Tsetsekos

DREXEL UNIVERSIY

LeBow College of Business Transitioning to a new Equilibrium of Growth-driven Market GIC Conference London PRESENTED BY

GEORGE TSETSEKOS Dean Emeritus and Francis Professor of Finance May 8, 2014

Transition

From Crisis to Stability Crisis in US ďƒ Global Amplification Policy Responses

Stability Transition

Moving towards normalization • USA o Normalization of monetary policy- EXIT? o Too soon or too late?

• Emerging Markets o

More financial balancing needs as liquidity moves abroad

• EuroZone o From GreekExit to Movement toward integrations o Progress but picture is mixed

• Japan o From deflation to reflection o Much work needed

Rotational Markets with limited equity

upside

Global Inflation is Contained

Change in Total US Non-Farm Payroll Employment

US Auto Sales Rebound

CAPEX Spending

Recovery in the EuroZone

EU Recovery and the Periphery

Japan: Modest GDP Gains and an uptick in

Inflation

The Business Cycle and Equity Market Performance

Opportunity in Growth Stocks

S&P 500 P/E

Attribution of Equity Market Performance

Emerging Markets

Interest Rates and Capital Flows to EM

Volatility and EM Capital Flows High Volatility

Low Volatility

Emerging Markets (EMS) Attractive P/Es vs. Global Averages

Convertibles Shining again

US Equity Market Performance

Rising rates Led to Sideways Market

Sector Allocation during Rising Interest rates environment

•During Periods of Rising Interest Rates…

•Cyclical sectors historically outperform defensive sectors

•Past performance is no guarantee of future results. Source: Wells Capital “Confidence Runs Through Stock Market. Sectors shown have material differences and represent segments of the S&P 500. Daily fluctuations in specific market sectors are often more extreme than fluctuations in the overall market.

1

Global Outlook: Cautiously Optimistic US: Economic Recovery Poised to Continue at Moderate Pace » A number of important metrics beat expectations last week •

Strength in job growth, GDP, auto sales, manufacturing while unemployment fell below 6.3%

» FOMC has started tapering » Grand rotation may have begun; money flowing out of bonds and into equities – RISK ON! » A resilient consumer is well positioned to support recovery

Euro zone: GDP Growth Improving, More Work Ahead » Promising strides for EU, structural imbalances remain » Valuations in Europe compelling; pointing toward economic improvement

EMs: Still a Source of Global Growth » Near-term growth has slowed, but secular stories remain intact » Growth of EM middle class important long-term theme

Global: Dominant Theme of Synchronized Global Expansion » Global manufacturing numbers improved significantly » Recent positive data for Eurozone, Spain, UK, Japan, Indonesia, India, Canada, Australia, Malaysia and Taiwan » Global economic growth; good for the U.S. z

Returns Performance

Higher Multiples contributed to Sell-off

High Growth, High Correlation