Tsetsekos

DREXEL UNIVERSIY

LeBow College of Business Transitioning to a new Equilibrium of Growth-driven Market 2014 GIC Conference in 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

Towards Stability?

• 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

S&P 500 P/E

Attribution of Equity Market Performance

Returns Performance

Higher Multiples contributed to Sell-off

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

Emerging Markets

Interest Rates and Capital Flows to EMS

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.

G T

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

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! » 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 improvements

EMs: Still a Source of Global Growth » Near-term growth has slowed, but secular stories remain intact » Growth of middle class in Ems is an 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. GT-Summary