WORLD IN PERSPECTIVE PG 2

POTENTIAL RISKS PG 2

US UPDATE PG 3

IN T

HIS

ISSU

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The macro themes for 2014 have thus far been the resynchronization of global growth, economic restructuring in China and Japan, the recovery of Eurozone economy and the timing and magnitude of the US Tapering. Not much has changed as the development of these major themes will continue to dictate the market and economic outlook for the year. However, in the short term, geopolitical risk in the Middle East and the Russia/Ukraine/US/UN conflict will surface to take center stage from time to time.

As we move into the month of May, let us consider the market and economic outlook for the second half of 2014. Most global markets are reasonably valued based on Price/Earnings and Price/book metrics with the Emerging markets offering the best value. GDP growth is below average but slowly improving. Both inflation and interest rates continue to remain low in developed nations. The current situation is extremely different from the period preceding the 2008 global financial crisis when valuations were at their high. Therefore, we remain positive on equities in the long term. Barring any unforeseen developments, equities should continue their run with minor corrections in between.

The other reasons for our long term optimism are: Inflation is still subdued which continues

to justify a very accommodative monetary policy to stimulate growth. It is expected that a low-interest rate environment will persist for at least another 2 years. The Eurozone is recovering gradually and as an example, their PMI Output is at its highest level since mid-2011. Even the Spanish consumer confidence index is soaring. Talk of the disintegration of the Eurozone which was the general view 2 years ago is not heard these days.

Japan is still in the process of reengineering their economy to promote inflation and growth. The results are relatively positive. However, investors remain concerned about China. The Chinese Government is trying to reduce capital investment and limit credit growth. China’s debt problem is structural and needs to be corrected. The state-owned companies consume 80% of bank credit and the private sector that produces 67% of GDP only consumes 20% of bank credit. The restructuring of the credit system in China will be very positive in the long run. The US tapering process may cause some undesirable volatility in weaker emerging markets as they experience an accelerated pace of capital flows.

Overall, we are positive on the long term and expect increased volatility stemming from geopolitical risk in the short term.

UK & EUROPE UPDATE PG 4

ASIA AND EMERGING MARKETS UPDATE PG 5

ISSUE 65 | MAY 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.

Even though the disappearance of Malaysian aircraft MH 370 shocked the world, the headline was quickly replaced by another maritime tragedy in South Korea. On 16 April, the Sewol ferry capsized just off the port of Incheon, resulting in the number of casualities exceeding 150. Most of the casualties were high school students who were on a school trip to the resort island of Jeju. While the captain and most of the crew members survived, they were criticised for having ordered the passengers to remain in their cabins even though the ship was in distress. The captain as well as the ship's crew have been taken into custody to assist in investigations. The disaster has also claimed a number of political casualties, with the Prime Minister forced to resign in end April.

POTENTIAL RISKS

MAY 20142

WORLD IN PERSPECTIVE

SEWOL MARITIME TRAGEDY

APPLE TURNS TO THE BOND MARKETSDespite having a $150 billion cash pile, Apple announced that it would be issuing $17 billion worth of bonds. Ostensibly, this would help to fund the company's share buyback program and allow it to keep most of its $150 billion cash reserves offshore. Repatriating the cash to the U.S would have significant tax consequences.

IPPFA'S OUTLOOK.

• Economic data coming from the U.S indicate that the world’s most influential economy is firmly on the road to recovery. The results of a survey conducted by the New York Fed released in mid-April show that there is greater opti-mism in the labour market. Consumers in March perceived a 48.95 percent chance of finding a new job should they lose their current position. Workers under 40 registered an even higher probability of 60.38 percent. Retail sales released on 14 April came in at 1.1%, beating the consensus estimate of 0.8%. The ADP Non-Farm Employment change reported in April came in 191k, versus the previous reading of 178k. While there are numerous indications that the recovery process is on track, investors need to remain vigilant about unexpected changes to U.S Fed policy. One risk to account for is that the improving economic fundamentals may en-courage Fed officials to pursue an aggressive rollback of the Quantitative Easing program, which may take the markets by surprise. As such, investors should maintain their focus on any unexpected changes to Fed policy.

• Unrest continues to rock Ukraine. Since the annexation of Crimea at the start of the year, the country has been subject to a relentless string of protests and violent incidents. Protests near Slovyansk in mid-April, about 240 kilometres from the Russian border, propelled Russia to request a meet-ing of the UN Security Council. Around the same period, the Ukrainian authorities requested the intervention of UN peacekeepers, citing the worsening security situation within the country. Russia has been repeatedly accused of harbour-ing intentions to occupy the eastern regions of Ukraine, something that Russia has denied publicly. Investors should continue to keep an eye on the security situation in the coun-try. The situation has the potential to degenerate into open warfare between Russia and Ukraine, a development which will have severe social and political consequences. In addi-tion, the conflict may result in the interruption of Russian gas supplies to Europe, which currently transit via Ukraine.

• Researchers at Google and Codenomicon, a Canadian research company, discovered a major security flaw in OpenSSL in early April. OpenSSL is a popular encryption protocol used by two-thirds of the world’s servers and is commonly assumed to be more secure than other proto-cols such as PPTP or L2TP. The security flaw has been nicknamed “Heartbleed” due to its tendancy to cause data to leak out of servers, allowing hackers to mine it surrepti-tiously. A day after the existence of “Heartbleed” was made known, it was reported that hacking attempts were made on servers belonging to the University of Michigan in the US. Major companies have rushed to issue fixes for the security vulnerability and have urged computer users to update their software and change their passwords. The emergence of “Heartbleed” highlights the weaknesses of current encryp tion standards and brings to

For the month of April, major markets in Asia outside Japan outperformed the rest, rising 3-5%; Hang Seng rose 3%, MSCI Taiwan was up 5%, and KOSPI climbed 3%. In Singapore, the STI tracked our Asian neighbors, moving up 5%. Nikkei took a different path in April; it went on a see-saw ride, rising 5% on the back of economic stimulus expectations, before collapsing back to earth on news of no further government intervention for the time being. Elsewhere in the US, fears of overvaluation in NASDAQ stocks led the index to shed as much as 7% before recovering to end the month down 2%. The other US indices of Dow and S&P500 were largely unchanged for the month of April.

Looking ahead, we will be entering post 1Q results period and this is typically a weak season in terms of stock market performance. In the short term, we will take risk off the table and reassess the situation at end June. Economic data news flow will continue to be encouraging but the market may have priced in the good news already. We need the market to take a breather before continuing its long term upward movement.

MAY 20143

ISM Manufacturing fails to meet expectationsNon-Farm payrolls come in at 192K versus the consen-sus 200K

APRIL 2014

• The March ISM Manufacturing metric came in at 53.7, below the consensus estimate of 54.0.

• U.S Non-Farm payrolls for the month of March came in at 192K, below the consensus estimate and the previous month's reading of 200K and 197K respectively. The country registered an unemployment rate of 6.7%, slightly above the prevailing estimate of 6.6%.

• In an encouraging sign for the U.S economy, the Consumer Price Index released on 15 April showed that consumer prices advanced by 1.5%, slightly above the forecasted figure of 1.4%. This comes amid the scaling down of the Quantitative Easing program.

US ISM Manufacturing PMI (Mar) 53.7 54.0

US ISM Non-Manufacturing PMI (Mar) 53.1 53.5

US Nonfarm Payrolls (Mar) 192K 200K

US Unemployment Rate (Mar) 6.7% 6.6%

US Retail Sales (MoM) (Mar) 1.1% 0.8%

US Consumer Price Index (YoY) (Mar) 1.5% 1.4%

US Consumer Price Index Ex Food & Energy (YoY) (Mar) 1.7% 1.6%

US Construction Spending (MoM) (Feb) 0.1% 0.2%

US Factory Orders (MoM) (Feb) 1.6% 1.2%

US Average Weekly Hours (Mar) 34.5 34.4

US Producer Price Index (MoM) (Mar) 0.5% 0.1%

Our opinion on the US: Economic conditions appear positive. 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

April YTD

S&P 500 -0.27% 1.19%

Dow Jones 0.12% -0.71%

NASDAQ -3.82% -1.95%

KEY ECONOMIC DATA POINTS ACTUAL EXPECTED

Bank of England maintains its benchmark interest rateUK Consumer Price Index comes in line with estimates

APRIL 2014

• The Bank of England opted to keep its benchmark interest rate constant, surprising observers who had expected the central bank to raise interest rates. The unemployment rate unexepctedly fell below 7% in the three months to February. The BoE had previously indicated that it may start raising interest rates if the unemployment rate fell below the threshold level of 7%.

• The U.K Consumer Price Index came in at 1.6%, in line with estimates.

• The U.K Markit Manufacturing PMI index came in at 55.3, below the consensus forecast of 56.7. The EMU Markit PMI composite also fell below expectations. The metric came in at 53.1, below the expected forecast of 53.2.

• Data from the European Union indicated that economic growth and inflation remain weak. The Consumer Price Index came in at 0.5%, in line with estimates.

UK BoE Interest Rate Decision 0.5% 0.5%

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

UK Consumer Price Index (YoY) (Mar) 1.6% 1.6%

UK PMI Construction (Mar) 62.5 63.0

UK Markit Manufacturing PMI (Mar) 55.3 56.7

UK Industrial Production (YoY) (Feb) 2.7% 2.2%

UK Manufacturing Production (YoY) (Feb) 3.8% 3.1%

EMU Unemployment Rate (Feb) 11.9% 12.0%

EMU Markit Manufacturing PMI (Mar) 53.0 53.0

EMU Markit PMI Composite (Mar) 53.1 53.2

EMU Consumer Price Index - Core (YoY) (Mar) 0.7% 0.8%

EMU Consumer Price Index (YoY) (Mar) 0.5% 0.5%

EMU Industrial Production w.d.a. (YoY) (Feb) 1.7% 1.5%

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

MAY 20144

April YTD

FTSE 100 2.23% -0.97%

EURO STOXX 50

0.87% 4.14%

DAX -0.13% 0.24%

CAC 40 1.67% 4.46%

KEY ECONOMIC DATA POINTS ACTUAL EXPECTED

Chinese Industrial Produc-tion expands by 8.8%Reserve Bank of India main-tains its benchmark interest rateRussian PMI flags a deterio-ration in business sentiment

APRIL 2014

• The China NBS Manufacturing PMI came in at 50.3, largely in line with the previous reading. Industrial Production surged 8.8%, versus the previous figure of 8.6%.

• The Reserve Bank of India opted to maintain its benchmark interest rate at 8%. In its accompanying statement, the central bank stated that if inflation continued on its current path, further monetary tightening would not be anticipated.

• Data from Russia indicated a slight deterioration in economic sentiment. The country's HSBC Manufacturing PMI services index came in at 47.7, a significant decline relative to the previous figure of 50.8.

China Consumer Price Index (YoY) (Mar) 2.4% 2.0%

China Gross Domestic Product (QoQ) (Q1) 1.4% 1.8%

China NBS Manufacturing PMI (Mar) 50.3 50.2

China Industrial Production (YoY) (Feb) 8.8% 8.6%

China M2 Money Supply (YoY) (Mar) 12.1% 13.3%

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

India Bank Loan Growth 14.3% 14.7%

India Industrial Output (Feb) -1.9% 0.1%

Russia HSBC Manufacturing PMI (Mar) 48.3 48.5

Russia Purchasing Manager Index Services (Mar) 47.7 50.8

Russia Consumer Price Index (MoM) 1.0% 0.7%

Brazil Retail Sales (MoM) (Feb) 0.2% 0.4%

Brazil Unemployment Rate (Mar) 5.0% 5.1%

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

Data source: Bloomberg

ASIA & EMERGING MARKETS

ECONOMICSNAPSHOT

MAY 20145

April YTD

MSCI Asia Pacificex Japan

0.89% 2.55%

MSCI Emerg-ing Markets

0.20% -0.42%

Nikkei 225 3.50% -10.8%

Hang Seng -1.32% -4.39%

Shanghai SE Composite

-1.00% -3.08%

Straits Times 2.82% 3.74%

KEY ECONOMIC DATA POINTS ACTUAL PREVIOUS