investment opportunities outlook 2014

1. Insights
Investment opportunities
Outlook 2014
Julius Baer Research / Publication date: 27 November 2013
Please find important legal information at the end of this publication.

2. Imprint
Publication date
Current prices

3. Editorial
Content

4. Overview
Outlook 2014
Next Generation
Economics
Currencies
Bonds
Equities
Commodities

5. 2012 2013E 2014E
2012 2013E 2014E
Spot
3m
Asset class
12m
Spot
3m
Focus on ...
Rating
Target
2012 2013E 2014E
Value
12m
2012 2013E 2014E
Price
Avoid ...
Price
ISIN
Rating
Issuers
12m
12m

6. Outlook 2014
Recoupling
Growth stampede and savings glut
Recoupling
Just when economists and
investors have become
used to changes in growth
patterns, the harbingers of
a new era are on their way
What has changed?
Long cycles coming to an end
Chart 1: Recoupling – shrinking growth
differential

7. More balanced, but watch out for
currency crises
What happened to inflation fears?
Chart 2: External imbalances in
selected emerging and advanced
economies
Chart 3: Global output gap*
Especially for those economies with extreme current
account imbalances, currency crises are on the cards
in 2014

8. Outlook 2014
Chart 4: Equity risk premium – in favour
of equities vs. bonds
Solid growth, tame inflation:
Good for stocks?
Chart 5: Global equities – no bargain,
but not expensive either
After all the years of owning
bonds and gold as a preferred
asset mix, the pain trade
in 2014 may yet again be
buying shares
Going against the grain
Where are the opportunities?

9. Chart 6: M&A trend will be continued
in 2014
Thematic opportunities
Currencies:
Some biotechnology companies have made tremen dous progress with ‘orphan
drugs’, i.e. treatment of
rare diseases
Equities:
Bonds:
healthcare
sector:

10. Next Generation
E-commerce and its impact on the logistics industry
Changing shopping patterns
Chart 1: Global mobile commerce,
2011–2017E
New technology applications
and changing shopping
behaviour are key drivers
of e-commerce
E-substitution and logistics
The internet evolution

11. Chart 2: UPS’s domestic volume mix
shifts from B2B to B2C
The dynamics of e-substitution bring fundamental
changes to the logistics
industry
Strong B2C parcel volumes
Chart 3: Annual parcel volume growth vs.
annual global real GDP growth, 2007–2012

12. Economics
Global recovery is becoming more synchronised
Chart 1: Surging cyclical synchronicity
indicator*
Convergence on the map
A benign inflation backdrop
allows a continuation of
lavish monetary policy
Chart 2: Deflation index** still positive
for the USA and Europe
Disinflation allows lavish monetary
policy to continue

13. Currencies
Dollar support from yield advantage close to peak
Peaking US yield advantage
Emerging market currency stress
Chart 1: USD-EUR yield differential
Chart 2: USD is richly valued
A broadening global economic recovery will at
least cap any further widening of the USD-EUR yield
differential

14. Bonds
Anxiously waiting for the central banks’ first move
Chart 1: In the short term, central bank
liquidity provision will keep rising
Ample liquidity provision
Controlling the risk
Chart 2: US yield curve could steepen
even more in 2014
Liquidity provision will
remain generous in the
shorter term
Yield curve to steepen
Euro yield convergence

15. Convertibles stay in demand
Chart 3: Banking union will foster more
convergence among EU banks
The European banking
union will lead to more yield
convergence in 2014
Chart 4: Convertible bonds were the most
profitable segment in 2013

16. Equities
No year-end rally but constructive markets into 2014
Chart 1: S&P 500 seasonal patterns
No year-end rally expected
Outlook 2014
Equity markets in 2014
are driven rather by earnings, not P/E expansion
Chart 2: Total return decomposition
No correction expected

17. amazon.com
Nobel Biocare
WPP
Stock data
Stock data
Stock data
Price target: USD 395
Financials
Performance
2011
Closing price: USD 376.64
2012
2013E
2014E
1m
3m
12m
Price target: CHF 10
Closing price: CHF 13.45
Price target: GBp 1500
Closing price: GBp 1355
Financials
2012
2013E
2014E
Financials
2012
2013E
2014E
1m
3m
12m
1m
3m
12m
Performance
2011
Performance
2011

18. Commodities
Year three of the fading supercycle
Chart 1: North American crude oil
production
Themes for 2014
We see increasing signs
of slowing Chinese
gold investment demand
Unnoticed Canadian oil boom
Chart 2: Chinese gold demand

19. Important legal information
This publication has been produced by Bank Julius Baer & Co. Ltd., Zurich, which is authorised and regulated by the Swiss Financial
Market Supervisory Authority (FINMA). The information and opinions expressed in this publication were produced as of the date of
writing and are subject to change without notice.
IMPRINT
Christian Gattiker, Head of Research
Britta Simon, Equity Research,
David A. Meier, Economist,
David Kohl, Head of Currency Research,
Christoph Riniker, Head of Strategy Research,
Markus Allenspach, Head of Fixed Income Research,
Bruno Winiger, Equity Research,
Lilian Montero, Equity Research,
Patrik Lang, Head of Equity Research,
Norbert Rücker, Head of Commodity Research,
APPENDIX
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Suitability:
Information/forecasts referred to:
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22. Risk:
Past performance is not a reliable indicator of future results. Performance forecasts are not a reliable indicator of future performance. The Julius Baer fixed-income ratings apply exclusively to bonds of the specific issuer ranked senior unsecured or higher. They are therefore not valid for debentures junior to the mentioned ranking unless mentioned explicitly.
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