Capital International Group | Quarterly Review | Q4 2016

1996-2016 CELEBRATING

Capital International Group YEARS IN BUSINESS

FOURTH QUARTER 2016

INVESTMENT REVIEW INNOVATION | INTEGRITY | EXCELLENCE

Our Vision The Capital International Group exists to improve lifestyles through increased prosperity Our Values We seek to achieve this through the enduring values of innovation, integrity and excellence

The UK economy has started to experience upward inflationary pressures...

Investment Review Contents Global Equities Resilience Continues...

Page 2

FRIDAY | 23 DECEMBER 2016 Political events have once again dominated the quarter under review and global equity markets have moved dramatically...

Technology in Focus The Emergence of Robo-Advice

Page 4

TUESDAY | 08 NOVEMBER 2016 The term robo-advice has yet to be given a formal definition by regulators, with the UK Financial Conduct Authority preferring to use the phrase ‘online automated advice models’...

Country in Focus Italy

Page 6

WEDNESDAY | 09 NOVEMBER 2016 The general theme across Europe this year has been that economic growth is in line and that the recovery has been on track. However, its strength has been insufficient...

Commodity in Focus Gold vs Investments

Page 8

TUESDAY | 22 NOVEMBER 2016 Some economists believe that gold does not actually serve as a hedge against inflation or currency depreciation...

Technology in Focus The Blockchain

Page 10

TUESDAY | 08 NOVEMBER 2016 The aspect that makes Bitcoin work, the public online ledgers, has now become the new hot topic in its own right...

Politics in Focus The Donald Trump Presidency

Page 12

FRIDAY | 02 DECEMBER 2016

Volume: 14 | Issue: 4 The Capital International Group Looking Back

August 2016 marked an important milestone for the Capital International Group...

The Capital International Group Page 22 As Greg Ellison completes his 20th week in the job, and the Group celebrates its 20th anniversary, we ask 20 questions...

Country in Focus South Africa

Page 24

FRIDAY | 30 DECEMBER 2016 2016 has been a year of volatility – in markets, commodities, currencies and politics...

Industry in Focus Tobacco

Page 26

WEDNESDAY | 07 DECEMBER 2016 In 2015, over 1.1 billion people smoked tobacco with 5.7 trillion cigarettes being consumed worldwide...

Sector in Focus Commercial Property

Page 28

TUESDAY | 06 DECEMBER 2016 We have allocated to the sector for several years now and the recent period has been a good one from a total return...

Region in Focus South Africa in Numbers

Page 30

FRIDAY | 23 DECEMBER 2016 Below is a summary of some of the events that shaped 2016 – in numbers...

Facts in Focus A to Z of 2016

As the dust settles on a bitter and divisive US presidential election, markets have begun the process of assimilating this new reality into asset price forecasts...

FRIDAY | 23 DECEMBER 2016

Fixed Income Report Fourth Quarter Update

Region in Focus Middle East & North Africa

Page 14

Page 18

Page 31

A - Apple: despite a challenging year still the biggest company in the world with a market cap of $600 billion...

Page 32

FRIDAY | 23 DECEMBER 2016

WEDNESDAY | 14 SEPTEMBER 2016

Hindsight is a wonderful thing and it would now appear that the first week in July this year saw the all-time closing low on the US Ten Year Treasury...

The term MENA is an acronym referring to the Middle East and North Africa region...

The Capital International Group Page 16 Sharing his reflections on his first few months as Group Chief Executive Officer of Capital International Group, Greg Ellison paints a picture of the unique nature of the Group’s offering....

© Capital International Group 2016

Group News Activities, Appointments & Events

Page 36

Read more about the Capital International Group, its staff and their accomplishments over the last quarter of 2016.

1

Global Equities

Resilience Continues...

FRIDAY | 23 DECEMBER 2016

Political events have once again dominated the quarter under review and global equity markets have moved dramatically since the election of Donald Trump as US President.

Despite the initial fears that a vote for him would be a vote for chaos, markets took cheer from his conciliatory comments and the belief that the focus on the domestic economy would boost US GDP in 2017. This has led to both the US and European markets rising by around 8% in local terms on the quarter. The UK has significantly lagged this move only rising 1.5%, whilst in Japan the weaker Yen has seen the equity market rally sharply, up over 17%.

Our view on US equities has continued to be the wrong one, with more strong gains driven by the Trump ‘euphoria’. It is interesting to note that the sector performance has been very concentrated with Financials performing very strongly. Relative valuation levels remain high and the strength of the US Dollar will act as a meaningful headwind into 2017. Margin pressures remain a problem as the labour market tightens further, offset to some extent by the proposed taxation measures. US interest rates are also on the rise, with an estimated three upward moves in 2017, as bond yields rise this could impact further the relative valuation levels.

Europe has benefitted in recent months from the bounce in global economic activity, although export growth has only picked up modestly. German manufacturing orders have accelerated to their highest level since 2007 but other structural issues remain, notably the lack of credit demand. Since 2011, if you exclude mortgage lending, there has been no growth in private sector credit. ECB forecasts have reduced inflation expectations, such that in 2018 only 1.5% has been pencilled in, still way below the 2% target. A number of general elections in the region next year will add to volatility.

The outlook for Japan has arguably improved significantly in the last quarter with inflation finally getting entrenched in the system. The current weakness in the Yen will aid Japanese industry and the Central Bank will shortly confirm the improved situation. The equity market has the benefit of cyclical exposure and valuation levels remain at material discounts to other territories. We also believe the market will be supported by foreign buying which acts as an important swing factor.

The UK economy has started to experience upward inflationary pressures and this is likely to squeeze consumer’s real incomes into 2017. We have stated before the difficulty of the uncertainty surrounding Brexit and another three months down the line we are no closer to greater clarity. Capital expenditure plans remain curtailed and there will be a time lag before the increased Government infrastructure spending kicks in. From an equity perspective, the UK is defensive and this could also be an unhelpful point in the cycle.

2

China has continued to see improving growth but the credit imbalances within the economy have only got worse. The credit problem is mostly focussed on the corporate sector, so there is scope for Central Government to increase its debt.

The authorities have been trying to proactively squeeze the speculative housing activity. Overall equity valuation levels are attractive.

In the US, the S&P 500 index has risen 4.5%, whilst the Dow Jones is up a staggering 8.5% with the NASDAQ lagging this quarter, up 2.8%. The Financial sector has led the rally on hopes of reduced regulation and as yield curves have steepened, whilst industrials and cyclical sectors have also been in focus as they are perceived as standing to benefit from an incoming Trump administration. Risers have included Goldman Sachs up 48%, Bank of America up 44% and Morgan Stanley up 35%. Decliners have include TripAdvisor down 27%, Newmont Mining down 19% and Amgen down 12%.

World Indices UK Markets Dow Jones NASDAQ S&P 500 DAX CAC 40 Nikkei 225 Hang Seng FT All Gilts Rates & Commodities GBP/USD GBP/EUR GBP/JPY SILVER GOLD EUR Crude Oil US Fed Funds UK Base Rate ECB Base Rate

Price at 30-Dec-16 30-Sep-16 30-Dec-15 7,142.83 19,762.60 5,383.12 2,238.83 11,481.06 4,862.31 19,114.37 22,000.56 182.56

6,899.33 18,308.15 5,312.00 2,168.27 10,511.02 4,448.26 16,449.84 23,297.15 190.00

% Chg Quarterly

% Chg 1 Year

6,274.05 17,603.87 5,065.85 2,063.36 10,743.01 4,677.14 19,033.71 21,882.15 170.16

3.53% 7.94% 1.34% 3.25% 9.23% 9.31% 16.20% -5.57% -3.92%

30-Dec-16 30-Sep-16 30-Dec-15

% Chg Quarterly

% Chg 1 Year

-4.87% 1.63% 9.89% -17.00% -12.71% 16.14% 50.00% 0.00% -

-16.77% -13.67% -19.19% 14.57% 8.55% 58.09% 50.00% -50.00% -

Price at 1.234 1.1731 144.503 15.918 1159.10 55.41 0.75 0.25 0.00

1.2972 1.1543 131.495 19.178 1327.90 47.71 0.50 0.25 0.00

1.4826 1.3589 178.82 13.894 1067.80 35.05 0.50 0.50 0.05

13.85% 12.26% 6.26% 8.50% 6.87% 3.96% 0.42% 0.54% 7.29%

In the UK, the FTSE 100 has gained 1.8%, with the more domestic focussed FTSE 250 declining nearly 1% on Brexit fears. It now appears that interest rates will be on hold for the foreseeable future with generally robust retail sales a reflection of the health of the labour market. Positive performers for the period have included Barclays up 34%, Glencore up 25% and Tullow Oil up 20%. Fallers once again included CMC Markets down 40% on fears of greater spread betting regulation. Other stocks on the decline included Fresnillo down 39%, Capita lost 26% and Aberdeen Asset Management fell 22%.

Continental European markets were also in positive form with the Euro Stoxx 50 up nearly 9%. In Germany, the DAX was up 8.7%, in France the CAC 40 was up a similar amount, Italy saw a strong rally up 16%, whilst Switzerland only eked out a 1% rise. Major gainers also focussed on the Banks with Deutsche Bank up 53%, Societe Generale rose 52%, Credit Agricole was up 36% and Unicredit was up 35%. Other gainers included Saipem up 34%, ArcelorMittal up 30% and Randstad up 29%.

Fallers included RWE down 26%, Ericsson lost 13% and Danone declined 10%.

Asian equity markets were more mixed with Japan up strongly on the weaker Yen, the Nikkei gained 18.5% on the quarter.

However in India there were fears on the GDP growth rate in the wake of the currency overhaul and the BSE Sensex fell 6%. Despite reasonable economic data from China, the Shanghai Composite saw muted gains of 3%, whist the Hang Seng in Hong Kong fell nearly 7%. Gainers on the period included Nomura up 63%, Sumitomo Heavy up 55%, Samsung Electronics was up 44% and Petrochina was up 15%. Fallers included Cheung Kong Property down 14%, Newcrest Mining fell 21% and Telekom Malaysia fell 12%.

3

Technology in Focus

The Emergence of Robo-Advice TUESDAY | 08 NOVEMBER 2016

The term robo-advice has yet to be given a formal definition by regulators, with the UK Financial Conduct Authority (FCA) preferring to use the phrase ‘online automated advice models’.

However, the Chartered Institute for Securities and Investment uses a general definition which refers to ‘the development of web-based systems which provide investment advice or portfolio management to clients without the (direct) involvement of a human adviser’.

In the absence of a formal definition, the term has become a catch-all for various types of internet-based investment services, however the main focus is to profile clients’ investment objectives and utilise an algorithm to propose a suitable asset allocation model based upon these inputs. The process for firms offering online portfolio management services involves a client survey using standardised questions relating to investment objectives, attitudes to risk etc. These responses are then feed into the algorithm in order to profile the client and allocate them to the most suitable risk-adjusted asset allocation model. There is also ongoing monitoring and re-balancing if necessary when periodic reviews are carried out.

These services are typically low-cost compared to a traditional holistic wealth management service and are targeted at younger investors who are comfortable operating online and also people who are deterred by the relatively high fees levied on the clients of traditional advisors. With regards to the latter, a recent FCA report concluded that there are around 16 million people in the UK who could be trapped in a ‘financial advice gap’ where they need advice but affordability prohibits it. Again, there are different definitions contained within this general advice gap definition, including:■■ Affordable advice gap – consumers who are willing to pay for advice but not at current prices.

■■ Free advice gaps – those who want advice but cannot afford it.

■■ Awareness and referral gap – those who are not aware that advice is available or where to get it.

■■ Preventative advice gap – those who would benefit from having money advice as a preventative measure.

The FCA is keen to promote lower-cost options and sees robo-advice as a potential solution to people who fall into the affordability category and whose circumstances are relatively straightforward. The central question, from a regulatory point of view, and one that is causing some ambiguity, is whether or not advice is actually being given to the client. In this sense, the term robo-advice is somewhat of a misnomer, since, in many cases, the client is being provided with a standardised portfolio solution using index-tracking funds and not advice on particular investment products.

In fact some robo-advisors specifically state that they do not offer investment advice. In order to create a clearer and more robust framework, the FCA is looking to produce fresh guidance on what constitutes advice, with the possibility of adding a new classification termed ‘streamlined advice’, which some forms of Robo-advice would fall under.

Traditional advisors initially viewed robo-advice as a threat to their business model, however, most are now coming to the realisation that offering a service of this kind could present an opportunity to widen the customer base and attract younger clients. Also, standardisation, consistency of service and a larger pool of clients should also enable efficiencies and economies of scale, as well as the prospect of robo-advice clients wishing to transition to a full-advice wealth management offering as their financial situation evolves.

The main vulnerability of robo-advice is that proposed portfolios may not be appropriate – clients may not fall neatly into a particular risk profile or their situation may be too complex.

The robustness of the client questionnaire is obviously key to generating suitable outcomes and may contain ambiguous or leading questions which may not result in a suitable outcome.

The detractors of robo-advice also point to the more intangible benefits of human-to-human advice, such as the ability of human advisors to read clients’ body language to better gauge true risk tolerance or offering guidance and emotional support during periods of markets downturns, without which clients may panic and crystallise losses at the worst possible time.

Robo-advice is already established in the US, where regulation has been lighter and there are a number of firms operating in this space. By comparison, the UK market is relatively small, with some reports stating that less than £1 billion of assets are managed via robo-advisors. Whilst regulatory changes in future may open up the market for robo-advisors, current incumbents must operate within the current framework, which places significant obligations on those firms perceived to offer investment advice.

Whether the current crop of robo-advisory services will remain in their current form in future is debatable, however, the sophistication of future iterations is bound to increase and this should add value to the investment management industry in whichever way they are deployed.

4

5 © Capital International Group 2016

Country in Focus Italy

WEDNESDAY | 09 NOVEMBER 2016

The general theme across Europe this year has been that economic growth is in line and that the recovery has been on track. However, its strength has been insufficient to generate positive inflationary pressures and the ECB continues to adopt a highly supportive stance.

Consumer spending has largely maintained a solid pace of growth, despite the partial recovery in crude oil prices. Italy, continues to struggle against this tepid backdrop, Italian GDP will grow 0.8% both in 2016 and 2017 according to the Organization for Economic Cooperation and Development (OECD). The country desperately needs economic growth to accelerate, to help ease the huge debt burden that the banking system is facing.

It has also not been helped by very poor recent demographic trends. For instance, 2015 saw fewer babies born in Italy than in any year since the modern state was founded 154 years ago, and the population shrank for the first time in three decades.

Adding to the gloomy picture, the number of deaths jumped more than 9% over the previous year. That left the country with its highest mortality rate since World War Two as life expectancy levels unexpectedly dropped.

The Prime Minister, Matteo Renzi, embarked on a policy of constitutional reform, as soon as he was elected in 2014. This was seen as a brave decision as the nation was saddled by a huge public sector debt burden. But the electorate backed his mandate to inject some dynamism into the Senate process and also offer an electoral overhaul, with emphasis on enhancing social representation. The country votes on this reform on the 4th December, with either an approval or a rejection.

The polls have thus far shown a split of opinion on the reform and a rejection vote would see Renzi resign. If he steps down, many believe that would trigger a general election and Italy's anti-establishment Five Star Movement could make a grab for power. Although a general election would probably only occur at the end of the current parliamentary term, in early 2018. Such renewed political instability would mean an absence of the much needed banking and economic reforms. The party is now the largest single party in the Chamber of Deputies.

The Five Star Movement does not define itself as left or right wing. Rather, it runs on an anti-establishment platform that has won support from across the political spectrum. Left wing voters are attracted to its pro-environment stance and its criticism of big business. Right wing voters support its call for controls on migration and its attacks on the EU and the euro. Beppe Grillo, the party’s comedian, joint leader, has long been an admirer of the former Ukip leader Nigel Farage, and M5S has said it would seek to call a referendum on the euro if it came into power.

6

Matteo Renzi (born 11 January 1975) is an Italian politician who served as the Prime Minister of Italy from February 2014 until December 2016. Renzi stated that he planned to resign after a failed attempt at changing the country's constitution on 5 December 2016; however, his resignation take effect only on 12 December, when Foreign Affairs Minister Paolo Gentiloni was appointed new head of the government by President Sergio Mattarella. Renzi served as President of the Province of Florence from 2004 to 2009 and as Mayor of Florence from 2009 to 2014. Ideologically, he is often characterised as a centrist.

At the age of 39 years and 42 days upon assuming office, Renzi became the youngest Italian Prime Minister (52 days younger than Benito Mussolini, who took office in 1922). He is also the first serving Mayor to become Prime Minister. Now the youngest leader in the G7, Renzi has been described as the de facto leader of the Party of European Socialists, in opposition to the European People's Party associated with Angela Merkel; the two leaders are together often referred to as Merkenzi.

In 2014 the American magazine Fortune ranked Renzi as the third most influential person under 40 in the world; and Foreign Policy listed him as one of the Top 100 Global Thinkers.

Moreover, Renzi is nicknamed il rottamatore (the Scrapper) due to his ambition of renovating the Italian political establishment.

Since coming to office, Renzi's Government has implemented numerous reforms, including changes to the electoral system, a relaxation of labour and employment laws with the intention of boosting economic growth, a thorough reformation of the public administration, the simplification of civil trials, the introduction of same-sex civil unions, and the abolition of many small taxes.

Renzi announced his desire to resign as Prime Minister on 5 December 2016, following the rejection of his proposals in the 2016 Italian constitutional referendum.

A rejection vote could clearly lead to contagion in the rest of Europe and it may well increase the likelihood of a credit downgrade for Italy. Most likely from the current A- rating to the BBB arena. Unfortunately this would heighten the pressures and the risks on the banking system, most notably the shackle of EUR 360 Billion of non-performing loans.

The country’s third largest commercial bank and oldest, Monte dei Paschi di Siena (MPS) is currently going through the third emergency fund raising in as many years. MPS must raise up to €5 billion as part of an emergency rescue plan to stave off the risk of being bailed in. On a more positive tack, there have been reports recently that the Qatar Investment Authority could step in, as the anchor fund raiser. The bank plans to cut 2,600 jobs by 2019, out of nearly 26,000 employees. It will shut about 500 branches out of about 1,900 outlets and dispose of €28 billion of impaired loans.

Paolo Gentiloni Silveri (born 22 November 1954) is an Italian politician who has been Prime Minister of Italy since 12 December 2016. Gentiloni, a member of the Democratic Party, served as Minister of Foreign Affairs from 31 October 2014 until December 2016, when President Sergio Mattarella asked him to form a new government.

On 7 December 2016, Prime Minister Matteo Renzi announced his resignation, following the rejection of his proposals to overhaul the Italian Senate in the 2016 Italian constitutional referendum. A few days later, on 11 December 2016, Gentiloni was asked by President Mattarella to form a new government. On the following day Gentiloni was officially sworn in as the new head of the government.

He led a coalition government supported by his own Democratic Party and the Christian democratic Popular Area, composed by the New Centre-Right and the Centrists for Italy. This was the same majority which supported Renzi's government for almost three years. While the centrist Liberal Popular Alliance (ALA), led by Denis Verdini, did not support the new cabinet, because any member of ALA was appointed minister.

On 13 December his cabinet won the confidence vote in the Chamber of Deputies with 368 votes against 105, while the deputies of the Five Star Movement and the Lega Nord came out from the house. On the following day the government won the confidence vote also in the Senate of the Republic, with 169 votes against 99.

Previously he was Minister of Communications from 2006 to 2008, during the second government of Romano Prodi.

Some analysts suggest that a rejection vote will hit Intesa bank the hardest due to its liquidity and business positioning. Indeed, Fitch has recently revised its outlook to negative primarily as a large proportion of the capital is tied up in unreserved impaired loans. In the end, Italy has simply failed to restructure its banks in a significant fashion. And the financial sector’s woes have only been exacerbated by persistently sluggish economic growth. Throw in low yields on Italian government bonds and falling interest rates, which weigh on interest income, and it is no surprise Italian banks are suffering.

Italy | Facts & Figures Capital and largest city

Rome

Official languages

Italian

Demonym

Italian

Government

Unitary parliamentary constitutional republic Sergio Mattarella Paolo Gentiloni Pietro Grasso Laura Boldrini

■■ President ■■ Prime Minister ■■ President of the Senate ■■ President of the Chamber of Deputies Legislature ■■ Upper house ■■ Lower house

Parliament Senate of the Republic Chamber of Deputies

Formation Parliament ■■ Unification Senate of the Republic ■■ Republic Chamber of Deputies ■■ Founded the EEC (now the European Union) Area Total Area Water Population 2015 estimate 2011 census Density

301,338 km2 (72nd) 116,347 square miles 2.4% 60,674,003 (23rd) 59,433,744 (23rd) 201.3/km2 (63rd) 521.5 per square mile

GDP (PPP) Total Per capita

2016 estimate $2.213 trillion (12th) $36,191 (31st)

GDP (Nominal) Total Per capita

2016 estimate $1.852 trillion (8th) $30,294 (25th)

Currency

Euro (€) (EUR)

There have also been issues with the country’s recently announced budget, which hiked previously agreed targets for the budget deficit and the public debt. The Government insist that it needs fiscal leeway to deal with the migrant crisis on its Mediterranean borders and reconstruction after a huge earthquake in August.

Time Zone

CET (UTC+1) CEST (UTC+2)

Drives on the

Right

Calling Code

+39

The European Commission has numerous concerns about the plan and they wrote to Prime Minister Matteo Renzi asking him to explain why Italy’s projected budget deficit for 2017 had risen from 1.8% of GDP earlier this year to 2.3% now. This goes clearly against EU rules which say that countries have to cut their structural deficit by at least 0.5% of GDP every year until they reach balance or surplus.

Internet TLD

.it

7

Commodity in Focus Gold vs Investments

TUESDAY | 22 NOVEMBER 2016

Many holders of gold store it in the form of bullion, coins or bars as a hedge against inflation or other economic disruptions. However, some economists believe that gold does not actually serve as a hedge against inflation or currency depreciation.

Taking a closer look, has gold lost some of its safe haven appeal?

There is a need to distinguish between holding the actual commodity and how you hold it, i.e. though futures exposure or in a physical ETF like GLD. As a potential investor you will also need to consider whether you get exposure to gold by owning mining shares. Owning such shares often has a latent gearing factor with respect to the price movement of the underlying due to the fact that mining companies have varying amounts of debt whilst operating in the extraction of the physical gold. Mining companies can also be severely impacted by labour problems, insofar that they can be forced to stop production by labourers going on strike and even violence surrounding the strike action.,This often forces all workers to suspend work and halt the production of gold, whilst it is plausible that the underlying still increases in price due to production shortages.

Finally, you should take note that gearing to physical gold (i.e. the commodity only and not the mine per se) is achievable if required via derivatives. Futures, for instance, are highly leveraged, so it must be bourne in mind that most commodities, especially gold, can be extremely volatile at times adding to the inherent investment risk through these vehicles.

Consequences of gold mining by way of example: Gold enthusiast-investor appetite for gold as a safe haven asset has the inconsequential effect of ruining large swaths of countryside.

Let alone the weakening of earth’s tectonic plates and the mammoth task of analysing whether smaller quakes are purely mining induced, especially in deep underground mines, or natural tectonic shifts, or a mixture of both.

An earthquake occurred near Klerksdorp, South Africa on 5 August 2014 with a magnitude of 5.5 on the Richter scale. Later investigation by the US Geological survey’s data put the depth at which the earthquake appeared at 4.1km below the surface.

A strong indication that this quake was most likely mining related, as mining in that area occurs at up to 3.5km below the surface. According to the Council for Geosciences (CGS) in South Africa, this is the biggest earthquake in South Africa since the 1969 Tulbagh earthquake, and the biggest mining-related earthquake in South African history.

This brings us to the costs involved: who should pay for the destruction caused, claims on insurance policies and subsequent increases in premium levied by the insurance companies carrying the exposure?

8

How does gold compare to owning a technology stock like Apple (AAPL) or a defensive sector such as tobacco?

Both these sectors seem to be important to defensive investors, and also investor with an eye on the longer term. It seems that a large proportion of investors feel the need(albeit a psychological need) to have some gold in their portfolios, usually a small percentage, but in some cases some investors are total believers in gold and invest heavily in the precious metal, citing reasons as a hedge or protection against inflation.

Gold has no dividends, doesn’t grow etc. and is currently priced in USD, which can potentially introduce foreign exchange rate risk for non-USD investors in gold but at the same time also serve as a hedge against your currency’s weakness. Industrial demand only accounts for about 55% of total gold demand meaning that the other 45% is just people who want to own it for some sort of investment value whether a central bank or you and me. Gold has however withstood the test of time. On a weight-to-weight basis, premiums on bars are generally lower than for coins, and this makes bars a more attractive proposition for the typical investor.

Depending on their purity, gold bullion coins can also be legal tender in their country of origin and normally bullion coins are available in both gold and silver with the exception of South African Kruggerrands and the Swiss Vrenelli which are only available in gold (see ISO currency code for gold XAU).

Gold as compared to defensive stocks like British American Tobacco (BAT) or Imperial Tobacco (IMT).

It is an old adage that the tobacco sector provides shelter or protection against bear markets. And on top of this defensive attribute it also, among the blue chips, deliver steady yields normally, which again gives you a tangible benefit on which to assess the possible value of such a company. Of course there are some other defensive sectors as well, but they all contrast with gold in that these companies in these sectors normally yields a healthy cash flow plus the bonus of capital returns adjusted for inflation. So in companies we can value using expected future cash flows or dividend pay-outs.

Gold as compared to an investment in property or a REIT(Real Estate Investment Trust) is also odd as again it yields no income stream, nor does it have any intrinsic value in terms of use in manufacturing as opposed to something like platinum which has proven industrial application at present. And gold is used in jewellery but that does not drive price in a major way to the extent that platinum’s price is determined by the production of cars’ catalytic converters.

We can thus surmise that the only real value to be found in gold is that people place a value on it based on sentiment driven primarily for a fear of the future. On this basis fearless people will not give gold a second look!

Transaction costs in gold coins can be steep, and so to the costs of insurance and storage. Gold is however investable in numerous other ways, other than coins and jewellery, through ETF’s or derivatives on gold as aforementioned in this piece.

Keep in mind costs vary due to many factors like the contango futures curve on gold or storage costs on physical gold and the relatively cost effectiveness of the SPDR Gold Trust(GLD).

Now let us just step back from gold and contrast with a technology stock as an example, perhaps gold beats a technology stock in withstanding thousands of years of ascribed value, whereas people constantly get bored with Apple’s latest product releases. But at least Apple (AAPL) pays a regular dividend, something you can measure against given a risk-free asset with a given yield, or at the very least debate its value based on yield calculations.

Gold has no apparent yield other than value ascribed to it by inflation expectations and wild moves in the oil price impacting on inflation expectations, and a store of value in times of uncertainty, although this is not always so clear-cut.

9 © Capital International Group 2016

Technology in Focus The Blockchain

TUESDAY | 08 NOVEMBER 2016

In recent years we have had excitement about new digital currencies such as Bitcoin.

However the aspect that makes Bitcoin work, the public online ledgers, has now become the new hot topic in its own right. Crucially, Bitcoin is open source, which means that it is constantly being worked on by developers.

It is called Blockchain, which is the technology for a new generation of transactional applications that establishes trust, accountability and transparency while streamlining business processes. It can be used to share a ledger across the business network. The network will be private to the parties concerned, permissioned so only authorized parties are allowed to join, and secure using cryptographic technology to ensure that participants only see what they are allowed to see. Some of the statistics are impressive, for instance the World Economic Forum has predicted that, by 2027, 10% of global GDP is likely to be stored on blockchain platforms.

By storing data across its network, the blockchain eliminates the risks that come with data being held centrally. Its network lacks centralized points of vulnerability that computer hackers can exploit. Every node in a decentralized system has a copy of the blockchain. No centralized "official" copy exists and no user is "trusted" more than any other.

According to IBM, it has the potential to vastly reduce the cost and complexity of cross-enterprise business processes.

The distributed ledger makes it easier to create cost-efficient business networks where virtually anything of value can be tracked and traded—without requiring a central point of control.

It is fully auditable, which is a very powerful proposition. The application of this emerging technology is showing great promise across a broad range of business applications.

For example, blockchain allows securities to be settled in minutes instead of days. It can also be used to help companies manage the flow of goods and related payments, or enable manufacturers to share production logs with OEMs and regulators to reduce product recalls.

Asset ownership and transfer between businesses is currently inefficient, slow, costly and vulnerable to manipulation.

Everyone has their own ledger where discrepancies between business parties can increase settlement times. The shared ledger will be more robust, since it is replicated and distributed.

All transactions against the ledger will require consensus across the network, where provenance of information is clear and transparent. Transactions will be immutable (unchangeable) and final. Some blockchain implementations enable the coding of contracts that will execute when specified conditions are met.

10

For instance, a derivative could be paid out when a financial instrument meets a certain benchmark, with the use of blockchain technology, and bitcoin enabling the pay out to be automated.

Some major developments in the technology include a number of different uses and underlying sectors. At the moment there is a consortium of more than forty banks, including Barclays and JP Morgan, which are investigating blockchain for use in money transfers, record keeping and other back-end functions. If banks and other financial institutions are able to speed up transactions and take costs out of the system, it should mean cheaper, more efficient services for us. For example, sending money abroad could become almost instantaneous. According to a report published by Santander InnoVentures last year, the technology could cut bank infrastructure costs for cross-border payments, securities trading and regulatory compliance by $15 billion to $20 billion a year by 2022.

Everledger is using blockchain to develop a system of warranties that enable mining companies to verify that their rough-cut diamonds are not being used by militias to fund conflicts, and that they comply with the Kimberley Process a government and community-backed certification scheme for diamonds.

Various regulatory bodies in the music industry have started testing models that use blockchain technology for royalty collection and management of copyrights around the world. The Walt Disney Company for instance, is embracing blockchain in a big way, and not just for accepting cryptocurrency at its parks.

They released a platform called Dragonchain, a distributed crypto ledger framework protocol that makes it easy to create cost-efficient business networks where virtually anything of value can be tracked and traded--without requiring a central point of control.

Finally, a start-up company out of the UK is working on a blockchain solution to track tuna in order to verify that it is sustainably and responsibly-caught – something that is difficult, if not impossible, for a consumer to know with certainty today.

Investors have now realised the blockchain is bigger than Bitcoin. In the first quarter of 2016, venture-capital investment in blockchain start-ups overtook that in pure-play Bitcoin companies for the first time, according to industry researcher CoinDesk, which has tallied $1.1 billion (£840 million) in deals to date.

From an Isle of Man perspective, it will be interesting to see how the self-styled ‘Bitcoin Island’ will seek to gain an advantage in blockchain. This will clearly impact incumbent businesses and possible new ventures.

Blockchains are suitable for the recording of events, title, medical records and other records management activities, identity management, transaction processing and proving provenance.

What is it?

History

A blockchain — originally block chain — is a distributed database that maintains a continuously-growing list of ordered records called blocks. Each block contains a timestamp and a link to a previous block. By design blockchains are inherently resistant to modification of the data - once recorded, the data in a block cannot be altered retroactively.

First work on cryptographically secured chain of blocks was described in 1991 by Stuart Haber and W. Scott Stornetta.

Followed by publications in 1996 by Ross J. Anderson and 1998 by Bruce Schneier and John Kelsey. In parallel there was work going on in 1998 by Nick Szabo working on a mechanism for a decentralised digital currency that he called bit gold. In 2000 Stefan Konst published a general theory for cryptographic secured chains and suggested a set of solutions for implementation.

Blockchain is a secured way of online transaction. A blockchain is a decentralised digital ledger that records transactions on thousands of computers globally in such a way that the registered transactions cannot be altered retrospectively. They are authenticated by mass collaboration powered by collective self-interests. The result is a robust workflow where participants' uncertainty regarding data security is marginal. The use of a blockchain removes the characteristic of infinite reproducibility from a digital asset. It confirms that each unit of digital cash was spent only once, solving the long-standing problem of double spending.

A blockchain database consists of two kinds of records: transactions and blocks. Blocks hold batches of valid transactions that are hashed and encoded into a Merkle tree. Each block includes the hash of the prior block in the blockchain, linking the two. The linked blocks form a chain. This iterative process confirms the integrity of the previous block, all the way back to the original genesis block. Some blockchains create a new block as rapidly as every five seconds. As blockchains age they are said to grow in height. Blocks are structured by division into layers.

Sometimes separate blocks can be validated concurrently, creating a temporary fork. In addition to a secure hash based history, any blockchain has a specified algorithm for scoring different versions of the history so that one with a higher value can be selected over others. Blocks which are not selected for inclusion in the chain are called orphan blocks. Peers supporting the database don't have exactly the same version of the history at all times, rather they keep the highest scoring version of the database that they currently know of. Whenever a peer receives a higher scoring version (usually the old version with a single new block added) they extend or overwrite their own database and retransmit the improvement to their peers.

There is never an absolute guarantee that any particular entry will remain in the best version of the history forever, but because blockchains are typically built to add the score of new blocks onto old blocks and there are incentives to only work on extending with new blocks rather than overwriting old blocks, the probability of an entry becoming superseded goes down exponentially as more blocks are built on top of it, eventually becoming very low.

For example, in a blockchain using the proof-of-work system, the chain with the most cumulative proof-of-work is always considered the valid one by the network. In practice there are a number of methods that can demonstrate a sufficient level of computation. Within a blockchain the computation is carried out redundantly rather than in the traditional segregated and parallel manner.

The first blockchain was then conceptualised by Satoshi Nakamoto in 2008 and implemented the following year as a core component of the digital currency bitcoin, where it serves as the public ledger for all transactions. Through the use of a peer-to-peer network and a distributed time-stamping server a blockchain database is managed autonomously. The invention of the blockchain for bitcoin made it the first digital currency to solve the double spending problem. The bitcoin design has been the inspiration for other applications.

The blockchain format was first used for bitcoin, as a solution to the problem of making a database both secure and not requiring a trusted administrator. The words block and chain were used separately in Satoshi Nakamoto's original paper in October 2008, and when the term moved into wider use it was originally block chain, before becoming a single word, blockchain, by 2016. In August 2014, the bitcoin blockchain file size reached 20 gigabytes in size.

As of 2014, "Blockchain 2.0" was a term referring to new applications of the distributed blockchain database. The media described one implementation of this second-generation programmable blockchain as coming with "a programming language that allows users to write more sophisticated smart contracts, thus creating invoices that pay themselves when a shipment arrives or share certificates which automatically send their owners dividends if profits reach a certain level."

In 2016, the central securities depository of the Russian Federation (NSD) announced a pilot project based on blockchain technology. Various regulatory bodies in the music industry have started testing models that use blockchain technology for royalty collection and management of copyrights around the world. IBM opened a blockchain innovation research centre in Singapore in July 2016. A working group for the World Economic Forum met in November 2016 to discuss the development of governance models related to blockchain.

According to Accenture an application of the diffusion of innovations theory suggests that in 2016 blockchains attained a 13.5% adoption rate within financial services, therefore reaching the early adopters phase. In 2016, industry trade groups joined to create the Global Blockchain Forum, an initiative of the Chamber of Digital Commerce.

11 Š Capital International Group 2016

Politics in Focus

The Donald Trump US Presidency FRIDAY | 02 DECEMBER 2016

As the dust settles on a bitter and divisive US presidential election, markets have begun the process of assimilating this new reality into asset price forecasts. The unanticipated nature of the Trump victory was expected to trigger a large stock market sell-off given his campaign-trail rhetoric.

However, equity markets responded in a fairly measured way and instead it was the bond market that took the brunt of the selling, with global fixed income losses approaching $1tn in the weeks after the election. Prior to the election the yield on the benchmark ten year Treasury was around 1.8% and subsequently jumped to 2.25% in the days following. The reaction was quite a violent one and something not seen in the bond market for many years.

Since Treasuries are used as benchmark for many types of credit, such as mortgage rates, the ramifications of this move turning out to be more than just a short-term spike could be profound. Principally, it signals that investors have concerns about Donald Trump’s plans for the US economy and its increasingly large debt load. Given that inflation-protected Treasuries have fared much better than conventional bonds, there are fears that Trump’s plans could stoke inflation and cause the Federal Reserve to expedite the normalisation of monetary policy.

The challenge now for investors is to try and determine how much of Trump’s campaign rhetoric will finds its way into policy proposals and how much of it was pandering to key demographics by way of a protectionist agenda. There is also the question of how far a Republican-led congress will allow Trump to push them before they decide to reign him in (if indeed he pursues an authoritarian approach).

12

Thus far, the markets are making the following broad conclusions:■■ Aggressive infrastructure spending of $1 trillion to take place over ten years, with significant public-private partnerships and private investment aided by tax incentives (Republicans blocked significant spending plans under Obama, however, this was seen by many as an attempt to hobble the Obama administration masquerading as a call for fiscal prudence).

■■ Tax reductions and simplifications to the tax code. This, combined with the infrastructure spending plans are good for US growth prospects when considered in isolation. One caveat on the tax cuts is that they appear to be skewed towards the rich. Since the rich have a high propensity to save, this may not be as stimulative as it first appears.

■■ Pickup in inflation due to a widening of the budget deficit and a corresponding steepening of the yield curve (this process has already begun).

■■ Stronger dollar in the short term as growth picks up and interest rates rise (at a faster pace than previously anticipated). Also, a muted tax incentive for US corporations to repatriate cash held overseas could be supportive to the Dollar (although much of this is already in Dollars).

■■ Relaxation or repealment of some regulations, namely the Dodd-Frank Wall Street Reform and Consumer Protection Act and a more accommodating US energy policy. Also, there could be a withdrawal from UN climate change commitments.

Should these predictions hold up then the main beneficiaries are likely to be domestically-focussed US companies, more specifically financials, energy companies and industrials.

Financials should benefit from a steeper yield curve (borrow short-term and lend longer-term, therefore, greater profit margins) as well as looser regulations.

A looser regulatory landscape should also be good for parts of the energy sector as Trump is pro-fracking and has pledged to withdraw from the Paris Climate Change Agreement, dismantle the Environmental Protection Agency and undo Obama’s climate change policies. Industrials that might do well under a Trump Presidency are infrastructure-related companies (those connected to the building of oil and gas infrastructure for example – Trump has already talked about restarted stalled projects such as the Keystone oil pipeline).

Other industrial sectors such as automakers are already urging for a relaxation of emission standards. Globally, sectors that could benefit are industries such as the defense sector. Trump has been quite vociferous of his criticism of fellow NATO members who have been gradually cutting their annual defense budgets, accusing them of getting a free ride off the US. The main losers from all this may turn out to be the so-called bond proxies (utility companies for example) which have benefited from a low growth, low interest rate environment for many years. Those that cannot justify these high valuations based on fundamentals alone may come under selling pressure going forward.

The fact that the Trump campaign was fairly light on details regarding proposed policies has left markets playing somewhat of a guessing game, however, the agenda is set to be one of ‘America first’. Whilst, US-focussed efforts to stimulate growth have been taken positively, any measures that curtail the US’s involvement in global trade have the ability to cancel out any localised stimulus measures and cause damage to global growth going forward. There is also a risk that the potential move beyond easy monetary policy or an increasingly out-ofcontrol budget deficit will be damaging longer-term.

US | Facts & Figures Capital

Washington DC

Largest city

New York City

Official languages

None at federal level

National language

English

Religion

70.6% Christian 22.8% Irreligious 1.9% Jewish 0.9% Muslim 0.7% Buddhist 2.5% other faiths

Demonym

American

Government

Federal presidential constitutional republic Barack Obama Joe Biden Paul Ryan John Roberts

■■ Prime Minister ■■ Vice President ■■ Speaker of the House ■■ Chief Justice Legislature ■■ Upper house ■■ Lower house Area Total Area Water Population 2016 estimate 2010 census Density

Congress Senate House of Representatives 9,833,517 km2 (3rd/4th) 3,796,742 square miles 6.97% 324,720,797 (3rd) 309,349,689 (3rd) 35/km2 (180th) 90.6 per square mile

GDP (PPP) Total Per capita

2016 estimate $18.558 trillion (2nd) $57,220 (10th)

GDP (Nominal) Total Per capita

2016 estimate $18.558 (1st) $57,220 (6th)

Currency

US Dollar (USD; $)

Time Zone Summer (DST)

(UTC -4 to -12, +10, +11) (UTC -4 to -10)

Drives on the

Right

Calling Code

+1

Internet TLD

.us

13 © Capital International Group 2016

Fixed Income Report

Fourth Quarter Review | Yields Finally Turn...

FRIDAY | 23 DECEMBER 2016

Hindsight is a wonderful thing and it would now appear that the first week in July this year saw the all-time closing low on the US Ten Year Treasury. Since that point yields gradually started to increase and after the US Presidential election the rise accelerated combined with a steepening in the yield curve.

At the end of the last quarter the yield was 1.59% and we now look set to end the year at close to 2.57%.

There is now a wide divergence in monetary policy between the key central banks, with the Federal Reserve now having raised interest rates twice this year and forecast to lift them three times in 2017.

In the UK there has also been an upwards shift in inflation expectations with rising producer prices and while a lot of that is down to the decline in the pound in the wake of the Brexit vote, inflation was already trending up prior to the vote in any case. November's Consumer Prices Index (CPI) inflation rate of 1.2%, was the highest since October 2014, when it stood at 1.3%.Inflation as measured by the Retail Prices Index (RPI), which includes housing costs, rose from 2% in October to 2.2% in November. The Bank of England expects inflation to continue to rise during 2017 to 2.7% and remain above the 2% target until 2020.

Against this backdrop conventional Ten Year Gilt yields have risen from 0.75% at the end of the last quarter to finish the year at over 1.43%. It is worth remembering that large parts of the world have still been increasing debt levels, so there comes a point when such large shifts in yields cause real pain. Whilst maintain the stimulus, the ECB did at least cut the volume in its asset purchasing, somewhat of a concession to Germany.

ECB President Mario Draghi said the bond buys would be cut to 60 billion euros a month from 80 billion euros starting April but they would go on until the end of 2017, three months longer than expected. The ECB does continue to suppress European corporate yields as part of its buying programme. The differential against the US is likely to see investors switching to get the yield pick-up.

The rise in Sovereign bond yields is also unhelpful for the corporate sector which has been very active in recent years in issuing new paper. Indeed, just in the US in the past decade, corporate debt has increased by 75% to nearly $8.5 trillion.

Critics would argue that much of the issuance has not been used for capital expenditure or corporate expansion but more balance sheet engineering through share buybacks and higher levels of stock dividends. Note very sustainable!

At the same time the ECB refinancing rate remains at zero with the rhetoric very much focussed on ‘whatever it takes’ to boost both economic growth and stoke inflation. Meanwhile in the UK, the MPC also look to be on hold at 0.25%, in reaction to a slowing 2017 economic growth created largely by the Brexit uncertainty.

The back up in US yields was largely a reaction to the fact that Trump and the Republican Party are in control of both the Senate and the House of Representatives. This means the key policies of significant infrastructure spending and corporate tax cuts are likely to get through. Both of which are inflationary, increase Government borrowing and thus negative for bonds.

Indeed, some would argue that the US is probably the economy that least needs such stimulus and simply brings the next recession that bit closer.

14

The high yield debt market has continued to see spreads tighten, although the default levels remain higher than normal, largely due to the energy sector fall out from last year’s sharp crude oil decline. The sector should still be well supported going forwards and also benefits from a relatively low duration which shields investors from the worst of the volatility.

With inflation back on investor’s lips index linked bonds are sure to be back in focus. Some argue that QE may have stored up inflationary pressures for the future that are yet to be felt. Demand for inflation-linked securities is largely driven by expectations of future inflation, although their long duration characteristics have also seen them perform well given long term pension funding concerns. A recent UK auction of indexlinked bonds attracted more than £10 billion in orders for a £2.25 billion offer, highlighting the scale investor demand. The ten year breakeven level has now moved up to 3% in the UK and 2% in the US.

15 © Capital International Group 2016

The Capital International Group

A new perspective | Looking out from the inside TUESDAY | 15 NOVEMBER 2016

Sharing his reflections on his first few months as Group Chief Executive Officer of Capital International Group, Greg Ellison paints a picture of the unique nature of the Group’s offering, the challenges ahead and how Capital International plans to deliver on its exciting ambitions.

I was very flattered in the summer when Anthony Long, Chairman of Capital International Group, asked me to join the business as Group CEO. I have been a private client and a corporate client of Capital’s for many years as well as having served on the board of Junior Achievement with Anthony.

Through my interactions with Capital International and my relationship with Anthony I knew I would be joining a company that was unique in the Isle of Man, and one with great ambitions for the future.

Capital International is a true Manx success story. Founded 20 years ago as a stockbroking firm in Castletown by Peter Long and his sons Anthony and David, the Group now employs around 80 staff across its two offices in Douglas and Cape Town, South Africa.

The business has around $5 billion under its management or administration, it won Company of the Year in 2011 at the Isle of Man Newspaper’s Awards for Excellence and is currently enjoying its best ever year in terms of revenues and profits.

The services have evolved from stockbroking to investment management, treasury and foreign exchange, fund structuring, custody and administration and providing online platform solutions for IFAs, life companies and family offices.

Through the years of growth, the business has remained true to its core values of innovation, integrity and excellence. In my first few months I’ve been delighted to hear countless stories from clients of our service excellence in places such as Dublin, London, Guernsey, Dubai and Cape Town as well as here on the Isle of Man. The company is quite unique. The platform that we provide for IFAs in the Isle of Man, South Africa, the UK and other centres is without doubt the best platform of its kind. Our long term investment performance compares exceptionally well and puts many much larger organisations to shame, assisted greatly by our fee structures which are transparent and highly competitive.

Our flagship Capital Liquidity Account is AAA rated by Standard & Poors with treasury services typically available at greatly improved rates than those accessed through the banks. Our secure online portal gives clients outstanding functionality and access to their accounts and our people are easy to reach, with decisions made locally in the Isle of Man.

16

But with this uncertainty comes opportunity, especially for an innovative firm like ours. The financial crisis of 2007 and its extended aftermath has damaged people’s trust in banks and some other large financial institutions. Pragmatic views of risk and reward have been replaced by centralised, policy-based decision making.

Years of misdemeanours are being punished by eye-watering fines from regulators and government institutions all over the world. The demands for returns and rewards from shareholders and senior staff continue to take away focus from customer care and client service. Potentially disruptive new entrants with innovation like crypto-currency and blockchain solutions get cut off at the knees by power-wielding, competition fearing behemoths that conspire to strangle the threat of innovators on their oligopolistic markets.

Against this backdrop, however, a number of bold, niche firms have blossomed as clients reward their service delivery, their long-term outlook, their strategic partnerships and their local, pragmatic decision making and risk appetite. Capital International is one such firm.

CELEBRATING

Capital International Group CHief Executive Officer

The combined impact of Brexit and the recent election of Donald Trump to the White House has created great uncertainty around the UK’s relationship with Europe, Europe’s relationship with the US and the role that the US will play in international trade and security.

Greg Ellison MBA | BSc.(Hons) | C.Dir

Whilst this success creates great momentum and confidence, Capital International, like many other financial services businesses, faces a number of challenges on the horizon. The regulatory landscape continues to change at pace. Common Reporting Standards (CRS) add another layer of complexity to the existing FATCA, Anti Money Laundering (AML) and a plethora of other regulatory and legal obligations that we must meet.

CELEBRATING

YEARS IN BUSINESS

So what next for Capital International Group?

Our journey over the next few years will be defined by a number of characteristics: ■■ An unshakeable focus on our clients and our service delivery; ■■ Making the best use of technology to build scale and an outstanding client experience; ■■ Maximising our domestic and international growth; ■■ Innovative products with fair, transparent pricing; and ■■ Being easy to do business with.

Our office in Cape Town is growing rapidly with our offshore platform and investment products offering something unique to that market. The interaction between our people in both centres is creating a buzz in the offices as well as exciting domestic and international career opportunities for our people. Our growth and evolving international reputation is being noticed in our key markets; there was a long queue of people waiting to speak to our Business Development Director after his key-note presentations at recent conferences in Johannesburg and Cape Town.

At a time of great political change, economic uncertainty and ever-demanding client needs, the future is looking ever brighter for the Capital International Group.

Greg Ellison

YEARS IN BUSINESS

17 © Capital International Group 2016

Capital International Group Looking back | Moving forward

Capital International Group

CELEBRATING

YEARS IN BUSINESS

TUESDAY | 12 JULY 2016

August 2016 marked an important milestone for the Capital International Group as we look back on our extraordinary heritage of talent and achievements over the last twenty years.

In a previous article about the Group we started by saying, “In 1996, petrol only cost 52.9p a litre… …but more importantly, a corporate legacy was born. In this year, 20 years ago, in a small office in Castletown, a father, two sons and a small team opened the office doors to Capital International.”

Although many that work for the Group today were not with the company then, a few still remember our humble beginnings at No.1, The Parade in Castletown. There was always the prospect of ‘from acorns grow mighty oaks’ and, with our vision of offering a fresh and innovative alternative, we set out with a steely determination to build a business that provided clients with a highly personalised service, whilst developing dynamic and flexible client solutions and a commitment to delivering on our core values of innovation, integrity and excellence.

Over the last twenty years the financial services industry has changed immeasurably and throughout this time our business has evolved to meet the numerous challenges that this continuing process of change and development has created. We started out as a small traditional stockbroker and investment manager, servicing private clients and Island based businesses, and over the years Capital International has had to adapt, broaden its horizons and be prepared to constantly change in order to become the successful Group that we are today.

Change is never easy and constant, rapid change to the external environment is often doubly difficult. This external turbulence is always challenging for business but it also creates opportunity. The resilience and determination of our managers and staff to overcome these challenges and adapt to the accelerating pace of the modern world has been a constant cornerstone that has allowed us to embrace the new opportunities that underpin the long-term growth and success of the Group.

18

in

In an industry that is constantly changing, our success over the last 20 years is an accomplishment of which we can be justly proud. From that small acorn, first planted in Castletown back in 1996, we have become one of the Island’s foremost fully independent investment services groups, offering a wide range of investment products and services to a growing international client base.

We have had to work hard to deserve our place within the Island’s financial services community and to be recognised for our achievements over the years, none of which would have been possible without the commitment and dedication of the remarkable people who work in the business. I feel privileged and honoured to lead and be part of such an amazing group of professional and dedicated individuals who make Capital International the progressive group of companies that it is today.

We have never been shy of change, and much like a river winding its way to the sea, there are many twists and turns, often heading in different directions but ultimately always leading to the same goal. Looking forward will continue to evolve and develop our existing product suite and we will continue to encourage staff development and build upon our relationships with our business partners and external stakeholders across multiple jurisdictions. Š Capital International Group 2016

Anthony Long Chartered FCSI | Dip IoD

This year we celebrate our 20th anniversary with our services, staff and skills having grown significantly during this time.

I can still remember the early days when we had less than ten staff. Today we employ over 75 professionals across two jurisdictions. Our culture has always and will continue to embrace three core values: innovation, integrity and excellence. These values not only describe our business conduct but also our personal behaviour, and underpins the way we create creation of value for our clients, employees and the wider Island community.

We recognise the importance of growing our international client base, focusing on the development of new business opportunities and the building of our professional intermediary relationship network. To support this, our strategic plans include further investment into the continued development of our web based platform solutions to financial intermediaries worldwide, and the delivery of a wider range of more clearly defined investment management solutions to the intermediary market in the Isle of Man.

Capital International Group Chairman

We encourage our staff to work across departments wherever possible, from customer services through investment management, to marketing and business development; from compliance and risk management, through to operations and IT. This approach gives everyone a firm grasp of how their individual roles impact the wider business and provides staff with a solid grounding of the wider aspects of the business that they may not be directly exposed to on a day-to-day basis.

CELEBRATING

YEARS IN BUSINESS

The recent appointment of our new Group Chief Executive, Greg Ellison, is also a major and significant development for us, further strengthening our management team and developing our internal capacity to fulfil our strategic objectives.

It is clear to see that far from resting on our laurels, after 20 years we have plenty to keep us busy and so, it is with enormous pride that this year we celebrate 20 years of business on the Isle of Man and I would like to thank everyone who has been involved in helping the Capital International Group become the organisation it is today.

I look towards the coming years with excitement and determination to continue delivering on the promises and values upon which the business was founded all those years ago.

Anthony Long

19

Capital International Group celebrating 20 years in business It is with enormous pride that this year we celebrate 20 years of business on the Isle of Man and I would like to thank everyone who has been involved in helping the Capital International Group become the organisation it is today Anthony Long | Chairman Capital International Group

CELEBRATING

YEARS IN BUSINESS

The Capital International Group

20/20 Vision, Drive & Rugby | Our Chief Executive FRIDAY | 09 DECEMBER 2016

As Capital International Group’s Chief Executive Greg Ellison completes his 20th week in the job, and as the Group celebrates its 20th anniversary, we ask Greg 20 questions – the first 10 about his business life and the last 10 about himself, to shine the light on Capital’s new boss...

What has impressed you the most since joining CIG? Without doubt I have been most impressed with hearing the feedback from our clients on how we are doing as a business. I’ve travelled to Dublin, London, Guernsey, Dubai, Cape Town and spoken to clients here on the Isle of Man and they have all been consistent in commending what outstanding service we deliver. Lots of firms talk up their own service offering, but it means a whole lot more when it comes consistently from your clients.

What has surprised you the most since joining?

I’ve been a private client and a corporate client of Capital International for many years, yet I was surprised at just how many different products and service lines the company delivers.

It’s been great to see this on the inside, but also tells me we’ve got to get better at communicating this to our target markets.

This is something we’re working on and we’ll have some exciting developments with our marketing in 2017.

Do you see the markets being 20% up or down in 2017?

Neither. The UK markets, post Brexit, have remained resilient and continue to trend upwards. That said, I am concerned that the increased value of companies is more reflective of the injection of cheap cash into the system via quantitative easing, rather than being indicative of increased productivity. As such, the rally may still have some legs, but I would expect a correction at some time in 2017.

What have you been focused on since joining?

One of the most important things, as a leader of a business, is to give your people real clarity of direction and clarity of expectation. It’s important that I’m very specific as to where we need to compete, what makes us different and how we can make the most of our advantages to create an offering that gives more to our clients. My focus has been on communicating very clearly and very honestly to my executive team and to ensure we are all aligned and working together effectively. I have a mantra that we ‘deal in truth’. This can come across as quite direct and blunt on occasions, but it ensures you manage the real issues, not all the ‘noise’ that surrounds them.

What are the priorities that you are focusing on over the coming months?

The business is currently in a very healthy state; 2016 will see the highest revenues and profits we’ve ever had. We don’t need any drastic change of direction, but we are very ambitious and are finalising some exciting plans for 2017. So my priority for 2017 is to finalise the strategic plan and once it’s been considered and approved by the Group Board then it’s time to start the implementation.

22

CIG opened a business in Cape Town, South Africa a couple of years ago - how is that progressing?

I went to visit the team in South Africa in October and was very impressed. We’ve got a great team there, with Mark Wilkinson leading them and supported by a local team of really capable, bright and driven people. What’s more, we have a unique offering with our international platform and it is gaining great traction in the African market. We’re going to put a lot more resources into Cape Town next year to build on the progress we’re making. It’s also very pleasing to see how the team in South Africa are lining up with our team on the island. I do a monthly update to all staff and the team in Cape Town have joined the last couple of them by Face Time.

Do you see CIG opening other offices internationally?

It’s possible. Whilst we want to drive the opportunity in South Africa hard, I think we need to operate from at least one more centre. What’s important is the access it gives you to markets where your offering is relevant and you can not only compete but win. We’re giving some thought to Ireland, UK and Malta but we’re not in a hurry and the Isle of Man will always remain our home and head office.

CIG has a treasury business and the Isle of Man has recently announced alternative banking regulations, do you have a view on those?

I’m pleased to see the innovation in creating this new banking regime. It will be initiatives like this that allow the island to remain competitive in the years ahead. Our treasury business has done extremely well in recent years and we’ll stay alert to the opportunities that exist in the market.

Bitcoin came and went in the Isle of Man but do you see a future opportunity with block chain technology?

The challenge facing blockchain initiatives centres on issues like banking and common protocols. It’s no use writing a great solution on blockchain if your clients, suppliers or others have different protocols. You need a common language and a community. There are 70 odd global banks collaborating in an initiative called R3 to create some consistent processes for blockchain to support back office type operations. I fear that this could stifle the innovation and disruption that parts of the finance sector need from blockchain. We really need Apple, Amazon, Microsoft and the likes to drive blockchain initiatives forward, but whether they do or don’t I expect to see some valid blockchain applications in use in the next 5 years.

How confident are you about the island’s future as a financial centre?

There’s no getting away from it, it’s going to be tough. The things that made us successful in the past aren’t necessarily the things that are going to make us successful in the future. I’d like to see more innovation like the Alternative Banking Regime and I’d like to see the public and private sector working together to really make a name for ourselves. This might be an uncomfortable truth, but our brand recognition as a finance centre isn’t good enough not only in the Middle East, Asia, South America but also in London. We need to focus on London and the UK first as global capital and trade often finds its way to London. Once we’ve cracked that, we should worry about everywhere else.

And now, 10 questions about the man himself...

What have been the most memorable 20 minutes of your life so far?

It was extra time in the Rugby World Cup final in 2003. I was in St. Petersburg, Russia at the time having been on a course that week as part of my MBA with Henley Management College.

It took me a couple of hours to find a bar that had the rugby on, but as I and about 20 of my colleagues were jumping and shouting with joy to the pictures of Jonny Wilkinson’s winning drop kick we were asked to leave by some enormous body guards armed with AK47s!

What has been the worst 20 minutes of your life to date?

I played rugby for England Under 18s back in 1993 and after the normal 5 nations games we toured New Zealand. We played 7 games in total, winning the first 6 provincial matches, until we played the All Blacks in Dunedin in the final game of the tour. We got off to a good start, scoring first and holding our own for a while until Jonah Lomu took control along with Carlos Spencer, Anton Oliver, Andrew Blowers and their pals. It ended 52-5 to the All Blacks and during those last 20 minutes we felt a long, long way from home.

If you could spend 20 minutes with anybody – dead or alive – who would it be?

Tony Robbins. He’s not everyone’s cup of tea, but I studied Neuro-Linguistic Programming (NLP) in my 20s and Tony was one of the founding fathers and so much of his work is grounded in NLP. I’ve studied a lot of his material over the years and it’s incredibly powerful stuff. This is the man that world leaders turn to when they need a coach!

You have 20 minutes to teach something new to someone, what would it be?

I reckon people learn when they’re ready to learn. And living in the developed world, people have access to almost anything they could possibly need. So they wouldn’t need me, they just need to decide they’re ready. There’s a phrase I believe in: When the student is ready, the teacher will appear.

Where were you working at the age of 20?

I was living and playing rugby in New Zealand in Papakura, South Auckland and was working during the week for Telecom NZ crawling through ceilings laying category 4 telecoms cables.

That was a brilliant experience. They say it as it is in New Zealand, and it was a great learning experience. It was ‘hard yakka’ as they say over there, and I think some of my direct communication style and straight talking might have been created by a year in New Zealand!

If you were stuck in a lift for 20 minutes with somebody past or present who would you like it to be?

My grandparents – they had all passed away by the time I was about 10 so I never really got to know them. One of my grandads was a gunner in Lancaster bombers in the war and I would have loved to ask him questions about what it was like. But unfortunately I was too young at the time to really understand what they had all been through and he wasn’t a man of many words, which I now reflect was probably caused by the things he’d witnessed in the war.

Where would you choose to go that’s within a 20 minute drive of your home?

Living in Laxey I’m surrounded by beautiful places, and I absolutely love where I live which looks out to sea and witnesses some incredible sunrises. But when I want to relax I love the Hooded Ram on North Quay where I might go every now and then for a few pints of Guinness and some amazing Indian food.

What is the best thing you have achieved in just 20 minutes?

Any decent achievement is built on lots of hard work, commitment and determination, it’s not the final 20 minutes that counts. I meet lots of people who have ‘achieved’ a great deal if you measure it by their assets, their power or their influence, but I think the most important achievements in life all come back to family, health and happiness.

If you won £20,000 what would you spend it on?

It’s easy to forget how fortunate we are living in the Isle of Man. I’m going to take my kids (12 and 10 currently) overseas one day to have them work with people who have literally nothing for a few weeks. I’d pay for it myself and give the £20,000 to people that really need it.

You have 20 minutes to address Tynwald/Parliament, what would be your principal aim?

I’d encourage them to work together as a team, to build a compelling vision for the island, to be bold in their decision making whether their decisions are popular or not and to have the courage of their convictions. I’m optimistic that the new intake of politicians can build on the great foundations of the previous administration. And I’d urge them never to read the comments sections on social media!

23 © Capital International Group 2016

Country in Focus South Africa

FRIDAY | 30 DECEMBER 2016

2016 has been a year of volatility – in markets, commodities, currencies and politics.

At the beginning of the year the oil price touched a 13 year low around $26 a barrel, the gold price was at a 6 year low around $1060 and global equity markets declined. The JSE All Share index was 10% down by the 21st of January, while the S&P500 and the FT100 were both down by 13% by 11th February. A number of base metals and commodities were at multi-year lows and some commodity stocks were at 13 year lows. In addition the SA economy was in recession and many commentators were expecting a sovereign downgrade to “junk status. In early January the rand hit an all-time low against the dollar of around 17.8 and 24.7 against the pound. On the political front markets were still reeling from the attempt by Jacob Zuma in December to replace the Finance Minister by a little known “yes” man. As a result of Zuma’s blunders, corruption in government and lack of leadership the ANC lost significant votes in the Municipal Election in August.

Although equity markets, commodities and the rand have recovered, politics remains in the doldrums.

Markets

After the initial setback early in the year the S&P500 recovered by over 25% from the February low – aided by the Trump election victory in November. The FT100 rose almost 30% from its February low, helped by a weak pound post Brexit. 2016 will be recorded as a flat year for the JSE All Share Index, in spite of the spectacular performance by some commodity shares and negative moves in non-resource rand-hedge counters due to the strong recovery in the rand throughout the year.

Commodities

In the Q1 Review we highlighted the spectacular performance of commodity shares, particularly gold and platinum producers. The strong performance continued for most of the year particularly for diversified resource shares, with iron ore showing outstanding gains, in spite of an apparent over-supply situation. Trumps intensions to rebuild the US infrastructure certainly helped iron ore since the election.

However gold and platinum shares reversed their earlier gains from about mid-year, with gold shares losing around 60% and Platinum producers around 45%. These moves are detailed in the table below.

Share

Mid-year peak Rand

Nov/Jan Lows Rand

% Rise

December High/ Low Rand

% Change since mid-year

Anglo Gold

87

317

164

129

-59

Gold Fields

31

90

190

37

-59

8

65

713

26

-60

Sibanye

Harmony

17.5

70

300

21.5

-69

Anglo Platinum

160

480

200

250

-48

Impala Platinum

23

70

204

40

-43

Associated Ore

53

218

311

260

+19

Anglos

51

154

202

221

+44

Billiton

136

197

45

246

+25

Glencore

17

37

118

54

+46

Kumba Iron Ore

24

140

483

189

+35

The sharp drop in gold shares can be explained by the combination of a falling gold price from August, a stronger rand for most of the year and an increased appetite for risk as the year progressed. But it is not clear why the platinum price followed gold down when demand for platinum comes mostly from auto-catalysts and the metal is not really seen as a hedge against market risk?

The follow through in the share prices of the diversified producers has resulted in spectacular performances for the year. Billiton has been held back by its exposure to oil and its share price is up by only 80%. Glencore is up over 3X, Anglos up more than 4X and Associated Ore the star performer – up by almost 5X. Will resource shares continue their exceptional performance into 2017 aided by infra structure spending in the US or will rising interest rates slow global growth? Looking at the longer term charts of the diversified producers, they still have a long way to go to equal their peaks of a few years ago.

Looking at the gold and platinum producers, their share prices are rapidly approaching the very low prices of a year ago.

Maybe some black swans flying in 2017 will result in investors scurrying back into precious metals.

The chart below shows the diversified resources shares, Anglos in purple and Glencore in green continuing their uptrend from the low point in January, while Anglo Platinum in Blue and Anglo Gold in orange both retraced most of their gains from mid-year.

The question for 2017 is which is the best buy? Or do you buy them all?

24

Currencies

2016 will be remembered as the year of the strong dollar and the weak pound - reaching a 31 year low against the dollar.

Also a year when the rand rallied from historically low levels.

As mentioned before, the firing of the Finance Minister in December 2015 set off a roller coaster ride for the rand that continued throughout the year. Added to this event were Brexit, the Municipal Elections in August and a number of political events that resulted in a rand that has experienced its most volatile year for some time.

Politics

Many South Africans would like to look back on 2016 as the year that Zuma exited politics. Unfortunately that did not happen, but is a high probability event for 2017. The list of political scandals for the year is very long and includes the following high profile events: ■■ The President’s home Nkandla – Zuma eventually payed back R7.8m of the implied gain following improvements to the property.

■■ Reappointment of Myeni as chairperson of SAA board.

There were rumours of an affair with Zuma.

■■ Ongoing spat between Zuma and the Treasury including charges against Finance Minister Pravin Gordhan.

■■ State capture by the Gupta family including an attempt by Zuma to prevent the release of the report by the Public Prosecutor.

Following the poor election result more and more high profile individuals have been calling for President Zuma to step down.

These include a number of ANC officials as well as ex-president Mbeki. Many are hoping that the ANC National Executive Committee will “recall” Zuma soon in order to give the ANC time to recover before the next General Election in 2019.

2016 did end on a positive note with SA avoiding a downgrading by the rating agencies. Economic growth has been better than expected and the SARB has indicated that the economy has bottomed and interest rates have peaked. A Zuma-free year would certainly improve the prospects for 2017.

25 © Capital International Group 2016

Industry in Focus Tobacco

WEDNESDAY | 07 DECEMBER 2016

In 2015, over 1.1 billion people smoked tobacco with 5.7 trillion cigarettes being consumed worldwide. The estimated value of the tobacco market is currently £500 billion and the six largest companies have a combined market share of over 80%.

That figure would be pushed closer to 85% if we were to see the conclusion of the $47 billion takeover offer for Reynolds American, the second largest tobacco manufacturer in the US. The big six are led by the Chinese state-owned manufacturer, China National Tobacco Corporation, who have a monopoly over the Chinese market and account for over one third of global cigarette production. The four companies with a global reach are: Philip Morris International, British American Tobacco, Japan Tobacco International, and Imperial Brands and the last in the list is Altria Group which is focused in the US after spinning off Philip Morris international in 2008.

The global tobacco industry is a substantial contributor to the economies of many countries and the livelihoods of millions of people across the globe. However, tobacco consumption is the cause of 6 million deaths each year, raises healthcare costs and has an overall negative impact on economic growth, particularly for developing economies. It has therefore become the target of ever increasing regulation. Many developed markets have introduced varying levels of control over the industry or consumers - from outright bans on advertising, the introduction of health warnings and standardised plain packaging, to the prohibition of consumption in public places and private vehicles if a child is present.

In 2005, the World health Organisation’s Framework Convention on Tobacco Control came into force. There are currently 180 UN member states party to the treaty with the objective of protecting present and future generations from the devastating consequences of tobacco consumption.

Increasing regulation on the tobacco industry will evidently become a global phenomenon and continue to intensify in the coming decades.

Tax is another area of political threat to tobacco manufacturers.

Excised as another measure to combat consumption with the extra revenues used to fund infrastructure projects or fill fiscal deficits, it would seem that tax increases on tobacco are a socio-political win-win. And given tobacco’s addictive nature, thus its demand inelasticity, taxation proves more effective to the latter so is widely used and prone to increase. The indirect consequence of high taxation is an increase in illicit trade activity which has a questionable impact on industry members, after all they are still likely to benefit from the revenue from the cigarettes that are eventually smuggled and the provision of cheap cigarettes to the market only serves to keep waning smokers hooked.

The expected effect of these pressures is that demand would deteriorate, but progress has been slow from a global perspective. Whilst countries that have implemented more stringent laws are now seeing tobacco consumption significantly decline, other nations are seeing an increase as populations continue to grow and disposable incomes increase.

Over the last two decades, global smoking rate reductions have been completely offset by consumption growth in China alone.

The Eastern Mediterranean Region currently has the highest growth rate and Africa presents itself as a future growth market.

However, the group who are most affected by tobacco control policy are youths who become less likely to take up the habit and this important demographic suggests a looming albeit soft landing for the industry.

Tobacco manufacturers are now in a state of transition and investing in alternative ways to provide nicotine to consumers without the threat to one’s health. E-cigs, electronic devices that vaporise nicotine and come with a wide variety of flavours, have become the most recognisable substitute. Medical research in the area is still young but they are considered by many to be non-toxic and it is indeed true that they do not disseminate a number of the hazardous chemicals that traditional cigarettes do. The e-cig industry has boomed over the last decade and is now worth over £6 billion worldwide. Big tobacco companies were slow to enter the market but in a flurry of activity between 2012 and 2014 all five publicly traded companies acquired an e-cig brand. Adoption rates for e-cigs over cigarettes among young adults are now at a ratio of 2:1 in the UK and US. Other innovations in include heated tobacco devices. These gently heat tobacco, instead of burning it, to produce a warm, nicotinelaced aerosol with the intention of attracting smokers who will not go as far as to convert to an e-cig. It is estimated to reduce toxins by 90% when compared to traditional cigarettes.

One factor remains consistent, both alternatives still deliver addictive nicotine and, if considered to sufficiently reduce the health and environmental impacts, could have the potential to expand the consumer base over the long term. The future for the industry is one of investment, Innovation and development, within what could become a regulatory minefield, but, if navigated successfully, these typically high yielding stocks could be an attractive income boosting asset.

26

British American Tobacco Plc

Japan Tobacco International Inc

Founded

1902

Founded

1949

Headquarters

London, United Kingdom

Headquarters

Tokyo, Japan

Area served

Worldwide

Area served

Worldwide

Revenue

£13.104 billion (2015)

Revenue

Operating Income

£4.557 billion (2015)

¥2.253 trillion (2015) [£12.679 billion]

Net Income

£4.522 billion (2015)

Operating Income

¥565.2 billion (2015) [£3.181 billion]

Leading Brands

Dunhill Kent Lucky Strike Pall Mall Rothmans

Net Income

¥207.7 billion (2015) [£1.167 billion]

Leading Brands

Winston Mevius LD Camel Sobranie

Leading alternatives

E-lites (e-cig) Logic (e-cig) Ploom (heated tobacco)

Website

www.jti.com

Leading alternatives

Vype (e-cig) Glo (heated tobacco)

Website

www.bat.com

Imperial Brands Plc Founded

1901

Headquarters

Bristol, United Kingdom

Area served

Worldwide

Founded

1900

Revenue

£25.289 billion (2015)

Headquarters

New York, USA

Operating Income

£1.988 billion (2015)

Area served

Worldwide excluding USA

Net Income

£1.723 billion (2015)

Revenue

Leading Brands

Davidoff Gauloises L&B Bastos P&S

$73.908 billion (2015) [£50.141 billion]

Operating Income

$10.623 billion (2015) [£7.207 billion]

Net Income

$7.032 billion (2015) [£4.771 billion]

Leading Brands

Marlboro L&M Bond Street Parliament Philip Morris

Leading alternatives

iQOS (heated tobacco) Nicocig (e-cig)

Website

www.pmi.com

Leading alternatives

Ruyan (e-cig) Puritane (e-cig) Not developing a heated tobacco product

Website

www.imperialbrandsplc.com

Philip Morris International Inc

27 © Capital International Group 2016

Sector in Focus

Commercial Property TUESDAY | 06 DECEMBER 2016

We have allocated to the sector for several years now and the recent period has been a good one from a total return perspective.

Not only have there been decent yields on offer (4-6% on average) but with reasonable economic growth, capital values have also been strong. The outlook for the UK market however was hurt by the EU referendum result in June.

The sector has managed to pick up its performance in the months following the Brexit vote, as the short term liquidity event was worked through. However, it has inevitably raised the question regarding long term assets and funds offering short term liquidity.

A repeat of the commercial property exodus which accompanied the financial crisis was always unlikely. Crucially, gearing ratios comparing funds’ debt with total assets are much lower now than they were during the crisis, when large scale redemptions from UK property funds last occurred.

While UK investors may have taken pause this summer, appetite from overseas investors has actually increased. Net investment from abroad was higher last month – at £855 million – than the three which preceded it, as weaker sterling has given foreign buyers greater purchasing power in the UK. Moreover, commercial property continues to offer diversification and income at a time when other asset classes don’t. If unemployment remains below 6%, employment growth should remain robust, supporting demand for both housing and office space, although London commercial prices could be hit if firms move activities to elsewhere in the region. Cycles within the sector are notorious, with overbuilding and high gearing, just two of the most common structural features.

Average price falls have been modest, although there are clear signs that many investors have been sitting on their hands with low transaction volumes reported. UK values dropped 3.3% in July but the decline slowed to 0.5% in August and 0.2% in September, according to CBRE, the world’s leading property agency. The size of individual deals also fell over this period to just short of £14 million, this was the lowest level since the financial crisis in 2009. Central London office transactions declined by a staggering 66% from 2015, with only one deal being recorded larger than £100 million.

It is not only Brexit that has made the sector nervous, many investors are also looking at the recent rise in Gilt yields. This could make the sector yield less appealing on a relative basis. It also impacts those using leverage, as the cost of borrowing will rise, albeit from historically low levels.

In the US, levels of deal activity will continue to decline into 2017 and any rises in price levels are likely to slow down due to modest economic growth and ongoing political uncertainty. Once again the rising level of Treasury yields will also act as a material headwind. Investors are mostly focusing on primary markets and high-growth secondary markets in the United States.

28

For context, the respected Green Street Advisors Commercial Property Price Index advanced 5.7% on a yearly basis during the third quarter of 2016. Office vacancy levels are likely to continue to fall below the 10% level, heading towards 8%. The industrial availability is even tighter with only 6.9% of vacant space, whilst the retail sector still has levels comfortably over 11%. The level of foreign ownership remains an important swing factor for the market. In 2009, foreign purchases of US real estate assets was a mere $4.7 billion, by 2015 this had risen to a staggering $87 billion.

In Continental Europe there have also been strong returns in recent years in the sector and, although the cycle is maturing, it is far from over. The ECB’s QE programme continues to encourage a transfer of capital from the periphery to the core Eurozone, and this capital is chasing high-quality real assets in core Europe, especially Germany. The German economy will grow at around the same rate as the Eurozone as a whole in 2017, namely around 1.5%, which is somewhat slower than in 2016.

Office space remains very tight, with typical vacancy rates as low as 5%. This could lead to an increase in the demand for peripheral areas. Another sector forecast to do well is logistics, it is estimated that more than 4 million square metres of new logistics space will be completed again in 2017.

Overall, prime yields could still have scope to fall towards the 3% level. Office yields are likely to stabilise around 4% generally, with focus on high quality cash flow streams.

The picture in Asia is somewhat more mixed with the latest quarterly data showing prime commercial rents increased 0.6% quarter on quarter and 1% year on year at the end of the third quarter of 2016. Of the nineteen markets covered, whilst eight saw rising rents, there were six in decline.

Tokyo led the upside with a 6.5% growth, whilst Singapore in contrast saw declines of nearly 3%. Some of the amounts of new supply, notably in China, are staggering with 250,000 square metres coming into the Beijing market almost every quarter!

29

Region in Focus

South Africa in Numbers FRIDAY | 23 DECEMBER 2016 Below is a summary of some of the events that shaped 2016 – in numbers.

1/3 | On September 28, Belgium based AB InBev won approval for its multi-billion rand takeover of SABMiller, one of the largest deals of this nature in South African history. The combined company has operations in virtually every major beer market around the world and is responsible for roughly ⅓ of world beer production.

17.916 | January 11 ZAR “flash crash” and weakened to R17.9169 to the dollar following illiquid trade and fears around political upheaval in South Africa. Although concerned that the slide could continue, the currency strengthened considerably during the course of 2016 and traded around R14 currently.

355 | On November 2, the court ordered the Public Protector to release her 355-page State Capture report, after Zuma withdrew his interdict application. A similar application by the minister of co-operative governance and traditional affairs (and former finance minister) Des van Rooyen was struck off the roll. The report ordered Zuma to appoint a judicial commission of inquiry into allegations of state capture. It also raised questions about the process during which Gupta-owned Tegeta Exploration and Resources purchased Optimum Coal and the relationship between former Eskom CEO Brian Molefe and the Guptas. Molefe resigned as Eskom CEO a few days later, denying another wrongdoing or unethical behaviour on his part.

600 million | On March 16, deputy finance minister Mcebisi Jonas issued a statement, alleging that the Gupta family offered him the position of minister of finance to replace minister Nene. He rejected the offer “out of hand”, he said. Jonas later claimed during an interview with former Public Protector Thuli Madonsela that he was offered R600 000 in cash immediately as well as a further R600 million. The deputy minister’s allegations were arguably the event that set the wheels in motion for Madonsela’s investigation into state capture.

45 | On March 31, the Constitutional Court found that Zuma failed to uphold and respect the Constitution regarding his Nkandla homestead. National Treasury had to determine how much money Zuma had to repay. Once the court approved the proposal, Zuma had 45 days to pay back the money.

(Another!) 45 | In an outcome that many still have difficulty to fathom, Donald Trump was elected the 45th president of the United States on November 9. Democratic candidate Hillary Clinton, who was widely expected to become the next president of the United States, won the popular vote by a significant margin, but lost the election as a result of the Electoral College system.

52: On June 23, Britain shocked world markets when 52% of votes cast in a referendum were in favour of it leaving the European Union. Very few commentators expected the leave vote to win. Article 50, the formal mechanism to set Brexit in motion, is yet to be triggered and it remains unclear what the ultimate implications of the decision will be for Britain and its trading partners like South Africa.

5 | Five years since Christine Lagarde was first elected as its managing director and chairperson. Lagarde became the first woman to head the IMF. She has started her second term on 5 July 2016, but is facing the consequences of a guilty verdict for “negligence” over a huge payout to a French tycoon Bernard Tapie

6 | On August 31, fixed income asset manager Futuregrowth suspended loans to six South African state-owned (Eskom, Transnet, Sanral, the Land Bank, the Industrial Development Corporation and the Development Bank of Southern Africa) companies amid corporate governance concerns. The announcement opened a can of worms, with CIO Andrew Canter coming under fire for the decision. Futuregrowth has resumed lending to the Land Bank, the Industrial Development Corporation and the Development Bank of Southern Africa. It continues to engage with the other SOEs.

South Africa GDP Growth Rate

Industry Growth Rates Q3 figures as reported 09 December 2016 6%

4.1% 2.2%

Finance

3.5%

-2.1%

2.0%

0.8%

0.3%

2%

0.4%

Jan 2014

-2.0% Jul 2014

Jan 2015

Jul 2015

Jan 2016

-3.2%

-2%

-1.2%

Jul 2016

-4% Jan 2017

Construction

0.3%

Transport

0.3% Electricity

Mining -10%

Manufacturing 0.6%

-0.3%

-20%

1.8%

Personal Srvs

-2.9%

30

Trade

Government

0.2% 0%

-1.6%

1.2%

4%

Agriculture Mining 0%

5.1% 10%

20%

Facts in Focus A to Z of 2016

FRIDAY | 23 DECEMBER 2016 A - Apple: despite a challenging year still the biggest company in the world with a market cap of $600 billion B - Brexit: Vote to leave EU leading to the resignation of David Cameron C - Captain America: highest grossing film of 2016 with over $1billion box office revenue D - Democratic Alliance: the official opposition who now control Nelson Mandela Bay(Port Elizabeth), Johannesburg and Tshwane(Pretoria)

O - Oil: Rollercoaster ride for the oil price with oversupply still dominating the price P - Panama Papers: The distinction between tax evasion and tax avoidance getting blurred when these papers came to light Q - Quinton de Kock: This young wicket keeper is breaking records and at age 23 he has had more one-day international centuries than Graeme Smith had in his whole career R - Rand: Appreciated considerably after Nene-gate saga but still susceptible to shocks

E - Escom: Brian Molefe who resigned after being implicated in the Gupta State capture allegations

S - Springboks: A shock record-defeat against New Zealand and first-ever defeat against Italy

F - Fees must Fall: Another year of protesting at South African universities

T - Trump: Against all odds and as a shock to the world Donald Trump won the American presidential election which makes for interesting times

G - Gordhan, Pravin: Minister of Finance most hotly debated in SA in 2016. He tried his utmost to prevent a credit downgrade whilst at the same time fighting against an internal struggle in the ANC(his own party) H - Hlaudi Motsoeneng: Former operational head of the SABC – who claims to perform miracles wherever he goes I - ISIS: Attacking innocent civilians in major European cities and Istanbul J - Juno: NASA Space probe circumventing Jupiter’s orbit and transmitting valuable data K - Kim Kardashian: Made the news again when her jewellery worth $10.1 million was robbed in Paris L - Leonard Cohen: This famous artist passed away in November M - Moody’s: The credit ratings agency again considered downgrading SA’s debt, but in the end, neither confirmed nor amended their current rating on Friday 25 November N - Nkandla: The Constitutional Court finally brought the saga to a close by ordering President Zuma to pay back the debts incurred in the upgrading of his private residence

U - Usain Bolt: Another Olympic Games, 3 more gold medals for the fastest man on the planet V - VBS Bank: Small bank that lent money to President Jacob Zuma to enable him to pay back his debts incurred with his private residence Nkandla W - Wayde van Niekerk: SA’s most sensational 400m athlete did not only win gold in Rio, but also broke Michael Johnson’s record X - Xi Jinping: The Chinese president assumes title of “core” leader on par with Mao Zedong and Deng Xiaoping, but not having absolute power Y - Yellen: Chair of the Federal Reserve is caught between increasing rates and keeping Wall Street sedated, however a late December rate rise of 25 basis points was effected Z - Zika: The mosquito-borne virus made the headlines just before the Olympic Games in Rio, which had seen some events cancelled and others suffering low turnout, also amongst visitors

31 © Capital International Group 2016

Region in Focus Middle East

WEDNESDAY | 14 SEPTEMBER 2016

The term MENA is an acronym referring to the Middle East and North Africa region. MENA covers an extensive region, extending from Morocco to Iran, including all Middle Eastern Mashriq (east of Egypt) and Maghreb (North of the Sahara and west of the Nile) countries.

The population of the MENA region at its least extent is approximately 381 million people, about 6% of the total world population. The region is best known for its vast reserves of oil and natural gas that make it a vital source of global economic stability. According to the Oil and Gas Journal, the MENA region has 60% of the world’s oil reserves and 45% of the world’s natural gas reserves.

The MENA region has had a turbulent few years to say the least. Syria, Iraq, Libya and Yemen are in civil war, causing untold damage to human lives and physical infrastructure.

Fifteen million people have fled their homes, many to fragile or economically strapped countries such as Jordan, Lebanon, Djibouti and Tunisia, giving rise to the biggest refugee crisis since World War II. The current turmoil in Yemen has set that country’s development back several years. Blockades and repeated cycles of violence have made Gaza’s unemployment rate the highest in the world and with Gross Domestic Product at only 40% of its potential. The relatively stable oil exporters, such as Algeria, Iran and the Gulf Cooperation Council countries (GCC), are grappling with low oil prices alongside chronic youth unemployment and undiversified economies. On a positive note, political developments in Tunisia, Morocco, and Jordan indicate that citizens are increasingly engaging in policymaking.

This year appears to be one of the toughest for the region as MENA governments face serious policy challenges. The biggest challenge for oil exporters is managing their finances and diversification strategies with oil prices below $45 a barrel.

Fiscal consolidation in a difficult sociopolitical environment and spillovers from conflicts are creating challenges for oil importers as well. Persistently low oil prices, lower fiscal revenues and currency shortages have forced MENA governments to take austerity measures including cutting capital and current spending.

For example, more than $20 billion of projects may be cancelled in Saudi Arabia. This comes at a time when ongoing conflict and war in Syria, Iraq, Libya and Yemen are ravaging these economies and the refugee crisis is draining fiscal space in neighbouring countries. Furthermore, private sector growth, a source of job creation, has slowed down making it difficult to absorb the large of number of unemployed. The latest labour market data show that the unemployment rate has remained stubbornly high in Egypt, Iran, Iraq, Jordan, Morocco and Tunisia in 2016.

32

List of MENA Countries Algeria

Israel

Morocco

Sudan

Bahrain

Jordan

Oman

Syria

Egypt

Kuwait

Palestine

Tunisia

Iran

Lebanon

Qatar

Yemen

Iraq

Libya

Saudi Arabia

United Arab Emirates

Sometimes also included in broader definitions of MENA Afghanistan

Djibouti

Niger

Armenia

Eritrea

Pakistan

Azerbaijan

Georgia

Somalia

Chad

Mali

South Sudan

Cyprus

Mauritania

Turkey

Economic activity in the MENA region gained in Q3, helped by accommodative monetary policies in most countries, more stable financial and exchange rate markets, a slight increase in oil prices and stronger crude production. According to estimates, the region’s aggregate GDP expanded 2.5% yearon-year in Q3, up from Q2’s 2.1% growth. Nevertheless, the region appears to have entered Q4 on a weaker footing as an uncertain global outlook, doubts about the deal among the Organization of the Petroleum Exporting Countries to cut crude production and harsh fiscal adjustment processes are exerting downward pressure on growth. In this context, the PMI for the non-hydrocarbon sector in the majority of MENA countries deteriorated in October.

Attention remains focused on the possibility that some of the world’s key oil producing countries could agree on a production cut at OPEC’s ordinary meeting held at the end of November.

While markets were mostly optimistic about the pact following a preliminary deal in September, tough negotiations in October and November reflected the level of mistrust among some countries and revealed the sizable obstacles to finding common ground for a successful agreement.

Sahrawi Arab Democratic Republic (disputed)

Iran and Iraq are reluctant to reduce their output following years of supply restrictions, while Saudi Arabia asserted that any accord has to include lower quotas for all countries, but also claimed that the market would rebalance by itself even without an output cap deal.

Libya and Nigeria have boosted production in recent months following serious supply disruptions, which is adding pressure to an already unsettling situation. Moreover, Russia, which is pumping crude at a record high of above 11 million barrels per day, stated that the country is only potentially considering a freeze in crude production.

The outcome of the US election has added more complexity to the situation due to Donald Trump’s campaign statements against the nuclear deal with Iran and about banning imports from Saudi Arabia.

The Egyptian Central Bank surprised market analysts and announced the free-floating of the Egyptian pound on November 3rd. This move prompted the IMF to approve a $12 billion loan to the country and is expected to alleviate Egypt’s financial needs. However, the sharp weakening of the pound is pushing up import costs, particularly for food and fuel, which has the potential to trigger social unrest.

33 © Capital International Group 2016

The implementation of austerity measures in order to reduce fiscal gaps is also affecting other countries in the region. In Kuwait, anti-austerity supporters made significant gains in the recent parliamentary election, while tensions resurfaced in Tunisia following the approval of the 2017 national budget. The removal of subsidies and the reduction of fiscal support is hurting economic activity across the region.

Growing tensions among OPEC countries are casting a dark shadow on OPEC’s deal to cut oil production. The pact is crucial in order to prop up oil prices and improve fiscal and financial positions in a number of countries in the region and, ultimately, to revamp growth. Among non-oil countries, protests have flared up in Tunisia, while Egypt could suffer short-term pain following the implementation of economic reforms. Moreover, security threats are still high due to the widespread activity of jihadist groups. Against this backdrop, several analysts have decided to cut MENA’s 2017 economic outlook by 0.1% to 2.7%. This nevertheless still represents an improvement from the 2.4% growth expected for this year.

Regional growth is expected to improve slightly to 3.2% and 3.6% over the next two years, as governments across the region are consolidating their fiscal stance, undertaking reforms and trying to diversify their economies away from oil. The regional fiscal deficit is expected to stay at 9.1% of GDP in 2016, unchanged from last year. Nevertheless, all three sub-groups (GCC countries, developing oil exporters and oil importers) are expected to record significant deficits in 2016 and the next two years but with the prospects of reducing them going forward.

Iran, which is benefiting from its reintegration into the global economy and stronger oil exports, is expected to be the best performer in 2017. At the other end of the spectrum, Saudi Arabia and Lebanon, in that order, are expected to perform poorly, with expansion rates of around 1.5%. Of the rest of the major economies in the region, Egypt and Qatar will likely grow the fastest, with projected expansions of 3.5%.

Economic activity in the MENA region gained in Q3, helped by accommodative monetary policies in most countries, more stable financial and exchange rate markets, a slight increase in oil prices and stronger crude production. According to estimates, the region’s aggregate GDP expanded 2.5% year-on-year in Q3, up from Q2’s 2.1% growth. Nevertheless, the region appears to have entered Q4 on a weaker footing as an uncertain global outlook, doubts about the deal among the Organization of the Petroleum Exporting Countries to cut crude production and harsh fiscal adjustment processes are exerting downward pressure on growth. In this context, the PMI for the non-hydrocarbon sector in the majority of MENA countries deteriorated in October.

Attention remains focused on the possibility that some of the world’s key oil producing countries could agree on a production cut at OPEC’s ordinary meeting held at the end of November.

While markets were mostly optimistic about the pact following a preliminary deal in September, tough negotiations in October and November reflected the level of mistrust among some countries and revealed the sizable obstacles to finding common ground for a successful agreement.

34

Iran and Iraq are reluctant to reduce their output following years of supply restrictions, while Saudi Arabia asserted that any accord has to include lower quotas for all countries, but also claimed that the market would rebalance by itself even without an output cap deal. Libya and Nigeria have boosted production in recent months following serious supply disruptions, which is adding pressure to an already unsettling situation. Moreover, Russia, which is pumping crude at a record high of above 11 million barrels per day, stated that the country is only potentially considering a freeze in crude production. The outcome of the US election has added more complexity to the situation due to Donald Trump’s campaign statements against the nuclear deal with Iran and about banning imports from Saudi Arabia.

The Egyptian Central Bank surprised market analysts and announced the free-floating of the Egyptian pound on November 3rd. This move prompted the IMF to approve a $12 billion loan to the country and is expected to alleviate Egypt’s financial needs. However, the sharp weakening of the pound is pushing up import costs, particularly for food and fuel, which has the potential to trigger social unrest. The implementation of austerity measures in order to reduce fiscal gaps is also affecting other countries in the region. In Kuwait, anti-austerity supporters made significant gains in the recent parliamentary election, while tensions resurfaced in Tunisia following the approval of the 2017 national budget. The removal of subsidies and the reduction of fiscal support is hurting economic activity across the region.

Growing tensions among OPEC countries are casting a dark shadow on OPEC’s deal to cut oil production. The pact is crucial in order to prop up oil prices and improve fiscal and financial positions in a number of countries in the region and, ultimately, to revamp growth. Among non-oil countries, protests have flared up in Tunisia, while Egypt could suffer short-term pain following the implementation of economic reforms. Moreover, security threats are still high due to the widespread activity of Jihadist groups. Against this backdrop, several analysts have decided to cut MENA’s 2017 economic outlook by 0.1% to 2.7%. This nevertheless still represents an improvement from the 2.4% growth expected for this year.

Regional growth is expected to improve slightly to 3.2% and 3.6% over the next two years, as governments across the region are consolidating their fiscal stance, undertaking reforms and trying to diversify their economies away from oil. The regional fiscal deficit is expected to stay at 9.1% of GDP in 2016, unchanged from last year. Nevertheless, all three sub-groups (GCC countries, developing oil exporters and oil importers) are expected to record significant deficits in 2016 and the next two years but with the prospects of reducing them going forward.

Iran, which is benefiting from its reintegration into the global economy and stronger oil exports, is expected to be the best performer in 2017. At the other end of the spectrum, Saudi Arabia and Lebanon, in that order, are expected to perform poorly, with expansion rates of around 1.5%. Of the rest of the major economies in the region, Egypt and Qatar will likely grow the fastest, with projected expansions of 3.5%.

Growing tensions are casting a dark shadow on OPEC’s deal to cut oil production...

35

Group News, Activities, Appointments & Events Triple Centurion | Pete Miller SATURDAY | 22 OCTOBER 2016

Pete Miller, Senior Manager of Operations at the Capital International Group, recently completed the first African Centurion Walk on South Africa’s iconic Robben Island, the notorious location of Nelson Mandela’s captivity for 18 of the 27 years that he was behind bars until the fall of apartheid.

At the Capital International Group, our core values of integrity, innovation and excellence are very important to us and these were epitomised by Pete in completing this gruelling event.

An Isle of Man Parish Walk finisher, last year Pete completed his first Centurion Walk here on the Island. He then did it all again earlier this year in the Netherlands and was awarded his second coveted Centurion pin. On the 22 October, Pete took the Centurion one step further and joined a large contingent from the Isle of Man who were all working to the same goal; to complete the first African Centurion Solo Walk and be awarded the African Centurion No. 1 pin.

Pete’s third Centurion pin was undoubtedly his most challenging yet, and an achievement that only a handful of individuals from around the world have achieved. In addition to all the messages of support from friends, family and colleagues Pete was closely supported by the staff from both Cape Town and the Isle of Man, in body as well as in spirit. Anthony Long, Group Chairman, and his wife Helen were there to support Pete on the ground, and were inundated with encouraging words and messages of support for him from the Isle of Man throughout the race.

“The African Centurion Walk is a challenge that brings individuals of special character together, people with a zeal for conquering obstacles and those who believe anything is possible through perseverance, togetherness and embracing fellow humanity.” www.africancenturion.com

36

Nothing really sums up the whole experience more so than Pete’s own words: “The walk of my life turned into the race of my life at the weekend on Robben Island in the inaugural African Centurion Solo Walk.

Sixth overall and a time of 21 hours, 44 minutes and 29 seconds far exceeded what I was expecting in the build up to it and to knock around 1 hour 25 minutes off my personal best really has shown myself what is possible when a few risks are taken.”

The race consisted of 54 solo walkers from South Africa, the Isle of Man, the Netherlands, Australia, USA, UK and Belgium. Less than half the starters completed the race. There were also a further 20 teams of 4 walkers in the relay race. Pete continued: “The walk started in the midday heat with a 7.6 mile circuit to begin with before settling into a 4.4 mile loop for an incredible 21 times which I enjoyed as it was a little different than I had walked on in previous Centurion qualifiers. There were a couple of significant inclines, a coastal road which then opened you up to the elements, with a view back to Cape Town that was incredible at sunset and night, but to see the sun rising in the morning was truly amazing.”

“There was a sense of honour to the whole event, being able to walk amongst the wildlife amongst a colony of sea birds which made you feel very welcome each lap along with the smell of fish, springboks running around, tortoise crossing in front of you (sometimes moving quicker) and at one stage I had to wait as around 40 penguins crossed the road! Oh and that’s not all, in addition to the snake someone spotted, in the middle of the night a spider as big as my hand scurried across my path…”

“The weather always plays a big part in these events and this proved no different. Very hot during the day, cold and windy especially on the coast road during the night, with little cover from trees you were exposed all day long to it.”

“But my hydration and food intake were spot on and my thanks goes to Helen and Anthony Long for being brilliant support. Simply put I wouldn’t have finished it without them. Plus thanks to all the messages of support coming throughout the event via Facebook which was being relayed to me. It really does make a difference knowing people are looking out for you.”

At the end of the day the Manx dominated the top order (1, 2, 4, 5, 6 and 7) with Richard Gerrard winning the coveted number 1 African Centurion pin, Jeanette Morgan coming in as first lady and our own Pete Miller coming in sixth. It surely was a good day to represent the Isle of Man and showcase what we are capable of on an international stage. As they crossed back to Cape Town on the ferry everyone was afforded a special moment as a pair of whales surfaced to draw the curtain to an extraordinary event that Pete and everyone involved felt privileged to be a part of.

“I recall in the early hours of Sunday morning, shortly before dawn and about 16 hours into the race, Pete asked me how far he had walked. I said ‘you’re doing great, 74 miles completed and you are well ahead on time’. He looked at me exhaustedly and said, ‘that’s great, only a marathon to go then!’ and promptly walked off into the night. I was left stood there dumbfounded and he walked on for another six hours to complete the race!’

Defining a Champion A champion is not made when they succeed; a champion is made when you look back at the ...seconds, minutes, hours, days, weeks, and months, ...they have spent preparing!

Pete now becomes one of a handful of individuals globally to celebrate being a triple-Centurion. A true champion in our eyes, with the level of commitment and dedication that is truly inspiring.

Commenting after the race, Anthony said ‘I had no idea what to expect. I knew that we would be spending 24 hours on Robben Island and that was about it. The mental and physical torture that the Centurions put themselves through to complete this gruelling event is staggering. You simply can’t pitch up and expect to complete the race, and even if you have the physical fitness to carry you though, the mental strain is crippling. It is difficult to adequately capture in words the mental pressure, and the single minded focus and determination required. It’s a personal battle that rages unseen in each competitors mind.”

37

Capital Christmas Community Spirit

WEDNESDAY | 16 NOVEMBER 2016 Whilst Christmas was rapidly approaching, we wanted to give something back to the communities we operate in. So, this year we decided to focus on the MHA Live at Home Charity across the Isle of Man, along with Nazareth House in Cape Town.

Both these charities need funding; so we looked to raise funds through the more traditional methods of running cake-bakes and leg waxing. Our purpose was to raise as much money as we can, with the Capital International Group generously agreeing to match the total funds raised!

The level of goodwill from our staff, friends, family and surrounding businesses has been amazing. So much so we also got involved with the Live at Home charity shoebox hamper appeal as well as running a prize draw with the help and generosity of local businesses who we have gone out to and thanked individually.

Shoebox Hampers

We needed your help, to help the island community this Christmas!

The Capital International Group also put together shoebox hampers for the Live at Home charity on the Isle of Man. We were looking for fully packed shoebox hampers but were also happy to take items to go into them.

The Group successfully package up and delivered a car-load of shoebox hampers on Wednesday 14th December to Jan Farrell at the charity. With the hampers being distributed throughout the rest of December and at the Live at Home Christmas Craft & Carol Day on 21st December.

Christmas Prize Draw

We wanted to give something back to the local community so this year we have decided to focus on the MHA Live at Home Scheme The prize draw was limited to 200 tickets, priced at £5 with the draw taking place on 3rd December along with some great prizes.

Grand Total

Everyone played their part and helped raise £1,000 from the prize draw, with the proceeds being matched by the Capital International Group. We were delighted to hand over a cheque to Douglas Live at Home Scheme for £2,000 - a very welcomed Christmas present for the charity. We are still in the process of collecting contributions and donations from the sponsored fund raising, leg-waxing and cake bakes and we will be making the presentation to Nazareth House in the New Year.

38

Live at Home schemes are local community projects aimed at helping older people to maintain their independence by providing them with a variety of services and support.

Douglas Live at Home Scheme, Willaston Methodist Church Barrule Road, Willaston, Isle of Man, IM2 6LB | T: +44 (0)1624 627778

www.mha.org.uk/community-support/live-home MHA is a Registered Charity in lsle of Man No. 715

Nazareth House aims to provide stable and secure care for not only children but for the elderly too. They look to provide security, dignity, comfort and peace in their twilight years of life.

Nazareth House, 1 Derry Street, Vredehoek, Cape Town, 8010, IM2 6LB E: info@nazhouse.co.za | T: +27 (0)21 461 1635

www.nazhouse.org.za

Nazareth House Cape Town is a registered Non-Profit-Organisation No. 038-257

Stellenbosch Cycle Tour Peaks & Troughs SUNDAY | 04 DECEMBER 2016

Lounging in the summer heat of South Africa would be hard enough but could you imagine cycling 97 kilometres?

The highs and lows of the terrain it would push anyones endurance to the max - but almost 4,200 competitors turned out tot alk the course in Stellenbosch. Congratulations to James Fitzpatrick from our Cape Town office and Steve Black down in South Africa for completing the 97km Medallion Tour de Stellenbosch.

James completed the course in a total time of 4 hours 23 minutes and 26 seconds, which was just 4 minutes 2 seconds ahead of his race partner, Steve.

Great Teamwork | Karen, two friends and a bicycle

Doing it for Debs Relay for Life SATURDAY | 08 OCTOBER 2016

A massive congratulations to the tough Capital International Group men and women for completing the annual Tough Mann Adventure Challenge on 06 August.

Kirsten Gorry and a team of volunteers from the Capital International Group, as well as friends and family took part in the Cancer Research Relay for Life. Everyone involved took turns to walk around the track at the National Sports Centre in Douglas over a 24 hour period back in August.

Now that the dust has settled the final figures can be collated. It is with great pride that we can announce that the team alone raised £853.46 which is a fantastic achievement. In addition, the Capital International Group kindly offered to add £1,746.54 to the sum raised bringing the overall group total to £2,600. However, the good news doesn’t end there, with all the other donations from friends and family the total has surpassed the £3,000 target that Kirsten set and is currently at £3,828.90.

TUESDAY | 04 OCTOBER 2016

The annual Freshpak Fitness Festival marked its 30th anniversary on Saturday 1 October in Clanwilliam, South Africa. The scenic outdoor surroundings, challenging routes, comradery and a sense of accomplishment are the reason athletes come back year after year.

Kirsten, Operations Director at the Group commended everyone across the Isle of Man and around the UK saying “All money raised will support Cancer Research UK's life-saving research into preventing, controlling and curing all cancers. Every step we make towards beating cancer relies on every pound donated and every donation makes a real difference! All those involved at the Capital International Group would like to thank their friends, family and everyone that helped or took part for their generosity, support and kindness. United we are stronger than cancer!”

Due to enthusiastically loyal support over the years, the event has reached this momentous milestone and saw around 1,350 athletes geared up to compete in various swimming, cycling and running challenges. Every year the festival takes place in the heart of Rooibos country. It always pulls out all the stops with an exciting programme of multisport activities and entertainment. It has become a tradition for athletes, family, friends and travellers to descend on Clanwilliam to take part in and enjoy the great sporting and festive atmosphere.

Our own Karen Blackmore, from our Cape Town office, took to the water for the first part of the team triathlon with almost 400 other competitors and teams. As part of ‘Triple the Fun’, she bravely tackled the 800 metre swim, whilst her team mates Michelle Wallis and Lynn Morrison attacked the 20 kilometre cycle and 5 kilometre run finishing in a fantastic time of 1 hour 55 minutes and 16 seconds.

Everyone at the Capital International Group would like to congratulate Karen and her fellow team mates on this gruelling but fantastic achievement.

Back Row from left to right Julie-Anne Osland | Karen Le Moal | Olivia Ramsay | Helen Long | Gill Porter | Daren Ward | Alena Vankova | Kerry Austin In the front Ros Lynch | Kirsten Gorry Also, big thanks to Anthony Long | Pete Miller | Pauline Clague who also took part on the day.

39

Children in Need

Let them eat cake...

MONDAY | 26 SEPTEMBER 2016

In support of Children in Need the Capital International Group organised a charity bake-off, with the proceeds from the sale of such delights going to the charity.

The response from everyone was amazing with all sorts of sweet delicacies baked and presented to His Excellency Sir Richard Gozney, the Lieutenant Governor to judge.

Lauren’s lovely double chocolate cupcakes, beautifully decorated gave her victory over Tamsin’s coffee & walnut cake and Cole’s more traditional Victoria Sponge who came in second and third respectively.

A big thank you goes out to Kerrin Fisher in our Cape Town office who went round the building at Great Westerford selling her Superhero cupcakes.

Celebrating 10 years with the Group MONDAY | 17 OCTOBER 2016

Neil Cullington, dealing manager, and Pete Miller, senior operations manager, both celebrated their 10 year anniversary with the Capital International Group with a toast from the Chief Investment Officer, David Long.

Both joined us with a huge wealth of industry knowledge and experience, which has continued to grow over the last decade. Both Neil and Pete have been instrumental in the evolution of our open architecture dealing platform and operational business support.

David Long went on to say that both have been a credit to the Group and would like to extend the Board’s thanks.

Everyone within the Group would like to congratulate both Neil and Pete on this milestone and look forward to the next 10 years!

Fun was clearly had by all in both the making and eating of the cakes. Well done to everyone!

Celebrating 21 years with 9 years experience TUESDAY | 18 OCTOBER 2016

We all know you should never ask a lady her age...

So, everyone at the Capital International Group wished Zoë Dawson a happy 21st birthday and congratulated her on her 9 years experience! We know that Zoë had a great day and enjoyed the cake and presents!

40

This document has been prepared for information purposes only and does not constitute an offer or an invitation, by or on behalf of any company within the Capital International Group of companies or any associated company, to buy or sell any security. Nor does it form a constituent part of any contract that may be entered into between us.

Opinions constitute our judgement as of this date and are subject to change. The information contained herein is believed to be correct, but its accuracy cannot be guaranteed.

Any reference to past performance is not necessarily a guide to the future. The price of a security may go down as well as up and its value may be adversely affected by currency fluctuations.

The company, its clients and officers may have a position in, or engage in transactions in any of the securities mentioned.

Isle of Man | Head Office Capital International Group Capital House Circular Road Douglas Isle of Man IM1 1AG www.capital-iom.com T: +44 (0) 1624 654200 F: +44 (0) 1624 654201 E: info@capital-iom.com

Capital International SA Office NG101A Great Westerford 240 Main Road Rondebosch 7700 South Africa www.capital-sa.com T: +27 (0) 21 201 1070 E: info@capital-sa.com

The regulated activities are carried out on behalf of the Capital International Group by its licensed member companies Capital International Limited, Capital Treasury Services Limited, Capital Fund Services Limited Capital Financial Markets Limited and Capital International Fund Managers Limited are all licensed by the Isle of Man Financial Services Authority CILSA Investments (PTY) Ltd, trading as Capital International SA, is licenced by the Financial Services Board in South Africa as a Financial Services Provider (FSP No 44894) Capital International Limited is a member of the London Stock Exchange Registered Address: Capital International Group, Capital House, Circular Road, Douglas, Isle of Man, IM1 1AG Registered Address: CILSA Investments (Pty) Ltd, Office NG101A, Great Westerford, 240 Main Road, Rondebosch 7700, South Africa

CIG - Investment Review Q4 - 2016 - V2.02-01.17

South Africa Office

Capital International

in