WORLD IN PERSPECTIVE PG 2

POTENTIAL RISKS PG 2

US UPDATE PG 3

IN T

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An interesting question I was presented with during a recent media interview was “The US market is at all time high but the volume of trades is getting lower. Is the uptrend in the market sustainable and are we poised for a market crash?” This question has since been addressed by many financial professionals and is undoubtedly on the minds of many investors. There is no way to tell for sure when a crash or even a serious correction will take place. However, we can rely on the signs around us to get an idea.

Historically, market crashes have been preceded by the overvaluation of financial assets. We saw this in the technology bubble in the year 2000 as well as in the excessive leverage and exuberance during the 1978 and 2008 property bubbles. These are signs that we can observe. However, we must also remember that other unexpected events may cause a serious correction. Such events include terrorist attacks, geopolitical conflict and natural disasters.

We do not expect a crash in the short term because the conditions that can trigger such an event are not present at this time. On the valuation front, US indices like the Dow, S&P and Nasdaq are trading at around 15-17X PE which is not cheap but not that expensive either. Given that the deposit rate

is near zero, investing in the stock market remains a very enticing proposition. The various markets in Europe, Asia and in the Emerging economies are currently trading at cheap to fair valuation.

The ample liquidity provided for by the generous monetary and fiscal policies means that the current situation remains very conducive for the current uptrend to persist. Interest rates will remain close to zero for at least another one to two years. Governments will continue to print money to promote growth. As long as these policies remain in place, we should not expect a crash in the stock market. Lastly, we do not see excessive leverage by major corporations in most sectors. In other words, despite the relatively low cost of financing, individuals and corporations are exercising their prudence by not taking on excessive debt.

Although we do not expect a crash, we do foresee the potential for a correction in the near term. This outlook comes from our technical analysis that suggests that many indices are near their respective resistance level. Coupled with the low trading volume, a near term correction cannot be ruled out. However, any correction may be seen as an opportunity to buy at a more desirable level.

UK & EUROPE UPDATE PG 4

ASIA AND EMERGING MARKETS UPDATE PG 5

ISSUE 67 | JUL 2014

Albert LamInvestment DirectorIPP Financial Advisers Pte Ltd

Important Notice: This publication is for information, without any regard to your specific investment objectives, financial situation or particular needs. You should read the prospectuses, annual reports and factsheets that are available from respective product providers or its distributors, before deciding whether to subscribe or purchase units of the Fund. The value of units in the Fund and the income accruing to the units, if any, may fall or rise dramatically. Past performance of the Fund and any economic or market predictions, projections or forecasts are not necessarily indicative of future or likely performance. Any opinion or view presented here is subject to change without notice. IPP Financial Advisers shall not be liable for any losses or damages of any kind howsoever arising from you acting on any information herein. You may wish to seek advice from a financial adviser before making a commitment to purchase the Fund. In the event that you choose not to seek advice from a financial adviser, you should consider whether the Fund is suitable for you. This publication is the property of IPP Financial Advisers, and no reproduction and / or circulation of this publication, whether in parts of in its entirety is allowed.

Investors following the recent moves by the Fed to discern the near-term prospects of the U.S economy have not been disappointed. The Fed continued to reduce the scale of Quantitative Easing by reducing its monthly asset purchases by $10 bil to $35 bil. In addition, Fed chairperson Janet Yellen also sent a clear signal by stating that rising property and equity prices should lead to above trend growth in the U.S. Fed policymakers expect their year-end rate to reach 1.13 percent in 2015 and 2.5 percent in 2016.

POTENTIAL RISKS

JUL 20142

WORLD IN PERSPECTIVE

QE TAPER CONTINUES

ONTARIO SEES HIGHER FINANCING COSTS

The borrowing costs for the Canadian state of Ontario spiked to the highest level in six months after the Liberals won re-election on a plan that would probably lead to the widening of the budget deficit in the state. The Liberals envisage the implementation of a C$3 billion spending program that will see the deficit widen to C$12.5 billion from C$11.3 billion last year. S&P ratings has maintained a negative outlook on the state’s AA credit rating.

IPPFA'S OUTLOOK.

• Since early June, the Iraqi government has been locked in an armed confrontation with Sunni militants north of the country. Since then, the militants have managed to capture Mosul, the country’s second largest city, highlighting the weak grip of the central government on the country. The militants, organised as a group collectively known as the Islamic State of Iraq and Levant, have been battling the central government in an armed conflict that has produced numerous fatali-ties to date. According to Bloomberg, civilian casual-ties reached 7,818 last year, a significant increase from the 6,787 killed in 2008. Investors need to keep an eye on the evolving situation in the country, as develop-ments within would have major repercussions on oil supplies, global energy security and jihadist terrorism.

• Economic data coming out from the U.S continue to send mixed signals about the strength of the U.S econ-omy. While observers agree that the country is on the road to recovery, the question on everyone’s mind is whether there would be any hiccups along the way. Non-Farm payrolls data released in early June came in at 217K, which failed to meet expectations. It also represents a significant decline from the previous month’s reading of 282K. In addition, data released in mid-June indicated that Retail Sales in May expand-ed by 0.3%, below the consensus estimate of 0.6%.

• Even as U.S equities trade at record levels and the VIX trades at a 7-year low, questions are beginning to emerge about whether the huge run-up is coming to an end. In the second trading week of June, the S&P posted a weekly loss of 0.7%, its first weekly decline in a month. In addition, the S&P is currently trading at 16.4 times the projected earnings of its members, which is an all-time high. The question is whether valuations will continue their upward trajectory, or whether the current situation represents a peak in the valuation cycle. Investors placing funds in developed market equities need to be cognizant of the possibil-ity that they may be investing at the top of the cycle.

Last month, we said we will reassess the direction of the markets come June. Well, the month of June was a curious 4 weeks with the US stocks moving higher while Europe and Asia ex-Japan markets were negative to flat amidst a new crisis emerging from Iraq. S&P 500 rose 2.6% while FTSE and Hang Seng fell -0.5% and -0.4% respectively. Nikkei went up 6.3%, rebounding from it double digit loss year-to-date.

Looking ahead, the economic data flowing out of the US and Europe continues to be encouraging and valuation in both markets are far from exuberant. This suggests the upward climb in the market is sustainable in the medium term. However in the short term, technical and quantitative indicators suggests that investors are wary of the height of current market levels. This is manifested in the low volume traded in the equity markets. As such, we will wait for another month to see where the market will head towards before changing our current prudent stance.

JUL 20143

Non-Farm payrolls: In line with estimatesUnemployment rate holds steady at 6.3%

JUNE 2014

• Non-Farm payrolls came in largely in line with estimates with the May NFP figure coming in at 217K versus the consensus estimate of 218K. The unemployment rate remained unchanged from the previous month at 6.3%.

• U.S retail sales grew at a slower than expected pace. Retail receipts increased by 0.3%, falling below the consensus forecast of 0.6%.

• The U.S producer price index came in at 2.0%, below the consensus estimate of 2.4%.

US Nonfarm Payrolls (May) 217K 218K

US Unemployment Rate (May) 6.3% 6.4%

US Consumer Price Index (YoY) (May) 2.1% 2.0%

US Markit Manufacturing PMI (May) 56.4 55.5

US ISM Manufacturing PMI (May) 55.4 55.4

US ADP Employment Change (May) 179K 210K

US Average Hourly Earnings (MoM) (May) 0.2% 0.2%

US Retail Sales (MoM) (May) 0.3% 0.6%

US Producer Price Index (YoY) (May) 2.0% 2.4%

Our opinion on the US: In the long term, we are neutral on this market as the huge run-up has surpressed the possibility of supernormal gains going forward

Data source: FXStreet Economic Calendar

USECONOMICSNAPSHOT

June YTD

S&P 500 2.16% 6.60%

Dow Jones 1.47% 2.84%

NASDAQ 3.02% 5.09%

KEY ECONOMIC DATA POINTS ACTUAL EXPECTED

ECB lowers its benchmark rate to 0.15%UK Unemployment: 6.6%

JUNE 2014

• The European Central Bank elected to lower its benchmark rate from 0.25% to 0.15%, disappointing market observers who expected the ECB to its benchmark rate to 0.10%.

• The UK ILO unemployment rate came in at 6.6%, beating the consensus forecast which pegged the nation's unemployment level at 6.7%.

• The UK Consumer price index declined by 0.1% in May, surprising investors who expected inflation to advance by 0.2%.

UK BoE Interest Rate Decision 0.5% 0.5%

UK BoE Asset Purchase Facility (Jun) £375B £375B

UK ILO Unemployment Rate (3M) (Apr) 6.6% 6.7%

UK Claimant Count Change (Apr) -27.4K -25.0K

UK Core Consumer Price Index (YoY) (May) 1.6% 1.7%

UK Consumer Price Index (MoM) (May) -0.1% 0.2%

EMU Consumer Price Index (YoY) (May)Preliminary 0.5% 0.7%

EMU Unemployment Rate (Apr) 11.7% 11.8%

EMU Gross Domestic Product s.a. (YoY) (Q1) 0.9% 0.9%

EMU ECB Interest Rate Decision (Jun 5) 0.15% 0.10%

EMU Consumer Price Index - Core (YoY) (May) 0.7% 0.7%

Our opinion on the UK & EMU: The huge run-up has reduced the possibility of supernormal gains going forward

Data source: FXStreet Economic Calendar

UK & EMUECONOMICSNAPSHOT

JUL 20144

June YTD

FTSE 100 -0.04% 1.10%

EURO STOXX 50

1.99% 6.20%

DAX 0.44% 4.55%

CAC 40 0.85% 5.70%

KEY ECONOMIC DATA POINTS ACTUAL EXPECTED

China HSBC PMI increases from 48.1 to 49.4Inflation in China acceler-ates to 2.5%India's Industrial Output increases 3.4%

JUNE 2014

• The China HSBC Manufacturing PMI index came in at 49.4, versus the previous reading of 48.1.

• The Russia HSBC Manufacturing PMI index increased from 48.5 in April to 48.9 in May.

China NBS Manufacturing PMI (May) 50.8 50.4

China HSBC Manufacturing PMI (May) 49.4 48.1

China HSBC China Services PMI (May) 50.7 51.4

China Consumer Price Index (YoY) (May) 2.5% 1.8%

China FDI - Foreign Direct Investment (YTD)(YoY) (Apr) 2.8% 5.0%

India RBI Interest Rate Decision (Repo Rate) 8% 8%

India FX Reserves, USD $312.38B $312.66B

India Trade Deficit Government (May) $11.23B $10.09B

India Industrial Output (Apr) 3.4% -0.5%

Russia HSBC Manufacturing PMI (May) 48.9 48.5

Russia Consumer Price Index (MoM) (May) 0.9% 0.9%

Russia Unemployment Rate (May) 4.9% 5.3%

Brazil Mid-month Inflation (Jun) 0.47% 0.58%

Brazil Fipe's IPC Inflation (May 0.25% 0.53%

Our opinion on Asia & the Emerging Markets: The Emerging markets offer excellent value from a valuation perspective

Data source: Bloomberg

ASIA & EMERGING MARKETS

ECONOMICSNAPSHOT

JUL 20145

June YTD

MSCI Asia Pacificex Japan

0.43% 4.98%

MSCI Emerg-ing Markets

1.92% 4.64%

Nikkei 225 5.40% -5.13%

Hang Seng 1.65% -0.21%

Shanghai SE Composite

0.41% -3.55%

Straits Times -1.03% 3.46%

KEY ECONOMIC DATA POINTS ACTUAL PREVIOUS