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

1. Henley Market Outlook
July 2013
Hong Kong | Singapore | Shanghai | United Kingdom
THE WEALTH MANAGEMENT PROFESSIONALS

2. The Henley Outlook July 2013
Hong Kong, Singapore, Shanghai & United Kingdom
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
Since the developed world reached the limit of its capacity to borrow in 2008, our central banks
have reduced interest rates to zero to allow us to borrow yet more money (about USD15tn, give
or take). Needless to say, this has not addressed the fundamental problem of excessive debt; but
it has bought some time, in which it was hoped that economies would somehow overcome the
crushing weight of debt and skip back into the Elysian Fields of consumption and growth.
It is now becoming clear, even to the central banks, that the policy has not worked. In its annual
report published last month, the Bank of International Settlements (a sort of head office for
the central banks) said essentially that the risks of quantitative easing (primarily hyperinflation)
outweighed the benefits (no, I don’t know either).
It is also becoming clear, from the noises now coming from the US Federal Reserve, that it would
like to wean the global economy from its teat before it is too late. Whether it can is a completely
different matter. From the markets’ reaction (rising bond yields and falling asset prices), it would
seem that either the markets believe what the Fed says, or the Fed is finally losing control of bond
yields to market forces (interest rates are rising even though the Fed is buying nearly all of the
Treasury’s new debt issuance). If the latter were true, for the Fed to re-gain control would be very
difficult and would probably require a dramatic increase in quantitative easing rather than the
desired tapering. The genie is out of the bottle.
Either way, it would seem that this six-year-old crisis has advanced to a new phase in recent
weeks. Perhaps the powers that be realise that they are running out of road and that it is time
to stop kicking the can? Since April, the bullion banks have flipped from being massively short
gold futures to being massively long. This is the first time they have been long since 2001. We
can all speculate about what the reason for that might be; but, whatever it is, in the context of a
monetary crisis, I bet it is significant.
The other change that has been going on quietly in the background relates to bailouts. In 2008,
tax payers were volunteered to spend trillions bailing out failed financial institutions by boosting
the asset side of their balance sheets. Now, the financial and political capacities to do more of
this is exhausted. Now, the plan is to slash the liabilities’ side of the balance sheet instead, á la
Cyprus: deposit confiscation.
Over the last couple of years many major jurisdictions have passed new laws to allow bail-ins –
the US, the UK, Japan, Australia, New Zealand and Denmark among them. The European Union
is also putting the finishing touches to its new directive. Bail-ins allow the authorities to use
creditors’ assets (including deposits, equities and bonds) to put the institution back on its feet,
just like they did in Cyprus in March.
If you think this could not happen to your bank – wherever it is – think again. In the real world,
most banks are already insolvent, or close to it; but, in the “mark-to-make-believe” world in which
we have been living since the credit crunch, the authorities have allowed the banks to value the
assets on their balance sheets at cost instead of at their market value, masking losses. With bond
yields now rising, those losses will be rising, too.
The bail-in mechanism gives the authorities the means finally to recognise the curse of excessive
debt and toxic assets and, at the same time, preserve the banks and the system (albeit smaller).
The problem is that, as in Cyprus, the banks’ investors and customers (ie you!) will be thrown to
the lions.
Global Overview
Peter Wynn Williams
Investment Director
pww@thehenleygroup.com.hk

4. Equities
The Henley Outlook July 2013
Hong Kong, Singapore, Shanghai & United Kingdom
4
Global Overview
Peter Wynn Williams
Investment Director
Please do not make the same
mistake that too many customers
of banks in Cyprus made by
leaving their money in the banks,
even though deposit haircuts
were being widely discussed in
advance.
I do not know when the banks will suddenly choose to recognise that they are in fact insolvent
and need to be re-structured; but it is clear that time is running out and the ducks are moving
neatly into a row. Please do not make the same mistake that too many customers of banks
in Cyprus made by leaving their money in the banks, even though deposit haircuts were being
widely discussed in advance.
Please also be aware that the paper published jointly by The Bank of England and the (insolvent!)
US Federal Deposit Insurance Corporation last December (http://www.fdic.gov/about/srac/2012/
gsifi.pdf) did not even mention exempting insured deposits from bail-ins, nor did the original plan
proposed for Cyprus. It was only the popular outcry in Cyprus that persuaded the authorities to
relent and respect the insured deposits.
For Cyprus, the alternative to agreeing to be bailed-in was national bankruptcy. I wonder what
options will be presented to you to make a bail-in appear the lesser of two evils?

5. Equities
5
HENLEY ASSESSMENT
Neutral
Quantitative easing programmes
in Japan and the US have caused
considerable volatility in currencies
in recent weeks. Although not in
the headlines so much these days,
the stresses plaguing the EUR are
still very much in play. The Chinese
banking system and the credit
bubble it supports are also under
considerable stress. In other words,
all the major trading blocs are faced
with a variety of major fiscal and
monetary challenges at the same
time. Despite the currency volatility
that is being created, the volatility
in other asset classes could easily be
more severe in the short and medium
term, making cash an attractive, if
low-yielding, hedge. We still favour
SGD as a safe haven, and commodity
currencies for yield.
Summary
■■ Capital flows out of Asian and emerging markets have caused considerable stress, espcially in
Brazil and China, and have affected the JPY carry trade.
■■ JPY strength makes it clear that, unlike the Americans, the Japanese cannot print like crazy,
have a weak currency and low interest rates at the same time.
■■ Proposals to allow money funds to gate (to prevent runs) will put a damper on a sector already
damaged by zero interest rates.
■■ SGD remains steadily strong. Expectations are that the current gradual appreciation policy
will continue as it is.
Cash & Currencies

6. Equities
The Henley Outlook July 2013
Hong Kong, Singapore, Shanghai & United Kingdom
6
Points of General Interest
■■ June represented a tough time for fixed income which has culminated in many commentators
suggesting the 30-year bull run that this asset has enjoyed is coming to an abrupt end.
■■ The root cause for this sudden drop was the fact that the Fed made a slightly hawkish
statement with regards to the potential of the winding down of that most comforting of
status quo’s, QE. The reaction in the fixed interest market was dramatic, especially when one
considers that the main body of the afore mentioned statement was only 20 words changed
from the previous month’s report, which did not elicit the same reactions.
■■ The idea of an end to monetary stimulus, or a reduction, has fed the narrative that there is
going to be a systematic rotation away from fixed interest and into equities as a result of
bond yields, as a result of the subtle change in narrative from the Fed.
■■ Selling has been most visible among retail investors, who have sold a record USD48bn worth
of shares in bond mutual funds so far in June.
■■ On the flip side, it is important to note that all may not be as simple as it first appears. With
rising yields comes higher income on new bonds, and that may bring buyers, which can pull
yields down again.
Government Bonds
■■ After a 5-year hiatus, Japan has again committed to offering inflation-linked bonds.
■■ Italy sold EUR1bn inflation-linked bonds in Jun13.
■■ US Treasury yields crept upwards throughout the month, as highlighted in the graph below.
Corporate Bonds
■■ High-grade corporate bonds also suffered at the hands of continued speculation that the Fed
will pull back their monetary stimulus.
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
The past month has validated our
long-term view with regards to
the threat within this traditionally
cautious asset class.
However, it must be noted that much
of the current negative rhetoric may
in fact be somewhat overblown in
the short term, should there be no
imminenttaperingoffofQEbytheFed.
The past month has highlighted
that extreme volatilies can beset
fixed income in the same way as any
other asset classes and while there
is a case for holding certain types
of fixed interest within a cautious
portfolio, remembering the lessons
from the reactions that occurred
following suggestions that QE would
be tapered, is vital.
We would not suggest totally
rejecting this asset class. However,
recognising that it now represents a
great deal more risk than has been
the case before is vital; in short we
can no longer assume that this most
traditional of safe havens will behave
as it has done for the past 30 years.
2.3
2.2
2.1
2
1.9
1.8
1.7
1.6
1.5
1.4
1.3
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5/1/2013
5/15/2013
5/22/2013
5/29/2013
6/5/2013
6/12/2013
5/8/2013
Date
Yield
10 Year Daily treasury Yield Curve Rates

7. Equities
7
Positives
■■ In the US, data continues to reflect an improving residential property market. The S&P/Case-
Shiller index of property values increased 10.8% in March YOY, the largest 12 month gain
since Apr06, after rising 9.4% in February YOY. Sales of new homes climbed in April to an
annual pace of 454,000, an increase of 2.3% MOM and the second highest level in almost
five years. Also, the median selling price of new homes rose 14.9% YOY. Consumer confidence,
low borrowing costs and a shortage of properties - the housing stock for sale remains near the
lowest level in a decade – are factors expected to keep prices rising.
■■ In China, rising property prices are putting pressure on the government to cool the market, but
at the same time the government needs to support economic expansion. New home prices
increased during April in 68 of 70 cities (the same figure as in March). New home prices rose
on average 4.9% YOY (after an increase of 3.6% in March YOY). Notable rises over the last
year were 10.3% in Beijing and 8.5% in Shanghai, these rises being the sharpest since Apr11.
■■ Prime central London residential property prices increased by 0.3% in May MOM and by 7.2%
YOY, according to Knight Frank. Demand remains strong with a rise in sales of 17% in the first
four months of 2013, compared to the same period in 2012. The rise was concentrated in the
lower price brackets, with a 28% rise in sales of homes with a value below GBP2m.
■■ According to Jones Lang LaSalle, luxury home prices across nine markets in Asia showed an
average 2.2% gain in 1Q13 and 6.1% YOY. Jakarta recorded the highest property price rises at
8.7% in 1Q13 and 32.9% YOY. Property cooling measures in Hong Kong and Singapore have
proved effective in reducing price growth.
Negatives
■■ Home prices in England and Wales rose 0.4% to GBP233,061 in May MOM and 2.7% YOY. It
is thought that recent government measures to improve lending are supporting the market.
It should, however, be remembered that the red hot London property market is giving the
market data a deceptively healthy glow, as UK housing demand remains weak in many areas.
■■ According to Knight Frank, the property market in Europe continues to be depressed, with prices
continuing to fall the most in southern Europe. The weakest markets were in Greece (-11.8%
YOY), Spain (-7.9% YOY) and Portugal (-6.9 YOY). In these locations, unemployment has soared,
whilst wages have stagnated or fallen in real terms, putting pressure on property prices.
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
and2013YTDaseconomicconditions
remain difficult. Property values have,
however, recovered in selected areas
such as Singapore, Hong Kong and
London. Additionally, we are seeing
signs of a recovery in the 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.
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1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
Indexvalue
200
180
160
140
120
100
80
Residential real estate is near
all-time high affordability
US Housing Affordability
Source: Bloomberg

8. Equities
The Henley Outlook July 2013
Hong Kong, Singapore, Shanghai & United Kingdom
8
Positives
■■ Japan’s economy grew faster than expected. GDP grew at annualised rate of 3.5% on the back
of private consumption and a rise in exports after aggressive monetary and fiscal stimulus.
Gain is mainly a result of improved expectations behind rising domestic demand.
Negatives
■■ Abe has yet to deliver structural reforms promised as part of his three-pronged growth strategy.
A high support in the July upper house poll would help his bid for an economic reform in Japan.
EQUITIES
UNITED STATES
JAPAN
HENLEY ASSESSMENT
Negative
Real incomes in the US stubbornly
refuse to rise. Without real growth in
incomes, and without the ability or
willingness to take on meaningful new
debt, the consumer simply cannot
sustain real growth in retail sales.
The outlook for broad US economic
activity remains dismal, particularly
for consumer activity, which directly
accounts for more than 70% of the
GDP. Consumer liquidity remains
in severe structural constraint. The
sharp percentage jump in USD bond
yields in recent weeks has only added
to the gloom, and to the feeling that
the markets are transitioning to a
new phase of higher inflation and
lower growth. Better to be out of this
market a long time early than one
minute late.
Positives
■■ QE to infinity remains in place, although suggestions of tapering have been mooted.
■■ The US 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.
■■ QE to infinity may result in a currency crisis in couple of years.
HENLEY ASSESSMENT
Neutral
Been here, done that! We have seen
upsurges (as well pullbacks) in stock
prices referring to the graphs above.
Japan’s Topix Index shares gain
pared to 30%YTD, from as much
as 50% earlier in May. Abenomics
involves not just monetary and fiscal
policies, but also structural economic
reform. Any disappointment will likely
trigger further reversal in weakening
JPY and in rising stocks. The stakes
for restructuring are high as Japan
sought to sustain confidence. Equity
valuations however remain attractive
and below trend at 1.2x Price-Book.
If Abeconomics proves effective,
Japanese stocks may have more
upside over the medium to long term.
120
100
80
60
40
20
2 6 10 14 18 22 26 30 34 38 42
Jun 94 - Sep 98
Apr 06 - Mar 09
Dec 99 - Apr 03
Dec 89 - Jul 92
Cumulative
TOPIX drawdown Mar 1989 - Apr 2013
Cumulative returns in US$
Source: t.Rowe Price
225
200
175
150
125
100
75
2 6 10 14 18 22 26 30 34 38 42
Nov 93 - Jun 94
Apr 03 - Mar 04
Sep 98 - Dec 99
Jul 92 - Aug 93
Cumulative
TOPIX recovery Mar 1989 - Apr 2013
Cumulative returns in US$
Months

9. Equities
9
UNITED KINGDOM
EUROPE EX UNITED KINGDOM
EQUITIES
HENLEY ASSESSMENT
Neutral
UK Prime Minister David Cameron
has announced plans for what could
be “the biggest bilateral trade deal
in history” between the EU and the
US. He announced the start of formal
negotiations on a trade deal worth
hundreds of billions of GBP, aimed
at boosting exports and driving
growth. Mr Cameron said a successful
agreement would have a greater
impact than all other world trade
deals put together. The talks were
announced ahead of the G8 summit
in Northern Ireland in June.
Positives
■■ The UK could be the biggest winner in Europe from a transatlantic trade deal between the
EU and the US. Prime Minister Cameron said that an EU-US pact would “turbocharge the
transatlantic economy” by delivering up to GBP10bn a year to the UK, or GBP380 to every
British household. Luckily for Cameron, the UK could outshine the rest of Europe, with a 10%
boost to economic output per head and 400,000 jobs in the long term, according to the
Germany-based Bertelsmann Foundation.
Negatives
■■ The UK market has had a very volatile month, with the VIX (Volatility Index – also known as
the Fear Index) up almost 50% in the past 2 months. This has been driven by how and when
the US central bank starts to unwind the incredible support it has been giving to the US and
global economy. There will surely be many more bumps on this road. But for now, at least,
investors and analysts do not seem to think the US central bank will let the panic in the US
bond market get out of hand - or go too far ahead of the recovery in the real economy.
HENLEY ASSESSMENT
Strongly negative
Although the outlook for the euro
zone economy shows signs of mild
improvement as wage growth picked
up in the first quarter of the year, we
are still highly skeptical whether this
growth can be sustained in the long
term. Unemployment in the euro
zone was at a high in Apr13 with
19.4m people out of work. Even the
traditionally stronger core economies
like the Netherlands and Belgium are
facing budget cuts and a sharp rise in
unemployment.
Positives
■■ German wages rose at their fastest pace in almost four years at the start of 2013 and euro
zone exports jumped in Apr13.
■■ ECB President Draghi said the ECB has an “open mind” on non-standard monetary policy tools
and will deploy them if circumstances warrant.
Negatives
■■ The euro zone’s malaise was visible in a 0.5% drop in employment in the first three months of
the year from the previous quarter. Data from Eurostat reflected an unemployment rate that
reached a record high in Apr13, with 19.4m people out of work.
■■ With the euro zone mired in its longest recession in decades, even the so-called core northern
countries are increasingly feeling the pain. The Belgian government needs to find EUR500m
in budget savings this year to be sure of avoiding EU sanctions. Netherlands, euro-zone’s fifth-
largest economy, fell into recession last year for the third time since 2009 and is showing scant
signs of improvement.

10. Equities
The Henley Outlook July 2013
Hong Kong, Singapore, Shanghai & United Kingdom
10
ASEAN
AUSTRALIA
EQUITIES
HENLEY ASSESSMENT
Neutral
The rate cuts and sharp drop in the
AUD may have come too late to avert
a steep downturn in the economy, with
official forecasts indicating resources
investment will likely peak this year,
sooner, and at a lower level, than
previously expected. Still, more rate
cutsareexpectedthisyear,particularly
as concern mounts over the economic
outlook for China, Australia’s biggest
trading partner and a large consumer
of the country’s raw materials such as
coal and iron ore.
Positives
■■ RBA minutes showed the bank was open to lowering its benchmark cash-rate target further
should the waning of a decade-long mining boom place too much strain on the rest of
Australia’s economy.
Negatives
■■ The AUD has fallen by about 10% since the start of May as traders anticipated further rate
cuts and on speculation the Fed was closer to scaling back its bond-buying program.
■■ GDP figures show the economy’s output rose by 0.6% in the March quarter, putting the annual
pace of growth at a below average 2.5% on a seasonally adjusted basis.
■■ Falling commodity prices have added to the gloom, forcing some mining companies to focus
increasingly on cost control, leading to investment cutbacks and numerous job losses.
■■ Themostrate-sensitivesectorsoftheeconomy,includingconsumerspendingandconstruction,
have been slow to respond to the rate cuts, while other industries such as manufacturing and
tourism have been struggling for years with a strong AUD.
HENLEY ASSESSMENT
Positive
Capital outflows from these regions
increased. Foreign selling of ASEAN
shareshasreachedrecordlevelsbased
on the threat of reduced monetary
stimulus by the Fed. The drop in stock
market is a healthy correction and
not owing to domestic factors, in
other words, the fundamental growth
prospects remain intact.
Positives
■■ Indonesian benchmark reference rate was unexpectedly raised to 6% from a record-low
5.75%, in an attempt to tackle an outflow of capital.
■■ We believe it is unlikely the Fed will withdraw from QE. Therefore, capital inflows into the
ASEAN region will continue as investors seek higher rates in the region.
■■ Demographic structures in these regions, for instance Indonesia, look healthy with majority
of population under the age of 45.
Negatives
■■ Profit-taking due to the fickle nature of sentiments and the potential threat of reduced
monetary stimulus by the Fed.
■■ It is adversely influenced by the concern of China’s economic slowdown.
Indonesia - 2012Male Female

11. Equities
11
Positives
■■ China’s retail sales grew 12.9% YOY to RMB1.89tn (USD306.8bn) in May. It suggests there is
a resurgence in the private consuption space compared to last year.
■■ China’s industrial production growth accelerated but is still below expectation. Industrial
growth accelerated to 9.3% YOY in April from March’s 8.9%.
■■ The value of Hong Kong’s total retail sales in Apr13, provisionally estimated at HKD43.1bn,
increased by 20.7% over a year earlier. For the first four months of 2013, total retails sales
increased by 15.5% in value and 15.1% in volume over the the same period a year earlier.
Negatives
■■ China’s consumer confidence declined sharply in May13 to 99.0 from 103.7 in Apr13.
■■ HSBC said the PMI for China’s manufacturing sector dropped to 49.6 in May13, sinking below
the 50 line for the first time in seven months.
■■ Of the 36 Chinese local governments, 24 saw their debt levels rise at the end of 2012 compared
with two years ago while 12 saw their debt swell more than 20% during the period. Esclalating
growth in local government debt has raised concerns that hidden debt problems could trigger
instability in the banking system, causing the central government to become vigilant against
total financial risks.
GREATER CHINA
EQUITIES
HENLEY ASSESSMENT
Neutral
With the news of the Chinese bank
Everbright defaulting on an interbank
loan amid wild spikes in the short-
term Shanghai Interbank Offered
Rate (SHIBOR) borrowing rates, this
again brings the concerns about bad
loan issues in China’s banking system
as well as the social financing problem
back on the table. In the meantime,
the China’s stock markets also sold
off in the last few weeks (now at a
6-month low). Beijing’s new leaders
understand that they must urgently
rebalance China’s economy. However,
this is not easily done. Problems
always abound with the transition
of change in leadership, but there is
no question that policy makers still
have plenty of cards to play and we
are expecting the second-half of
2013 will become the criticle point for
China and even for the region.
Source: National Bureau of Statistics of China, Markit

12. Equities
The Henley Outlook July 2013
Hong Kong, Singapore, Shanghai & United Kingdom
12
HENLEY ASSESSMENT
Negative
The challenge for the Rousseff-
led government is how to manage
an increasingly complicated
macroeconomic environment. Growth
is expected to inch back up towards
3% this year with the help of
government tax cuts and subsidies.
But this stimulus is generating
inflation and next year could lead to
a rise in net public debt. Investors are
also worried that the government is
overly-interventionist in its policies.
Similarly, Russia is also caught in a
predicament of how to best bolster
economic growth. Total production
in key economic sectors, including
energy, industry and agriculture,
has declined by 4.5% since Oct12.
The leading sectors of the economy,
responsible for two-thirds of GDP,
were all in the red in the first three
months of the year.
Other Emerging Markets (South Korea, Russia, Brazil)
EQUITIES
Positives
■■ So far in 2013, six companies in Brazil have raised a total of around USD7bn in IPOs. The
numbers show a sharp rebound in Brazil’s IPO market in comparison to 2012 when only three
companies went public, raising a total of USD1.8bn.
Negatives
■■ S&P’s lowered their outlook on Brazil’s sovereign debt rating to ‘negative’ from ‘stable’, citing
a protracted slowdown in economic growth. The World Bank also cut its forecast on Brazil’s
growth in 2013 to 2.9% from 3.4%.
■■ A series of student protests against rising bus and metro tickets in São Paulo and other major
cities last week turned violent, a rare occurrence for a country unused to civil unrest.
■■ There are increasing signs that the Russian economy is headed towards recession. The Kremlin
revised downwards its forecasts for economic growth this year on several occasions and now
claims the economy will grow by just 2.4%. This represents the lowest level of growth since
the crisis year of 2009.
■■ Russia’s trade surplus slumped earlier this year by 17%, compared to the start of 2012. Overall
profits at Russian companies and banks declined by 21.2% from Jan to Feb this year, the most
pronounced decline since the financial crisis of 2009.
■■ In a report issued Monday to policymakers, the BoK cited the falling JPY and the possibility of
an early end to QE by the Fed as the biggest risks facing the South Korean economy. Weakness
in the KOSPI has persisted despite BoK last month lowering interest rates to 2.25% from 2.5%,
its first cut in seven months.
India
HENLEY ASSESSMENT
Neutral
The INR is the most depreciated
currency this year, dropping from
54.69 on Jan 1 to 60.73 on June
26. Despite the headline inflation
falling in the target zone of country’s
central bank (RBI), the depreciating
INR forced RBI to keep the key policy
rate unchanged. Indeed, at the back
of QE tapering news, India has
experienced capital flight from the
bond market since May 22. It will
be interesting to see if the equity
markets suffer from a sell-off in the
coming weeks, which may lead the
INR to tumble to 63-65 levels.
Positives
■■ The current account deficit (CAD) for the quarter ending Mar13 stood at USD18.1bn (3.6% of
GDP), down from USD21.7Bn last year and 6.7% during Oct-Dec12.
■■ Although the economy has slowed down considerably, the average rural monthly per capita
spending shot up 35.7% during the last two fiscal years till Mar02, demonstrating the strong
domestic consumption.
■■ India recorded its lowest annual inflation rate based on the wholesale price index (WPI) in the
last three years as the figure slipped from 4.9% in April to 4.7% in May.
Negatives
■■ The manufacturing sector nearly stalled in May with the PMI falling for third straight month
to 50.1 in May from April’s 51.0.
■■ Indians did not pay heed to the import duty of 8% on gold which is the country’s second
biggest import cost after oil; with the recent decline in gold prices, India imported a record
162 tonnes of gold in May alone.
■■ After sliding 8% in May, the INR continued its free fall in June crossing the psychological level
of 60 on June 26.

13. Equities
13
Seen in this light, the case for precious metals such as gold, silver, and platinum remains extremely
positive. While no-one can call the bottom of the current correction, we would anticipate it
occurring within the next 6 -12 months and expect to see precious metals bouncing back. Likewise,
miners of these precious metals are set to recover. Central banks and Asian consumers continue
to buy on the dips, and the fact that mining firms are having to cull unprofitable projects, all of
which gives weight to a recovery in the sector.
Key Points
■■ There is a need to distinguish between the paper/derivatives market, where the downward
price manipulation takes place, and the physical market, which is strong.
■■ The bullion banks are now long in gold futures for the first time in 12 years and going longer.
■■ Despite last week’s dash for cash in the markets, the fundamentals for gold continue to
grow stronger.
Energy
Precious Metals
COMMODITIES
HENLEY ASSESSMENT
Neutral
The Fed decided yesterday it would
continue to buy USD85bn in bonds,
despite its own statement that the
economy is improving in the US.
Energy demand in the US is falling,
as it is in the developed world. In the
short term as we approach the US
holiday season, which historically has
seen an increase in demand for oil, we
continue to see prices trading within
the existing range instead.
HENLEY ASSESSMENT
Positive
Fed Chairman Ben Bernanke said
the Fed might start buying less than
USD85bn in bonds every month. He
did not say they would completely end
QE but that the Fed would eventually
lower, or “taper”, the dollar amount of
monthly purchases. The reaction in
the markets was severe with the S&P
500 alone falling 2.1%.
The over-riding fear is that when the
Fed stops buying bonds, interest rates
will skyrocket; the housing market will
grind to yet another halt; consumer
spending will dry up, and companies
will start firing people to cut costs.
The whole world could be pushed into
recession.

14. Equities
The Henley Outlook July 2013
Hong Kong, Singapore, Shanghai & United Kingdom
14
Positives
■■ UN’sFoodandAgricultureOrganization
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.
■■ Urbanisation and life expectancy is
expected to increase.
■■ 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.
Commodities
Agriculture
Industrial Metals
HENLEY ASSESSMENT
Neutral
Metal and coal producers retreated
amid growing concern over the
economic sustainability in China,
the world’s largest consumer of
commodities. These declines
accelerated after pressure was
applied to reduce emissions from
coal-powered power stations. This
was directly a result of the Supreme
Court in the US agreeing to consider
reviving an Environmental Protection
Agency rule aimed at capping
emissions of sulphur dioxide and
nitrogen oxides. Declines in the
region of 7 – 8% were seen across
iron ore, coal mining and energy
providers. We continue to see better
value in other markets.
HENLEY ASSESSMENT
Postive and Negative
There are two very different markets
playing out in the agriculture sector –
physical and equity. Many physical soft
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 agriculture equity funds.
Rising Prices for Agriculture
& Food related Products?

15. Equities
Positives
■■ The recent positive performance of the hedge fund industry continued in May as the HFRX
Global Hedge Fund Index ended the month +0.75%, a seventh successive positive month for
the industry as a whole.
■■ Net positive asset flows into hedge funds for 2013 currently stand at USD56.9bn. Total size of
the industry reached USD1.88tn.
■■ Distressed, event driven and equity long/short strategies continued to gain last month ending
up the YTD figure at 8.71%, 7.07% and 6.70% respectively.
Negatives
■■ Following a very good month in April, most CTA/managed futures funds declined 1.81% in
May13.
■■ Global dispersion of returns across all hedge funds continues to remain high last month, with
funds in the 75th percentile returning 2.40% while those in the 25th percentile lost 1%.
■■ Thebearishsentimentforcommoditiesarecontinuouslyhurtingsomemanagers’performance
if they stick to their long bet accordingly.
Alternative Investment
HENLEY ASSESSMENT
Neutral
The on-going debate around
the tapering of QE, and the risks
associated with this scenario,
continues to be of greater
importance than individual macro
events. Consequently, sharp spikes
in market volatilies are generally
symptomatic of higher systematic
risks, which might cause damages to
those systematic trading managers.
However, this also presents greater
opportunities for those volatility
arbitrage managers. We believe the
high degree of price movements will
be created globally in the coming few
month. Hence, risk management”
will become a key element for us to
assess and select the right strategy
and managers in 2nd half of 2013.
General disclaimer and warning
The Henley Group Limited (“The Henley Group”) has produced this document for your private use only and you must not distribute it to any other person. Re-distribution or reproduction in whole or in part of this document by any means is strictly
prohibited and The Henley Group accepts no liability for the actions of third parties in this respect. Notwithstanding that the information contained herein has been obtained from sources which The Henley Group believes to be reliable, The Henley
Group makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy, completeness or correctness. The information in this document, including any expressions of opinions or estimates, should neither be
relied upon nor used in any way as indication of the future performance of any financial products, as prices of assets and currencies may go down as well as up and past performance should not be taken as indication of future performance. Neither
this document nor any information contained herein shall be construed as an offer, invitation, advertisement, inducement, representation of any kind or form or any advice or recommendation to buy or sell any financial products
Source: Hedge Fund Intelligence (HFI), June 2013
2013 Year to date median performance

16. The Henley Outlook July 2013
Hong Kong, Singapore, Shanghai & United Kingdom
Equities
16
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Henley Market Outlook
July 2013