
note recent volatility in Japanese
equity which is uncharacteristic of
developed markets.
Abenomics involves not just monetary
and fiscal policies, but also structural
economicreform.Anydisappointment
will likely trigger further reversal in
weakening JPY and in rising stocks.
The stakes for restructuring are high
as Japan seeks to sustain confidence.
Equity valuations, however, remain
attractive and below trend at 1.2x
Price-Book. If Abenomics proves
effective, Japanese stocks may have
more upside over the medium to long
term.

9. Equities
9
UNITED KINGDOM
EUROPE EX UNITED KINGDOM
EQUITIES
HENLEY ASSESSMENT
Neutral
The UK’s economic recovery has
grown stronger and a little broader,
according to official output data for
the second quarter of the year. But
no one wants to celebrate too soon.
The economy is still more than 3%
smaller than before the financial
crisis, living standards are the lowest
in a decade and public sector debt is
still rising. The recovery has also done
little yet to boost the public finances.
In the first three months of the fiscal
year, the government borrowed
about the same amount of money
as it did a year ago, on an underlying
basis. Mark Carney is expected to
offer “forward guidance” to markets
and the public that interest rates will
stay low until the recovery can sustain
itself.
Positives
■■ The UK economy grew by 0.6% in the three months to June, in line with market expectations,
and was up from 0.3% growth in the previous quarter. Output grew in the construction,
manufacturing, services and agriculture sectors.
Negatives
■■ Real incomes have continued to decline in recent months. As of May, the average weekly
wage was GBP476 – only 1.7% (or GBP7) higher than a year ago. Prices rose by 2.7% over the
same period. Some economists and policy makers think the squeeze on household incomes
will continue for at least a couple of years.
■■ The number of mortgages approved fell unexpectedly in June, according to BoE data. The
data showed mortgage approvals for house purchases fell from 58,071 in May to 57,667
against expectations of a rise.
HENLEY ASSESSMENT
Strongly negative
Recent euro zone PMI figures are
encouraging, but we doubt the region
is about to embark on a sustainable
recovery. Draghi has stated that
interest rates may be cut if the
economy relapses but we think that
would not make a difference as long
as banks are failing to transmit the
ECB’s cheap money to households
and firms. Reflecting the clogged-up
credit channels, euro zone lending to
the private sector is forecast to have
shrunk again in June.
Positives
■■ TheECBsaiditexpectstokeepinterestrateslowforan“extendedperiod”.Themainrefinancing
rate stayed at 0.5%. Draghi’s aim is to use so-called “forward guidance” to persuade investors
that ECB has no plans to end its easy policy stance, keeping longer-term rates low, paving the
way for consumers and businesses to borrow cheaply and mitigating already huge losses on
bond portfolios of ECB and commercial banks.
■■ Euro-area manufacturing unexpectedly expanded in July for the first time in two years, led
by Germany. A manufacturing index based on a survey of purchasing managers rose to 50.1
from 48.8 in June.
Negatives
■■ Portugal’s 10-year bond yield jumped to 7-month high (8%+) and the stockmarket fell
5.3% after two ministers resigned. Prime Minister Coelho is battling rising joblessness and
deepening recession as he cuts spending and raises taxes to meet bailout terms. Greece is also
having problems pushing through reforms in return for its bailout money. Both countries need
bigger bailouts or (more likely) more debt restructuring.
■■ S&P lowered Italy’s long-term sovereign credit ratings to ‘BBB’ from ‘BBB+’ due to worsening
economic prospects. Fitch downgraded France from AAA to AA+.

10. The Henley Outlook August 2013
Hong Kong, Singapore, Shanghai & London
Equities
10
ASEAN
AUSTRALIA
EQUITIES
HENLEY ASSESSMENT
Neutral
The Australian trade weighted index
is at 1.5x standard deviations above
its 10-year average. However, the
AUD is inescapably a cyclical currency
and with the wheel being turned
by continuing problems in Europe
and slower than expected growth in
China, and with fears of a reduction
in Australian exports of industrial
metals to China, the current phase of
the AUD’s cycle is down. A lower AUD
may stimulate the non-commodity
oriented sectors of the economy such
as manufacturing and tourism.
Positives
■■ Australian inflation came in short of expectations for a third consecutive quarter. The
Australian Bureau of Statistics (ABS) said consumer prices rose 0.4% in April-June compared
with the previous quarter, while they were up 2.4% YOY. This boosts the case for an August
interest rate cut.
Negatives
■■ AUD / USD depreciated 1.7%, the most in a month, to 91.39. The fall in the AUD over the last
two months has been around speculation of the US Fed ‘tapering’ its bond purchase program
and uncertainty around developments in China.
■■ The economy grow at a slower-than-expected rate in the first three months of the year,
expanding 0.6% on quarter and 2.5% YOY. Australia’s jobless rate jumped to 5.7% in June, its
highest level in almost four years.
HENLEY ASSESSMENT
Positive
In the short term, export growth in
several countries including Indonesia,
Thailand and Philippines is starting to
weaken on the back of deteriorating
external demand. However, the
fundamental growth prospects
remain intact.
Positives
■■ Vietnam’s central bank cut the
rate to 5.5% from 6%.
■■ QE is likely to continue for the
time being.
■■ Thailand plans to increase
production of electricity from
renewable sources to 25%of
total output over the next 10
years to reduce imports and
boost energy security.
Negatives
■■ Thailand’s central bank said
rising household debt limits its
scope to reduce interest rates,
even as the monetary authority cut its economic growth forecast for this year on slowing
exports.
■■ It is adversely influenced by the concern of China’s economic slowdown.

11. Equities
11
Positives
■■ Growth in retail sales of China rose to 13.3% YOY from 12.9% in May.
■■ China’s foreign direct investment (FDI) jumped surprisingly in June, soaring 20.1% from a
year earlier to USD14.39bn. In the first half of 2013, China’s FDI totalled USD61.98bn, up
4.9% YOY.
Negatives
■■ China GDP grew 1.7% QOQ in Q2 vs 1.6% in Q1. Annual growth stood at 7.5% YOY, in line with
expectations.
■■ China June industrial growth slowed to 8.9% YOY from 9.2% YOY in May and fixed asset
investment for the year to June slowed to 20.1%YOY from 20.4% YOY in May.
■■ In China the June credit aggregates suggested a slower pace of growth. Total financing rose
RMB1.040tn – the slowest pace since April last year and RMB740bn less than in June 2012.
According to PBoC, the slower M2 growth in June was in line with the expected outcome of
macro-economic adjustments and prudent monetary policy and was closer to the full-year
target of 13%.
GREATER CHINA
EQUITIES
HENLEY ASSESSMENT
Neutral
In July, Chinese Vice Premier Zhang
Gaoli was quoted in the official press
as saying: “We must adopt resolute
measures, including fiscal, monetary
and pricing measures, to expand
domestic demand.” In addition to
Zhang’s remark, the office Xinhua
News Agency stated that GDP
growth below 7% is not allowed and
reiterated that 7.5% is the target
for this year. In another milestone
event, China’s PBoC announced
measures to further liberalise China’s
lending interest rates in an attempt
to reduce lending rates and stabilise
growth. The most important measure
is the removal of the lending rate
floors, which were previously 30%
below the benchmark rates. In our
opinion, these new developments
should be viewed as part of the new
government effort to stabilise growth
as well as to accelerate the pace of
financial reforms. Although a large
swing in macro policy is not likely,
the new generation of government
will probably take many low-profile
measures to keep the wheels rolling.
We expect the chance of a Q4 GDP
recovery will increase further.

12. The Henley Outlook August 2013
Hong Kong, Singapore, Shanghai & London
Equities
12
HENLEY ASSESSMENT
Negative
The unprecedented chain of events
in Brazil that started with complaints
about inflation (bus and subway
tariffs) has led to mass protests over
corruption, lack of public services,
and taxes. As a result of the tension
and uncertainty in the past few
weeks, some investors have lost
confidence in Brazil’s market. If the
unrest continues, the short-term
impact from the protests is likely to
be negative for Brazil’s economy.
Brazil’s central bank cut its growth
forecast for 2013 to 2.7%, down from
prior expectations of 3.1%, and cited
volatility as a risk factor.
Other Emerging Markets (South Korea, Russia, Brazil)
EQUITIES
Positives
■■ Fitch maintained Brazil’s credit rating outlook at stable, citing signs of policy corrections
that, if sustained, could help to restore confidence and improve the consistency of economic
policies. Moreover, the deterioration observed in Brazil’s fiscal and external credit metrics is
within the tolerance level of its current rating.
■■ The Bank of Korea decided to leave interest rates unchanged at 2.5% for a second month. It
also raised its growth forecast for this year to 2.8% from its previous 2.6% and for next year
to 4 % from its earlier 3.8%.
Negatives
■■ Brazil’s swap rates declined to a six-week low as reports showed consumer prices dropped
and consumer confidence waned, spurring speculation that the central bank’s increases in
borrowing costs will be limited. Swap rates on the contract due in Jan15 fell seven bps to
9.28%, the lowest closing level since June 7.
■■ Russia is preparing to introduce its own brand of QE in an attempt to keep growth going - the
central bank plans to auction loans collateralised by non-marketable assets in a bid to inject
liquidity into the economy and cut the cost of funding for banks and borrowers.
■■ In the second quarter, Russia’s economy grew by 1.9%, an improvement from the 1.6% growth
it posted in the first quarter, but still well below the best case scenario of 3% growth. Russian
academics say the country has entered a technical recession, as its basic industries contracted
for 6 months in a row.
India
HENLEY ASSESSMENT
Neutral
Foreigners sold a net USD2bn of
domestic debt this month through
July 30, extending the record
USD5.4bn withdrawal in June. The
two-month outflow from stocks
reached USD2.8bn, the most since
the global financial crisis in Nov08.
RBI increased two of its policy rates
on July 15 to stem the decline,
prompting a record surge in three-
month interbank borrowing costs.
Higher interest rates may hurt the
economy and cause more currency
weakness, triggering a “vicious circle”.
On a more positive note, India’s
cabinet is considering easing some
requirements for foreign retailers
investing in local supermarkets, which
will help to attract FDI from global
chains such as Tesco and Wal-Mart.
Positives
■■ The RBI held its benchmark rate at 7.25% on July 30 and said the past month’s measures,
which sought to shore up the INR by creating a cash squeeze, will be reversed once the
exchange rate stabilise.
Negatives
■■ India’s benchmark stock index fell 0.3% in July, its second month of losses, as the INR’s fall
spurred concern that capital outflows will accelerate.
■■ Government bonds dropped in July, pushing the yield on the 7.16% bonds maturing May 2023
up by 75bps, the biggest monthly gain for benchmark 10-year rates since Mar09.
■■ The RBI pared its economic-growth forecast for the year to Mar14 to 5.5% from 5.7% on July
30.

13. Equities
13
Palladium, in line with gold and other
precious metals, suffered a sharp fall during
the month although it has outperformed
gold and platinum YTD. The decrease in
silver has outdone all the other precious
metals and is down about 30% YTD.
However, it still maintains its role as a
safe haven. The thing to remember about
investing in precious metals is that while
prices can go down quite dramatically, they
can recover spectacularly. In 2008, the
price of silver tanked from a peak of almost
USD21 to USD8.40, a drop of 60%. However,
by mid 2011, it had climbed back by over 400%. We continue to believe that investments in precious
metals are an important insurance against some of the potential shocks that could befall the global
economy and whilst painful in the short term, the longer term outlook remains very positive.
Positives
■■ A poor run of economic data out of the US may see an increase in demand for gold.
■■ The palladium market is in deficit and as this new demand materialises, higher prices should
follow.
■■ Expect strong demand in palladium for industrial uses from emerging economies.
Negatives
■■ Investment sellers outweigh physical buyers and this is likely to continue until a large central
bank steps in and makes a meaningful purchase.
■■ Gold will continue to react to any new comments from the Fed.
Energy
Precious Metals
COMMODITIES
HENLEY ASSESSMENT
Neutral
Oil prices moved marginally higher in
June despite weak macroeconomic
data and the fall in other commodity
prices. US natural gas prices fell by
over 11%, a consequence of lower
than expected early summer demand
for electricity.
Positives
■■ Evidence of a slowdown in the growth rate of US domestic oil production.
■■ The average city gas price in China is to increase by over 15%, which could support natural
gas producers.
Negatives
■■ Consensus view remains that we are moving into a period of supply surplus.
■■ Oil price forecasts are moving down.
HENLEY ASSESSMENT
Positive
The pressure on gold’s price continued
in June, falling by more than 10%
to USD1235 / oz by the end of the
month. Gold continues to be affected
by any comments coming out of the
US Federal Open Market Committee
(FOMC) with anything hawkish being
seen as a call to sell. Physical gold
demand remains strong in the face of
weaker prices. Gold does not appear
to be trading as a currency at present
but rather as a regular commodity
driven by supply and demand and
the current oversupply from investors
selling cannot be absorbed by
physical buying from consumers or
central banks.

14. The Henley Outlook August 2013
Hong Kong, Singapore, Shanghai & London
Equities
14
Positives
■■ UN’s Food and Agriculture
Organization estimates there will
be over nine billion mouths to feed
on the planet by 2050.
■■ Middle class consumers in BRICS
economies are increasingly
demanding more varied and
protein-rich foods. As affluence
increases, protein from sheep,
poultry, pigs, cows and fish may in
turn displace grains in diets.
■■ On the supply side, agricultural land
in production has barely increased
since the mid-1960s. Climate
change and depletion of natural resources are powerful secular trends that will restrict future
food production.
■■ We remain positive on the agricultural equities asset class for 2013 as farmers are incentivised
to maximise production by optimising the usage of fertiliser and crop protection and using
the best seeds.
Negatives
■■ Prices are subject to many uncontrollable risks, eg, weather and natural disasters, politics and
other pests.
■■ Due to recent drought conditions in the American Mid-West and Russian Black Sea regions
we have seen corn, wheat and soy prices increase on average over 50% within a few months.
Commodities
Agriculture
Industrial Metals
HENLEY ASSESSMENT
Neutral
Aluminium prices fell to their
lowest price since Aug09 on excess
production. Chinese production
continues to grow with new lower-
cost smelters being built on captive
coal fields in north-west China and
while demand continues to grow at
6-7% per annum, the industry is only
just taking on board the need to cut
capacity. Traders attributed the fall
in base metals to weak global trend
after data showed that the pace
of economic growth in China, the
biggest user, slowed in the second
quarter.
Positives
■■ Aluminium prices look unlikely to move lower in the short term.
Negatives
■■ The outlook remains grim for aluminium while current overcapacity persists.
■■ China remains the major influencer and if economic growth slows further, this could put
pressure on metal prices overall.
HENLEY ASSESSMENT
Positive and Negative
There are two very different markets
playing out in the agriculture sector –
physicalandequity.Manyphysicalsoft
commodity prices have exploded due
to changing global weather patterns
over the past few months, however
these sharp price increases tend to be
followed with just as sharp falls; there
is a very seasonal and cyclical pattern
with these movements. Currently with
many soft commodity prices at or
near record highs we have a negative
view on investing at these levels and
encourage profit taking. On the equity
side, the largest weighting funds
have to this sector is via fertiliser and
seed companies. These industries are
having a significantly more important
role to play to help increase yield
and in the case of seed companies,
invent seed which is more tolerant to
changing global weather patterns. We
remain positive on agriculture equity
funds.

15. Equities
15
Positives
■■ Volatility Arbitrage managers benefitted over the month from increased levels of realised and
implied volatility in stock markets.
■■ Despite the pressure on equity indices over last two months, it was notable that inflows into
hedge funds remained constructive.
Negatives
■■ Following the move in rates in June the hedge fund industry’s positive run of performance
came to an end – the HFRX Global Hedge Fund Index returned -1.3%.
■■ Global macro managers were once again amongst the worst performing strategies in June.
■■ Managed future managers lost money in trend reversals in short-term rates, equities and FX.
If markets continue to exhibit range bound price action, and the recent inflection in bonds
persists, summer may be a difficult period for this strategy.
■■ Returns for Equity Long-Short managers were disappointing in June - the HFRX Equity Hedge
index ending the month with -1.89%.
■■ Correlation between stocks and between assets increased back close to the level seen in 2012.
Market has been proved that most of stock movement was driven by recent macro events.
Alternative Investment
HENLEY ASSESSMENT
Neutral
Across the hedge fund universe, risk
levels have reduced slightly during
June,bothonanetandgrossexposure
basis. We expect to see managers
remain well hedged through the
coming quarter in light of potential
market risk. These risks, together
with the lower exposure levels, are
suggesting that the second half will
present conditions far less conducive
to return generation for the hedge
fund industry as a whole. Therefore,
our short-term outlook for hedge
fund is less positive than for much of
this year. The effect of tapering by
the Fed, or more accurately the effect
of market reaction, remains unclear
for several strategies.
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16. The Henley Outlook August 2013
Hong Kong, Singapore, Shanghai & London
Equities
16
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Henley Market Outlook
August 2013