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Vontobel Private Banking The magazine for private clients Winter Edition 2011

Forecasts

Vontobel Private Banking Das Magazin The magazinefür forPrivatkunden private clients Ausgabe Frühling 2010 Winter Edition 2011

Forecasting in a global enterprise: Peter Brabeck: “I will fight for every drop of water” Demographic projections: Old north, young south Macro: Global shifts as drivers of new investment opportunities

Forecasts Forecasting in a global enterprise: Peter Brabeck: “I will fight for every drop of water” Demographic projections: Old north, young south

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Macro: Global shifts as drivers of new investment opportunities

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“We all know that any clear forecast or unambiguous estimate for the future is wrong.” Peter Brabeck-Letmathe, Chairman of the Board, Nestlé

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Editorial a reflective mood: Water as a natural resource is becoming scarce, and Brabeck is fighting for every drop. In spite of a gloomy prognosis, however, the optimist is (still) confident in the future. Whether the glass is half full or half empty is a question that also occupies Vontobel’s specialists, whose forecasts are applied to the advantage of our investors. In addition to applying experience and knowledge, thinking in terms of future scenarios to explore the outlook for growth, the debt situation, as well as exchange rate developments will make all the difference in 2011. In the profile of Professor Hens, you will learn about new insights in Behavioural Finance which are being taken more and more into account – insights that in Private Banking we will be profitably applying in 2011. Dear readers, Wishing your glass is always at least half full. “I think about the future a lot, because that’s the place where I’ll be spending the rest of my life.”

Yours sincerely,

This is how Woody Allen answered a question about what was on his mind on his 75th birthday. We have taken this witty quotation to heart – it is not only a wry quip but also a sentiment to be taken absolutely seriously. Accordingly, with our editorial theme “Forecasts”, we grapple with the future from several different points of view.

Peter Fanconi Head of Private Banking peter.fanconi@vontobel.ch

I was especially pleased that Peter Brabeck-Letmathe, the Chairman of Nestlé, took the time to address our questions. Our very interesting conversation with him put us in

Content

Photo: Corbis

Theme: Forecasts ∙ Peter Brabeck: “I will fight for every drop of water” 4 ∙ The future, one wing beat ahead 10 ∙ The human factor 12 ∙ Old north, young south 14 Macro: Global shifts as drivers of new investment opportunities

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Opportunities: Of India and other emerging markets

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Blue Pages: News from the Vontobel Group

26

Care & Share: The laughter of children is the greatest gift I know

28

Column: Reading the signs

29

Culture and cuisine: Inside Zurich

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Theme

Nestlé is the largest food company in the world. If you think of Nestlé, you think of Peter Brabeck-Letmathe. Since 1997, the 66-year-old Austrian has been at the helm of the company, leading it to its present position. In our conversation with Brabeck, he discusses forecasting the future, challenges in the company, and water. “Water,” he says, “is the basis of life, and it is threatened today like never before in human history.” Interview by Peter Fanconi and Johann Thalheimer

Theme: Forecasting in a global enterprise

Peter Brabeck: “I will fight for every drop of water” Many companies swear by planning tools and cheerfully produce their five or seven-year plans. Do you do this, too? I don’t think much of those things. Nothing but a waste of time! We all know that any clear forecast or unambiguous estimate for the future is wrong. This is the first point. The second point: Multi-year plans often lull a company into a false sense of security. They give the executives the impression that they are mastering the future. But we are not mastering anything at all. The only thing we can do is observe the changes in every market very closely, and immediately respond to these changes. For example, I am not aware of any bank in the world that predicted the financial crisis in its multi-year plan. And yet, for the entire banking industry, this crisis was by far the most seismic event that has occurred in the last few years. Worldwide, Nestlé sells 1.2 to 1.3 billion products every day. This requires enormous knowledge about people’s needs. Do you rely on forecasts to do this? Nestlé is economically successful because we do not believe in a “global consumer”. We believe instead that every consumer on earth is anchored locally and wants to be perceived as an individual. We don’t need forecasts for this. We simply try to care about 6.5 billion citizens of the world as individually as possible. What does that mean in concrete terms? We need an organization that is as close as possible to everything the consumer can see, smell and taste. This is the only way we can learn how consumer behaviour is

changing. So on the one hand, Nestlé must be as decentralized and close to the market as possible. On the other hand, because we also want to be efficient, our operations need to function in a highly centralized manner. How do you reconcile these two countervailing demands? As recently as fifteen years ago, Nestlé was a supertanker – a supertanker of the food industry. Now a supertanker is something very powerful, but it is not very nimble. In the market of the future, the only company that is going to be successful is the one that can quickly and flexibly respond to customer needs. So we began to rebuild the Nestlé supertanker. Today, Nestlé is organized entirely differently: We have a fleet of faster, smaller attack ships. These quick-manoeuvring ships operate in a decentralized way. They are followed by bigger supply ships, which are organized centrally so that they are efficiently available to all the fast boats. In other words, there is no central product strategy? Every product category has its own organization at Nestlé, and each one may take a very different shape. Nespresso, for example, is very successful worldwide. Therefore, in the case of Nespresso, we have the same machines and the same product everywhere in the world. With a luxury product – and Nespresso is one – you have to retain distribution in your own hands and promote the product worldwide following the same marketing formula. In other words, a luxury product is managed much more centrally than a mass-market product. When it comes to Maggi or Thomy products, it works the other way round. Here, each

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Photo: Gian-Marco Castelberg, 13photo

Peter Brabeck-Letmathe doesn’t think much of forecasts.


individual product needs to be adapted to the local market and to the tastes of local consumers. So in Germany, our Maggi soups are regarded as a German product, and in Chile, they’re perceived as a Chilean product.

ness Excellence. Over 2,000 people worked on the project over six years, and we invested over three billion francs in it. Up till now, no other private company in the world has undertaken a similarly far-reaching project. Nestlé is benefiting from the insights that Globe delivered to us. We have shown that complexity and efficiency are not mutually exclusive. Globe has made us the most competitive company in the consumer goods industry.

“It is not a human right to have w ­ ater to waste washing our cars, irrigating golf courses and filling up private s­wimming pools.”

Photo: RDB

This must create enormous complexity. How can it be managed? For many years, we also thought at Nestlé that complexity is inefficient. Our “Globe” project came to grips with exactly this problem. By “Globe”, we mean Global Busi-

Big decisions Peter Brabeck-Letmathe does not make them sitting at his desk.

What prompted Nestlé to launch such a huge project? Before Globe, we had a turnover of around 55 billion Swiss francs. Already then, we occupied a leading position in the industry. But we also felt that the company was approaching a limit. Let me explain it with a comparison to flying a plane. There was a feeling like when a pilot is approaching the speed of sound in his plane. It took more and more effort to increase the speed by just a few more kilometers an hour. The effort increased disproportionately – but the

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results did not. The structure of the company at that time was appropriate for sales of up to 50 or 55 billion, but it was not suited for aiming at a turnover of 100 billion. And then the bright idea suddenly fell from the sky? At least not from the sky above Vevey. The initial idea for restructuring the company occurred to me in Chile during manoeuvres of the Chilean Navy. In Chile? During a naval manoeuvre? I had been invited by an Admiral to observe a joint manoeuvre of the Chilean and British Navies. I spent two days with the Admiral in the command flagship, and I had a generous opportunity to see how he organized and mastered his extremely challenging tasks. It was there that I first glimpsed a model that was complex and yet highly efficient at the same time. I saw the quick and flexible high-speed craft with their decentralized decision-making autonomy, and the supply ships sailing behind them that were under centralized command, providing essential services for all the high-speed vessels. Very quickly I realized that Nestlé could learn something from this. And so we did. Have you always been inspired by your best business ideas outside of the office? In my professional life, I have never yet made a big and important decision in the office. Sitting behind a desk in an office desk strikes me as the worst place ever to take big decisions. In the hectic day-to-day life of a company,

or skip over one. In the Anglo-Saxon world today, there is a notion that it would be best if the head of a company doesn’t understand too much of the business. With all due respect, I think that is a completely absurd idea. After all, no one would dream of putting someone in the cockpit of a Formula 1 car who doesn’t know how to drive. That is not the way you create a world champion, and it is not how you make a company the best in the world, either. At Nestlé, we are definitely not of the opinion that we can go get successful leaders anywhere when they are only managers. No, they need to know our industry – and not just for a hundred days. Someone can only be successful who has experience. Is this to some extent a part of the Nestlé culture? Absolutely. This belief stems from Nestlé’s long-standing corporate culture. That already existed long before I joined the company. Nevertheless, the future cannot always be mastered using formulas from the past. So once again, may I ask, what value do forecasts have for you? At Nestlé, we are not futurists, nor do we put all that much faith in forecasting. In our day-to-day operations, forecasts provide us with relatively little help. Or to express it more clearly: Every forecast is wrong – some more wrong, others less. That is why at Nestlé we don’t make long-term forecasts. But that doesn’t mean we don’t think about the future. We work with scenarios. We think about what factors will ­affect our business the most and then examine these factors in detail. What do they react to? How much do they change? But no forecasts are derived from this process, but rather scenarios.

“Sitting behind a desk in an office desk strikes me as the worst place ever to take big decisions. I personally have managed this much better at sea, in the mountains, or on a bike, because in those situations I was able to find the necessary distance and privacy.” the people responsible for the decision will never find enough time and distance to be able to analyze the really important questions in detail. I personally have managed this much better at sea, in the mountains, or on a bike, because in those situations I was able to find the necessary distance and privacy. I have always tried to dissect problems, then reassemble them and disassemble them once again. What was important for me was to consider new questions from every angle and not always to be heading directly for a solution. There are many possible solutions – the trick is to ferret out all the relevant solutions and choose the best one. Such a process takes time. In the office, you rarely have any time. By today’s standards, your career is very atypical. You have spent your whole professional life at Nestlé, rising up the ladder from rung to rung. This kind of career path almost doesn’t exist any more. It was very important to me that I should not miss a stage

You have mentioned several times that you observe consumer behaviour very closely. Are you assuming that patterns of consumption will change significantly in the next five or ten years, or more? Yes, they will. An example: Human life expectancy is increasing very rapidly. In the year 1800, people in Europe reached an average age of 35 years. Today, it is 78 years. If you take the curve of rising life expectancy and next to it add the curve of people’s calorie intake, you see something interesting: Over the years, the two curves move largely in parallel. The inadequate calorie intake of people in the year 1800 reflects the fact that at that time, lack of food and hunger prevailed in many places, and this kept life expectancy low. However, since 1995 the curves are no longer moving in parallel: Where the calorie intake continues to rise, life expectancy suddenly collapses. In other words, if you eat more calories, you are reducing your life expectancy. Not a favourable development for a food producer… It is a breaking development that Nestlé had to respond to immediately. Because with this information, the most important correlation for Nestlé’s business changes. This was one of the key reasons why we concluded that our future does not lie only in the food business. We needed to expand our range of business, and that is how we arrived at the three areas Nutrition, Health and Wellness. Today, our


goal is not to sell more calories, but better calories. That was Nestlé’s major strategic repositioning. I am convinced that if Nestle had worked with long-term plans and forecasts, this crucial detail would have remained undetected, because this breaking development was completely unforeseeable to everyone – as unforeseeable as the financial crisis was for the banks.

Have government policies then set the wrong course with regard to water utilization? Government policies haven’t set any course at all yet. That would be the case if governments would say, for example, “No food for fuel” and prohibit the transformation of food into bio-fuels. From a sustainability standpoint, this is an absolutely destructive business. For the production of one litre of bio-ethanol, up to 4,000 litres of water are used. And to make one litre of bio-diesel, you need even more water: up to 9,100 litres. These are extremely poor results – they ought to be forbidden. By the way, with some biofuels the CO2 emissions are higher than with normal fuel. Do you expect that in future, it may come to conflicts over water use? I don’t see a war starting over water, if that’s what you mean. But I wouldn’t rule out that at some point, there could be a conflict in which water would be used as a pretext for war. In the Middle East conflict, which has remained unresolved for decades, there is a single project that survived both Intifada 1 and Intifada 2 – a water project. Somehow that seems a reason for optimism. It demonstrates that water could also bring about peace and reduce conflict. Isn’t it unusual that you are so intensively involved with the issue of securing water as a resource? Actually, one would expect that this would be a priority for governments – after all, it is about securing a resource that is vital to life on our planet. The problem of water, first of all, is that it is always a local, regional problem. In Switzerland, we have enough water. So it doesn’t have to be an important priority on the political agenda in Switzerland. In other parts of the world, however, water is an explosive issue, one of unprecedented urgency. Many politicians from these countries tell themselves, if I want to be re-elected – and all politicians do – then I'm better off not to touch this hot topic. They know that implementing unpopular measures won’t bring

Photo: Gian-Marco Castelberg, 13photo

For a number of years, you have been personally involved with water and the importance of water as a basic element of human, animal and plant life. What is your prognosis for water as a natural resource? On this particular subject, I do trust a forecast. But only because Nestlé commissioned a comprehensive study of the 154 largest bodies of water on the planet. It also concerns issues of water wastage and the sustainable use of water. The conclusion is alarming: From a global perspective, humanity today already uses much more water than would be permitted under a sustainable water management programme. Each year, the global water budget sustains a deficit of about 300 cubic kilometres. And this will continue to increase, as long as there is no price for water. This is because something that has no price, has no value – and gets wasted. In addition, all those countries that rely on bio-fuels have to take into consideration that their water consumption will increase sharply.

them any praise; it will cost them votes. At the World Economic Forum in Davos, a responsible ministerial-level official openly admitted that. He said that if he were to address the issue as we proposed, he was sure to be voted out of office. Voted out for demanding that water must be priced. Because, as experience shows, people only handle something sparingly if it has a price; anything that costs nothing will be wasted. That’s right. Policy makers hold the view that the water issue can be solved on the supply side. This is wrong. It's no good to simply build more dams in order to have larger reservoirs of water. Nor does it help to make greater use of the world’s large rivers. As a resource, water has no more untapped potential; it is hopelessly over-used. Already today, the five largest rivers in the world are not carrying enough water to the sea. If you look at the facts, you cannot get around the clear conclusion that the problem can only be solved on the demand side. But politically, this is much less interesting, because it means that you have to ask people to make some sacrifices. Over the last few years, you have occasionally been sharply criticized for holding this position. But apparently this criticism hasn’t affected you? Quite the contrary. It is more necessary than ever that the human race face up to this survival issue. Here and there, I have been purposely misunderstood in public. I have never denied that access to water is a human right. Everyone


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should have his daily five litres of drinking water for free, and on top of that another 20 litres, which are needed for a minimum of personal hygiene. This is completely undisputed. Guaranteeing this basic demand for everyone would be no problem, as this would only account for two percent of annual water use worldwide. What I am interested in is the other 98 percent, a nice part of which is wasted or provided for luxury requirements – more or less free of charge. What luxury needs are you referring to? It is not a human right to have water to waste washing our cars, irrigating golf courses and filling up private swimming pools. It is not a human right to use 9,100 litres

I will intervene very strongly if I see that we are falling by the wayside when it comes to sustainability measures. In our industry, Nestlé is one of the companies that use the least water today. Per dollar of turnover, we have reduced our water consumption from 4.5 to 1.5 litres. This is a huge step forward. But there are still many diverse industries with great potential for economizing on water – for example, the paper, energy or petroleum industries. What is it that motivates you to get so involved in the issue of water security? I am of the opinion that we should not predict the future with forecasts. It is much better to shape the future day by day. My commitment to ensuring sustainable water security for all the people of the world is not a question of philanthropy or ideology. The explanation is much simpler: In 2006, Nestlé celebrated its 140-year anniversary. Back then I asked myself, what is the most important factor that would assure that 140 years later, Nestlé will be able to celebrate its anniversary again? An analysis showed me that for our company, water is of existential significance. We need water for our raw materials and in product manufacturing. Our customers need water so they can prepare our products, and finally, we also sell people drinking water of high quality. So if we want to continue creating value together, then we must assure that water will still be flowing.

“I am of the opinion that we should not predict the future with forecasts. It is much better to shape the future day by day.”

of water to produce one litre of bio-fuel. Today, we are undertaking all this environmental nonsense only because a litre of water doesn’t even cost one penny. In future, if someone wants to use water for these luxury purposes, he should pay a price for it. The value of water is now practically zero today. And that's the problem. If you have ever traveled through Italy and Spain, time and again you will see farmers irrigating their fields at mid-day. Everyone knows that at this time of the day, 75 percent of the water evaporates before it seeps into the soil. If these farmers had to pay a real price for this water, no one would be irrigating at noon – and they would save three-quarters of the water consumed now. Producing foodstuffs consumes a lot of water, too. Does Nestlé use water sparingly, or is the company itself one of the big sinners? We have made tremendous progress in the past few years in terms of economical consumption and efficiency in the utilization of water. In addition, the company is aware that

Peter Brabeck-Letmathe joined Nestlé Austria in 1968 after completing his studies in management. Later, the native of Villach in Austria’s state of Carinthia spent 17 years for the company in Chile, Ecuador and Venezuela, moving to the group’s headquarters in Vevey in 1987, when he was given worldwide responsibility for the Products Division. The Board of Directors appointed him as CEO of Nestlé in 1997, and in 2005 came the added responsibility of Chairman. Since 2008, Brabeck has limited his role to that of Chairman of the Board – not least in order to have more time to analyze the pressing global water issue. An exciting insight into the career of the now 66-year-old Nestlé top manager can be found in the book “Gemeinsam Werte schaffen” (Creating Value together), written about Brabeck by Friedhelm Schwarz (published by the Stämpfli Verlag, Bern).


Theme

Since her days as a student, economist Karin Frick has been preoccupied by the future. Forecasts, trends and countertrends are her métier. As head of research at the Gottlieb Duttweiler Institute, however, it is not all about mere prognosticating. In their studies, they attempt to explore the non-familiar landscapes of the possible.

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By Johann Thalheimer

Theme: Forecasting in trend research

The future, one wing beat ahead For centuries, people have been consulting the future. Will things get better? Will they get worse? What will stay the same, and what will change fundamentally? There is no doubt, however, that the world of tomorrow is being prepared today. So what tomorrow will bring should have an impact on the decisions we make today – and not just the decisions of individuals but of companies, too. Everyone constantly makes decisions, big or small, that are based on assumptions. These assumptions are almost always connected in some way to an expected, or feared, future development. This is one of the reasons why predictions of all kinds have always found their audience, and always will. In the “future industry”, all kinds of players occupy a niche: fortune tellers, horoscope writers, prophets of doom, risk managers, analysts, and of course, trend researchers. Karin Frick considers herself part of the serious segment of future researchers, i.e. those who work with empirical and scientific methods. The Rüschlikon-based economist has a very pragmatic understanding of trend research. “We are not oracles,” she says tersely. “We cannot tell you today exactly what will happen in 50 years.” Nobody can do that, because the future does not develop in a straight line, but instead makes continuous and unpredictable leaps. And yet there is room for solid trend research which aims to benefit society and businesses. “Our arguments,” says the research head of the GDI, “are plausible and understandable – and therefore quite far from being pie-in-thesky.” Facing the great perplexity Modern society and the business world today both struggle with a big problem – the huge growth in the flood of

information. “Too much information confuses our decision systems,” says Ms. Frick. “The gap between what we are able to process and what we need to know is opening wider and wider.” If more information means more confusion; more knowledge leads to more perplexity; and the number of things we cannot understand grows faster than things we do understand, then one result, as a rule, is that a fear of the future grows as well. Karin Frick is convinced that in just such a situation, it would be very unwise not to try to come to grips with the future. Trend research serves to filter the information overload, evaluate it and separate relevant information from irrelevant. In this way it is possible to better estimate the bandwidth of uncertainty, read the map of possibilities better and discover the opportunities that the future always holds out. In the landscapes of the possible Companies rely on knowledge of the future. Ms. Frick has noted that the majority of firms rarely work with more than two strategic future scenarios. According to her, if a

Trend research: methodology GDI’s trend research proceeds in three steps: The first step involves monitoring, information collection and data capture. In the next step, these data are analyzed and diagnoses are established. In this process, it is crucial to recognize and work out certain patterns. Finally, the third step involves interpretation of the data, creating scenarios and actual trend forecasts. A fourth step takes place within the company using the trend study, as it integrates the results into its own trend management and strategic decision making processes.


company has developed three scenarios, it is quite remarkable. But for her, even three scenarios are not enough: “For quite a long time now, we have not been living in one world any more, but in many, totally different worlds.” This can be uncomfortable for decision makers, as they are forced to choose among several options without knowing which ones will be sustainable and interesting, and which ones will be short-lived bubbles that will already burst tomorrow. The more dynamic the changes are, the more quickly and flexibly companies must respond. “Reacting quickly and flexibly is something that only companies

Photo: Maurice Haas, 13photo

Karin Frick studied economics at the University of St. Gallen. Today she is a member of the Executive Board of the Gottlieb Duttweiler Institute (GDI) in Rüschlikon, where she directs the research department. She investigates and analyzes trends and counter-trends in the economy, society and consumer behaviour.

can do that actively grapple with several future-related themes,” says Ms. Frick. “Companies need to have a map of the future – otherwise they will be the last to arrive in the landscape of the possible, and discover when they get there that other companies have already grabbed all the best seats.” The economist has no doubt whatsoever that the only companies that can shape the markets of the future are those that act before a scenario has fully unfolded. “Firms that have decided for certain future scenarios are the ones that are able to provoke changes. Those who passively ‘wait-and-see’, or rely on a purely reactive strategy, cannot.” Therefore it is worth trying to be one wing beat ahead of the future. Or even two.


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The international financial markets are in constant motion. Forecasting price movements is difficult – not least because people only too often behave irrationally. The behavioural finance approach provides new insights into investor behaviour. Professor Thorsten Hens, Director of the Institute for Swiss Banking, is one of the most prominent advocates of this young scientific discipline.

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By Heike Isselhorst

Theme: Forecasting investor behaviour

The human factor For a long time, the ideal of Homo oeconomicus dominated the various models aiming to elucidate the science of economics. The utility maximizer, who always makes the rationally correct decision even in complex systems, should also be able to reliably predict the development of prices on the stock exchange. But with every crisis in the financial markets, it became more clear that even financial investors are only human – and often make completely irrational decisions. Newer approaches, such as behavioural finance, therefore put more emphasis on this human factor. They apply the findings of the behavioural sciences to the field of investment decisions in order to better anticipate the future behaviour of market participants – even if it is irrational. Professor Thorsten Hens sees this as an important step forward: “Only those who can assess how other investors will behave in the future, will have long-term success in the stock market.”

Particular market environment Our innate, instinctive behaviour will fail because the financial markets are not a natural system, and as a consequence they obey different rules. “The difference is mainly in the so-called feedback effect,” says Professor Hens. “On the stock market, prices respond to the behaviour of investors. They are the result of a collective decision.” In this way the stock markets differ significantly from nature. Professor Hens illustrates his point with an example: “The weather does not care what we humans think of it. If the forecast calls for a beautiful, sunny day, and everybody dresses in anticipation of the warm temperatures predicted, it can still rain.” But conversely, if the stock market outlook is bad, many investors will sell their positions. As a consequence, the indices actually do decline. The prophecy fulfills itself, and when even more investors sell their holdings, the share price falls and falls, and a downward trend is created.

Evolutionary lack The reason why many investors in financial markets often behave irrationally can be found in nature. Many human behaviours have been forged in an evolutionary process over many millions of years. For this reason, seen from a human point of view, they are completely correct and rational. “If a panic breaks out somewhere and everybody starts to run, it is a perfectly reasonable decision to run with the herd,” explains Professor Hens. “But if we apply this innate behavior to an artificial situation such as the financial markets, things can only go wrong.” Mankind is not geared for this complex system – and given the fact that the financial world in its present form is a very recent phenomenon, it will take a long time until the rationally correct modes of behaviour have been bred into our flesh and blood.

Tricking nature Many investors do in fact want to make rational decisions when it comes to their investment portfolio. But if the market enters a period of turmoil, it is difficult for them to remain calmly above the fray. As a rule, knee-jerk reactions

Professor Thorsten Hens has been the Director of the Swiss Banking Institute of the University of Zurich since 2007. In addition to his professorship for Financial Economics at the University of Zurich, the native German also teaches as an Adjunct Professor at the Norwegian School of Economics and Business Administration in Bergen, Norway. Professor Hens is among the most important experts in the research areas of Evolutionary Finance and Behavioural Finance.


are mostly irrational and should therefore be avoided at all costs. But what can you do to guard against the instinctive herd mentality? As an effective means to outwit one’s own nature, Thorsten Hens recommends to keep a diary to record all investment decisions. “In this investment diary, the investor should write down all the reasons that originally spoke for the purchase of the particular security. Only if these reasons become invalid should he sell his shares – and not because ups and downs in the market are making him nervous.” Even when things are going well for the investments, Professor Hens says the decisive factor should not be how much profit a security has already generated: “What matters is what continues to argue for holding the investment.”

Photo: Gian-Marco Castelberg, 13photo

Information: get the dosage right To remain as unperturbed by events in the financial markets as possible, it is best to absorb information and stock market news only in the smallest doses. Professor Hens also knows about the problem of information overload: “Investors with a long-term investment horizon of perhaps seven or ten years should monitor how their investments are doing at most only once a year, and not follow the stock ticker every day.” And keeping quiet about your investments is also good advice, because when friends or colleagues know about your holdings, this increases the pressure immensely to demonstrate success in their eyes – the result being that profits may then be realized too early. According to Professor Hens, investors should make themselves immune to environmental influences. “If

you want to have long-term success in the financial markets, you need to be willing to be the odd man out. You have to tolerate swimming against the tide for quite a while and, in the worst case, you even need to be willing to face ridicule.” Tantalizing world International financial markets are very complex, and are not always easy even for regulatory authorities and experts to grasp. So how is it that so many private investors dare to invest their capital in the stock markets? “The stock markets create the illusion that you can become rich without work. Just punch a few keys on your smartphone, and hey presto! You will be rolling in profits. Unfortunately, there is no such thing as this land of milk and honey,” warns Professor Hens. “Especially small investors can often be sucked into the markets’ riptide. Then they continue speculating in the hope that the big win will come with the next transaction. The hype is just too good not to be true.” Even if there are no universally valid strategies for market success, Thorsten Hens does have one piece of advice to offer: “Private investors should not underestimate the financial markets. What looks like easy money requires, in reality, a lot of experience and also the willingness, once in a while, to learn the hard way.” But even people who are not professionals can take a chance on the markets. “Anyone who reflects on his own behaviour is already one step ahead,” he says. “And when it comes to the operational implementation, you can always rely on professional support.”


Theme

By Johann Thalheimer

Theme: Demographic projections

Old north, young south In Europe, life expectancy has doubled within 200 years. At the same time, the birth rate has plummeted. This leads to a double ageing phenomenon: Europe’s population is shrinking and getting older. Other regions are growing… and staying young. In the next four decades, the world’s population will once again rise sharply, from today’s 6.9 billion today to 9.1 billion. Europe however will contribute nothing to this growth. On the contrary. In the year 2050, Europe will include 41 million fewer people than today. This shrinkage is about the same as if the entire population of Austria, Denmark, Finland, Norway and the Netherlands were to suddenly disappear from the surface of the earth.

getting older and older, while the countries in the South remain relatively young. The impact of this demographic development on Europe is much more far-reaching than we think: • The youthful population of the emerging-market countries of the South assures the local economies there a large pool of workers who are educationally and professionally ambitious. • Today, of the 500 largest companies in the world, already 70 are headquartered in the four emerging-market countries Brazil, Russia, India and China. They are continuously broadening their current position and expanding globally. Observers expect that in ten years, 170 of the world’s 500 largest companies will come from the four BRIC countries. •  The over-ageing of Europe is leading to a deterioration in the competitiveness of the economy. Ageing societies grow economically much more slowly than young ones. Here, too, a double effect is at work: on the one hand, the ageing society is missing the innovative labour force that spurs growth and fuels consumer spending; on the other hand, in an ageing society, a disproportionately large amount of the gross national product flows into pension payments and the high costs of healthcare. These drive the tax burden higher. •  The declining economic power in ­Europe will lead to a loss of global political power as well. The balance of power is shifting toward the South and East.

The double ageing – increasing life expectancy plus low fertility rate – means that Europe’s shrinking population is getting older and older, while the countries in the South remain relatively young. It is the other continents that will rack up the growth. Latin America, for example, by 140 million people. Africa and Asia by as much as a billion people each. On these continents, a gaggle of gigantic megacities will emerge and proliferate. Mumbai, Jakarta, Manila and Shanghai will be among them in Asia; in Africa, Kinshasa, Lagos and Cairo will attain this status, while in Latin America, the list will include Mexico City and São Paulo. Each of these megacities will have more inhabitants than Sweden, the Netherlands or Switzerland. India is set to overtake China by 2025 as the world’s most populous country. By 2050, one third of all the inhabitants on earth will live in one of these two countries alone. In that same year, Europe will account for just 7.5 percent of the world’s population. Compare that to 1950, when Europe accounted for 21.6 percent of the world population. The double ageing – increasing life expectancy plus low fertility rate – means that Europe’s shrinking population is

The demographic situation for many European countries does not look very rosy. But it does not necessarily have to be hopeless – especially if Europe’s governments and politicians take a firm stand against this great challenge. Without fundamental reforms, however, what may come to pass is what the German sociologist Gunnar Heinsohn fears: He assumes that certain countries in Europe are already demographically lost countries which sooner or later will financially, economically and socially implode. For example, Heinsohn cannot imagine that the youth of Greece will be willing to pay off the towering indebtedness of their fathers and grandfathers through exorbitantly increasing taxes. He believes instead that, in despair, young Greeks will prefer to emigrate to other countries where they can build a life – someplace where the state will leave them more to live. This, then, would be the triple-ageing effect.

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World population development 1950/2010/2050

Europe

1950

in millions

2010

2050

547 733 Africa

1950

in millions

2010

227

North America

2010

172 Central & South America

1950

in millions

Asia in millions

Oceania

Source: UNPP

12

448 2050

589

2010

1950

2050

352

729

2050

1403 4167 in millions

1998

2010

167

1950

2050

1033

1950

in millions

691

2010

35

5231 2050

51


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Growth of megacities from 2010 to 2030

1% 1% Berlin

10%

New York

L.A.

26% 12%

Mexico City

82%

Kinshasa

Buenos Aires

Shanghai

London

Lagos

2% 35% Tokyo

143%

9%

Cairo

37% Mumbai

16%

S達o Paulo

48% Jakarta

68% 64% 13% Manila

Sydney

Source: Demographia World Urban Areas & Population Projections


Most frequent causes of death Depending on which income category one belongs to, other health risks apply. Relative figures in % 14.2 9.3 5.7

5.6

HIV / AIDS

Stroke

Income:

low

Infections (newborn)

3.4

Income:

low

Income:

Alzheimer’s / dementia Income:

tief

mittel

3.4 high

Income:

3.2

Income:

low

Tuberculosis

3.5 low

Chronic bronchitis 2.2 medium

Income:

2.9 medium high

7.4 3.6

3.5

low medium high 2.0

Breast cancer Income:

Traffic accidents

5.9

Cancer (resp. tract)

low

Newborn

Income:

low medium high

3.3

Malaria

Income:

Income:

tief

mittel

2.8 tief

high 16.3

13.9

medium

9.4

Heart attack Income:

low medium high 11.2

Pulmonary infections Income:

3.8

low medium high

2.1

Diabetes Income:

2.2

3.3 tief 6.9

Diarrhoea Income:

Source: WHO

1.8

medium high

Intestinal cancer Income:

2.8

medium high

Stomach cancer Income:

3.8

low

mittel

high


Photo: Edward Burtynsky, courtesy Nicholas Metivier Gallery, Toronto & Flowers East Gallery, London

Growth markets in Asia and Latin America are well positioned and are gaining in economic and political importance.


Macro

By Christophe Grünig, Head Wealth Management of the Vontobel Group

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Macro:

Global shifts as drivers of new investment opportunities Advancing industrialization in the emerging economies is bringing major social and economic changes in its wake. As a consequence of the financial crisis, these changes are even being intensified and accelerated because the economies in emerging markets have weathered the crisis comparatively well. The growth markets in Asia and Latin America are well positioned. In contrast to the so-called developed countries, they have sound public finances, have greater opportunities for growth thanks to their potential to catch up industrially, and their demographic situation, compared to the rest of the world, is significantly more favourable. For these reasons, it is clear even now that from a global perspective, these countries will gain in economic and political importance.

Investors are well advised to read the signs of the times and realign their portfolios. But where is the best leverage point? Which asset classes are particularly recommended? Where do investment opportunities lie in concrete terms? In the bond markets, the outlook, apart from involvement in the growth markets, appears rather dull. After a nearly thirty-year long bull market caused by the gradual reduction of interest rates, there is little more scope for further gains. The risk of rising interest rates, even though not immediate, is significant, and should make investors take notice, above all those who are invested mainly in bonds.

gold prices is a direct consequence of these considerations. At the same time, Asian and selected Latin American currencies are gaining in importance. The need on the part of the emerging markets to catch up with the West has yet another effect: demand for commodities will continue to rise. This is not just the obviously greater demand for energy. Agricultural commodities such as wheat or maize will be in greater demand because of the changing eating habits of the rising middle class in today’s emerging markets. ­Industrial metals remain sought after as they form the basis for the development of infrastructure in rapidly developing countries such as Brazil and India. The markets for industrial metals are thus likely to continue to be characterized by excess demand. Yet, contrary to this positive outlook, both institutional and private investors have only invested a small portion of their assets in commodities. Why? Complex basic knowledge leads to investing success An in-depth analysis of the global situation, as well as strategic and tactical conclusions, are important – without the proper implementation, investors cannot align their portfolio to generate profits. In day-to-day life, good ideas often fail because they aren’t implemented well; in investing it is no different. Particularly investment segments that are new to many investors, such as the asset class commodities, carry the risk that decisions that are correct in principle will not be implemented effectively. For example, an investor who in early 2000 had expected rising oil prices has been basically correct with this assumption until now. Quite a few investors, however, were disappointed because they were only able to benefit from this correct investment perspective to a very limited extent. They often failed in the implementation of an appropriate strategy. This is even more painful when the trend actually gained broader recognition. It has been shown that when investing in commodities, analyzing and assessing the s­ pecific characteristics and changes in the futures curve is absolutely essential for success. Thus, in the past few years, the oil futures market has posted a negative rollover return (so-called contango), i.e. the shorter-term oil futures prices were much lower than the long-term.

The need on the part of the emerging markets to catch up with the West has yet another effect: demand for commodities will continue to rise. The global shifts of power between the developed economies and emerging markets will also be reflected in currency movements. Already, several market players seem to be thinking about how they can reduce their dependence on the US Dollar as a reserve currency. The rise in


Macro

Commodity investing is the supreme discipline Sticking to a long position when rolling over an expiring contract for a longer-term contract led to losses, which only investment professionals with knowledge of the complex functioning of the markets were able to avoid. However, even rollover-optimized solutions carry risks. Things get uncomfortable when the contango changes into a condition of positive rollover return (so-called

Active or passive? Much the same applies to investments in emerging markets: In recent months, some countries such as Brazil have adopted capital taxes, which under some circumstances may have a significant impact on the net return of the relevant investment. Other types of capital controls may also burden investments. For example, the Chinese currency (the renminbi) is not freely convertible and can therefore only be bought indirectly, such as via options. For the uninitiated, investments in certain growth markets can therefore carry incalculable risks. Using index products to participate in the growth of emerging markets seems much more evident. ETFs (Exchange Traded Funds), in principle, allow investors low-cost market access. However, investors must be aware that a market-cap weighting of the underlying securities in an index can result in certain concentrations, which may be undesirable from an investment point of view. At the same time, selected Western companies are already superbly positioned in emerging countries – this certainly includes the food multinational Nestlé and the watch and luxury goods providers Swatch and Richemont. For a professional and broad-based share selection, actively managed mutual funds are recommended. These are usually somewhat more expensive, but through the active selection of individual securities, they are able to generate added value, especially in emerging markets.

In day-to-day life, good ideas often fail because they aren’t implemented well; in investing it is no different.

Photo: Sandro Diener

“backwardation”) in which short-term prices are higher than long-term. Executing commodity investments in the futures market is demanding and requires sound knowhow. This is why investors often implement their market opinions by way of indirect investments. An investor who believes oil prices will rise can buy shares of an oil producer – and yet possibly still run a risk, as the example of British Petroleum (BP) amply demonstrates. Despite rising oil prices, investing in this share in 2010 was conceivably an unfavourable decision. Anyone who wants to invest in commodities will be confronted with various challenges. It is not for nothing that investing in these assets is regarded as the supreme discipline in the field of asset management.

For Christophe Grünig, investing in commodities is the supreme discipline in asset management.

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Private Banking clients should expect more Not only the political and economic environment is changing. The financial markets are also changing and developing rapidly. Successful investors analyze global changes, draw the right conclusions and implement them effectively. In addition to a well-founded market opinion, Private Banking clients of Vontobel can therefore expect a wide range of sophisticated investment proposals and appropriately oriented model portfolios.

Economic forecasts: Say what you think and do what you say Even in ancient Rome, a public speaker who drew attention to himself with unsupported remarks would become the object of mockery and scorn. Such a speaker once asked the Roman statesman and philosopher Boethius, “Intellegis me esse philosophum?” (Do you recognize that I am a philosopher?), to which Boethius pithily replied, “Intellexeram, si tacuisses” (I would have recognized it, if you had kept your mouth shut.) But it is not always the case that speech is silver and silence is golden. At least not in forecasting circles, from whom exactly the opposite is expected. By definition, forecasters need to continuously reinvent themselves with well-substantiated estimations and accurate predictions, permanently running the risk thereby that reality will one day teach them a lesson. Not an easy task. Yet forecasts are essential as an orientation guide, required and highly valued not just in the financial industry. And when it comes to evaluating forecasters, their hit rate is the incorruptible yardstick against which they are measured. Economic and financial market forecasts are the basis of the investment strategy of every bank. They are applied to asset management mandates and investment fund objectives. At Bank Vontobel, a team of proven experts creates in-depth forecasts covering economic growth, inflation, interest rates, exchange rates, as well as the markets for equities, commodities and real estate. In addition, a large number of in-house analysts, fund and portfolio managers occupy themselves with identifying and qualifying equities and bonds. In the forecasting process, various models are used. In science, natural laws can mostly be verified by means of reproducible experiments carried out in the laboratory. But what about models for the economy and the financial markets? In the case of weather forecasting, for example, there exist accurate data for all the key variables such as temperature, rainfall, air pressure, etc., while for economic forecasts, the problem is that many

parameters, such as gross domestic product, are often measured only very inaccurately, and must therefore, initially, be estimated. Moreover, economic activity is the result of human decisions – which are sometimes irrational – and therefore cannot be reproduced under laboratory conditions. For this reason, the fundamental principles have to be worked out empirically, i.e. from past experience. What does that mean for analysts and investment strategists? What is the basis for their forecasts of financial market values? According to Dr. Ralf Wiedenmann, Director of Economic Research for the Vontobel Group, the interest rates on government bonds, for example, depend primarily on the health of the economy, inflation and the interest rate policy of the central bank. Therefore, as a rule the first step would be to generate a forecast of the economy and inflation rate. Then from this forecast would be derived a prediction of the interest rate policy of the central bank. Using this approach, Vontobel has been extremely successful and accurate. According to an independent study1 conducted in 2008, Vontobel ranked first among eleven interest rate forecasters in Switzerland. However, if you now believe that an accurate economic forecast is based primarily on a broad data range, you would be wrong. Ultimately, the reason why forecasters are successful is because they possess broad knowledge and experience, a keen sense of market trends, and the ability to think in higher dimensions. Last but not least, these forecasters are also characterized by the courage to swim against the tide and to take a position and advocate it credibly and persistently.

Markus Spiwoks, Nils Bedke and Oliver Hein, The Pessimism of

1

Swiss Bond Market Analysts and the Limits of the Sign Accuracy Test. An empirical investigation of their forecasting success between 1998 and 2007, January 2008.


Opportunities

By Renato Richterich

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Opportunities: Vontobel emerging markets products

Of India and other emerging markets

Demography is THE driver of growth in emerging markets “40 percent of the world’s population is outgrowing poverty at a rapid pace,” predicts Jain. Whereas it took the USA 110 years, for example, to double per capita income from 1,000 to 2,000 US Dollars, this same development in China took place over only 12 years. And according to demographic estimates by the UN, 25 percent of India’s population, or around 300 million people – equivalent to the entire US population – will soon belong to the middle class. Experts expect that by the year 2050, the BRIC countries will contribute more to the world economy than the previously most important industrialized nations, the G7 countries. The advantageous age distribution is the fuel that keeps the economic engine humming in the emerging economies. For example, in 2050, about half the Japanese population will be over 54 years old. In India, however, this age group will account for only 26 percent of the total population. In addition, the population of Asia is expected to grow over the next 40 years by an impressive 30 percent. Meanwhile, the European population is expected to shrink by then by up to six percent. The population density of a country and the resulting purchasing power are directly linked with potential consumer spending, as the following comparison amply illustrates: in 2007, the Americans were the clear consumer spending leaders worldwide, with a global share of almost 30 percent. Already by 2020, the Chinese could overtake them because of the looming demographic shift.

Export-oriented countries: tread carefully Despite all this, caution is called for. Many emerging countries are heavily dependent on exports – China is a good example. “It is difficult to find companies in emerging countries whose profits are not heavily dependent on the consumer trends of the Western world,” says Jain. In India, on the other hand, several companies are operating successfully due to the high levels of domestic demand; they do not need to depend on exports. Taken together,

Photo: Johann Rousselot, Laif

That today’s emerging economies will come to dominate the world economy in the future is largely undisputed. However, many investors have not yet sufficiently adjusted to the shift in global power relationships. “Now is the time to correct this,” says Investment Expert and Portfolio Manager Rajiv Jain of the Vontobel Group’s Asset Management business unit. However, one emerging market is not the same as another – nor are all business sectors alike. That is why, in its search for investment opportunities, Vontobel focuses on companies that are benefiting from growing domestic consumption in countries such as India, Brazil and Indonesia. And doing so successfully, in fact. In 2009, the Vontobel Fund – Emerging Market Equity posted a solid return in the high double-digit percentage range. This also explains the increase in the fund’s volume over the last few months, by more than 60 percent to 1.3 billion dollars.

Magarpatta Cybercity offers India’s up-and-coming middle class modern residential complexes as well as housing a number of software and technology firms.


private consumption and government spending account for almost three quarters of India’s gross domestic product. Since domestic consumption is a key engine of the Indian economy, the country is also more crisis-resistant in a downturn than other emerging markets. Thanks to strong domestic demand, Indian companies are expected to shine with above-average corporate earnings growth. Currently

In India around 300 million people – equivalent to the entire US population – will soon belong to the middle class. among the most interesting sectors in India are basic consumer goods, banking and pharmaceuticals, according to Portfolio Manager Jain.

Earnings growth as a driver of long-term returns When it comes to emerging markets, it is recommended to base investment decisions on a fundamental analysis of the companies, i.e. to focus more on making an equity selection rather than a country selection. Stable and aboveaverage earnings growth is the driving force behind longterm investment returns and risk-adjusted excess return. The current valuations (P/E) of shares in emerging markets are largely unchanged. They are still below the long-term average – despite the recent strong price performance.

Photo: Johann Rousselot, Laif

Equity selection instead of country selection Many portfolios consider the emerging markets as an extended workshop of the West, and focus on export-based companies, commodities or infrastructure. “I believe this

is not the best way to invest in these regions for the long term,” says Jain. In addition, many investors place too much importance on measures such as the GDP growth of the various countries, choosing to invest in passive index-based products. But GDP is not a reliable tool for forecasting stock market returns. GDP is comparable to the turnover of a company, while equity returns can be compared to the company’s profits. If a company achieves solid sales, but low profits, it is unlikely that the share price will increase. What's more, the stock market is not a true reflection of the overall economy. Privately held companies, start-ups and non-listed companies or government entities make up part of the GDP, but not the stock market. Generally, it can be said that GDP estimates are not an exact science. The correct calculation is difficult, as distortions arising for political reasons are always possible. It is therefore advisable to invest based on more solid data.

Two young Indian women enjoy a fast food break in Guragon, a ­rising business city near Delhi.


The relatively stable P/E ratio for emerging market equities underscores the fact that returns are not derived from an increase of the multiple, but generated more by growth in earnings, which have kept pace with the price increase.

have, among other attributes, a clear and understandable business model, strong management and a long-term track record. They must also have high and stable margins and a certain degree of pricing power. Often, these criteria are fulfilled by companies that make well-known branded products – names such as Coca-Cola and Nestlé. Focusing on the quality of the company’s financial performance tends to reduce volatility and earnings risk. Whenever it is possible to buy shares of favourably valued quality companies, their above-average efficiency, combined with lower market risk, generates attractive long-term total returns.

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Experts expect that by the year 2050, the BRIC countries will contribute more to the world economy than the G7 countries. The Vontobel value approach Vontobel focuses on investments that are both high quality and favourably valued. Instead of focusing on fast-growing and volatile securities, investments are made in companies that are steadily growing and attractively valued. Companies in our value investment universe must

Brazil’s former President Luiz Inacio Lula da Silva and the Governor of Rio on the oil platform “Cidade Angra dos Reis.” The country is benefiting from the rising demand for oil thanks to

Photo: Reuters

growing domestic consumption.


The rise and fall of the British East India Company India’s importance and economic potential were already discovered in the 16th century. On 31 December 1600, Queen Elizabeth I granted a royal charter to a group of wealthy London merchants to form the British East India Company. Officially named “Governors and Company of Merchants of London Trading to the East Indies,” the company was granted the right to all trade between the Cape of Good Hope and the Straits of Magellan for fifteen years. It also received a seal, could elect its own governor and 24 directors, and was allowed to adopt its own corporate laws. Investing a sum of 72,000 pounds, its first action was to finance a voyage in five ships, which under the leadership of Captain James Lancaster landed in Aceh on Sumatra on 5 June 1602. In 1604 and again in 1610, further expeditions of this kind followed. A delegation to the Great Mogul procured the right to set up trading stations on the west coast of Peninsular India, although this privilege could not be exercised until a victory was achieved over the opposing Portuguese in 1612. Indeed, in Madras and Hugli, the company could not even begin operations until 1640; before that it faced resistance from the Dutch in those two locales.

Photo: Getty Images / Time Life Pictures

On 3 April 1661, King Charles II confirmed the existing privileges and, in addition, granted the company civil jurisdiction, military power and the right to make war and conclude peace with the “heathens” in India.

On top of this, he gave the company the city of Bombay as a fiefdom, to thank it for its hard work and the profits it had delivered. Later, the company received the right from James II to build forts, raise troops and mint coins in order to give it an equal footing with the rival Dutch East India Company. In 1694 the privileges were reconfirmed, but only under protest by merchants in the London Parliament who were excluded from the monopoly. Criticism increased as well because of the company’s oppressive rule in India. The government therefore decided to grant the same rights in 1698 to a rival company as the “Company of Merchants.” This precipitated the merger of the two rivals in 1708, thus forming the “United East India Company.” The business of the company flourished to an unprecedented extent, and it gained significant influence on the political situation in India. In the 1784 India Bill of passed by Parliament under Prime Minister William Pitt the Younger, the company was subject to reform measures and placed under the supervision of a so-called Board of Control made up of high-ranking ministerial authorities. In trade matters, the company retained its old autonomy, but the appointment of senior civil servants, magistrates and military leaders was placed under the Board’s, i.e. the government’s, supervision. The efforts of the company to administer India served as a model for the British civil administration, particularly in the 19th century. After the company lost its trading monopoly in 1833, it went back to being a pure trading company. In 1858, however, the company had to relinquish its administrative functions to the British government after its Indian soldiers openly rebelled in the 1857 mutiny. Finally, by means of the East India Stock Dividend Redemption Act, the company was dissolved on 1 January 1874. The prestigious Times wrote of the company at the time: “In the history of humanity, it achieved a work that was never before attempted by any other company, and as such will probably never be repeated in the future.”

English grandee of the East India Company 1825–1830.

Photo: Keystone

Photo: Keystone

Officers of the British East India Company gathered in Founder's Hall.

Indian Mutiny, 1857–59 (ca.1880).


Blue Pages blue 26/27

Blue Pages

News from the Vontobel Group Vontobel Private Banking in Milan

Best Broker 2010

On 13 October 2010, the premises of Bank Vontobel on the Piazza degli Affari in Milan were festively inaugurated, with managers Francesco Tarabini and Stefano Calvi receiving their guests at the grand opening of the new location. The handover of a ceremonial key to the two managers symbolized entrusting them with the bank’s future success in Italy.

In the 2010 NZZ Broker Rankings, Bank Vontobel was awarded the pole position in one of the four categories evaluated. Our first place was secured for our earnings outlook for small-cap companies, ranking us ahead of Kepler Capital Markets and the Zurich Cantonal Bank.

Customer survey

 

Current monograph of the Vontobel Foundation series The bee is – we can say this without exaggeration – a true miracle of nature. It’s no wonder that for thousands of years, mythology, literature, religions and metaphysical thinking have all been preoccupied with the insects. In the latest monograph, writer and cultural philosopher Ralph Dutli sets out a cultural “biography” of the bee in an exciting and vivid way. With illustrations by Katrin Laskowski. Free of charge. To order, visit www.vontobel-stiftung.ch.

Deepening our competencies in emerging markets equities Vontobel Asset Management is expanding its emerging markets investment expertise, forming a team of specialists in this area. Stephen Tong is the Head of the Emerging Markets Equities Team. He most recently worked for AllianceBernstein as a Senior Portfolio Manager.

Last October, 2,150 clients from Switzerland, Germany and Austria were sent surveys asking for their opinions on the Advisory and service quality in Vontobel Private Banking. More than 20% of the clients contacted took the time to answer the questionnaire, for which we would like to express our sincere thanks. Results: over 90% of our Private Banking customers are satisfied overall – of which around 70% are very and extremely satisfied. In addition, the image of Bank Vontobel was also perceived as very positive. For us, these results both make a demand on us and motivate us as well. We are on the right track in Private Banking – that is the obvious appreciation of our clientele. And of course, we welcome the valuable suggestions received on how we can improve and optimize our Advisory services even further. This is something we shall be working on continuously in the coming months, so that in future we can offer our clients even better Private Banking services from the Vontobel Group.

Creative Age Foundation: 10th award ceremony Founded in 1990 by the Zurich banker Dr. Hans Vontobel, the Creative Age Foundation acknowledges the creative achievements of people who are over 65 and no longer in the working world. Awarding prizes in the fields of literature, science, music and theater, the foundation has honoured 119 award recipients since its inception. This year, at the 10th awards ceremony held at Zurich’s Kongresshaus, twelve winners were feted. They had impressed the foundation with a diverse range of works submitted for consideration, from art analysis to a novel, a history of hunting in Ticino, and a theological-scientific treatise. Applications for the 11th round of prizes are open until 30 April 2011. For more information, visit www.stiftung-kreatives-alter.ch


New fund manager for the Vontobel Fund – Global Trend Clean Technology z took over On 13 December 2010, Roger Mer the Vonof ager Man folio Port as the function nology. tobel Fund – Global Trend Clean Tech e, most rienc expe nt stme inve of s year He has 12 s in London. recently working at Goldman Sach

Family business owners in dialog For the fifth time, the Center for Family Business at the University of St. Gallen and Bank Vontobel hosted the Family Business Conference in Bad Ragaz. The high-profile programme on the subject of “Being Correctly Positioned into the Recovery” attracted a large and equally highprofile audience. The list of speakers was impressive: Rolf Schmid, CEO of Mammut AG; Prof. Torsten Tomczak, University of St. Gallen; Philipp Gaydoul, CEO of the Gaydoul Group; Dr. Pietro Supino, Chairman of the Board of Tamedia AG; Dr. Gerhard Schwarz, Director of Avenir Suisse; Urs Schöttli, Far East Correspondent of the NZZ; and Samih Sawiris, owner of Orascom Development Holding AG and a major investor in Andermatt. A highlight of the programme was the appearance by Federal Councillor Eveline Widmer-Schlumpf, who spoke on the topic “Quality, Uniqueness – Swissness” and stressed the role of SMEs as the heart of the Swiss economy.

Magical Nights Abu Dhabi 2010

Photo: Keystone

On 6 November 2010, Vontobel sponsored a spectacular fundraising gala in Abu Dhabi organised by the foundation Magic of Persia, which promotes Iranian art and music. Five hundred guests were invited to the event, held in the presence of the Sheikh of Abu Dhabi in the gardens of the Yas Hotel. In an auction held that evening, Christie’s put several works by Iranian artists under the hammer, successfully raising 1.2 million dollars for the foundation.

Zeno Staub to become the new CEO of the Vontobel Group The Board of Directors of the Vontobel Group has made its decision concerning the succession of our current CEO and Board Chairman Herbert J. Scheidt. On 4 May 2011, Dr. Scheidt will be succeeded by Dr. Zeno Staub (41). Presently the head of Asset Management, Dr. Staub has been active since 2001 in various management functions within the Vontobel Group and has been a member of Group Management since 2003.


Care & Share

By Renata Fäh

blue 28/29

Care & Share: Giving children a future

The laughter of children is the greatest gift I know Peter P. Tschirky is the CEO of the renowned five-star hotel Grand Resort Bad Ragaz. With the project “For Smiling Children”, he aims to support children and young people living in poverty. His goal is to give them health, safety and a future. Together with the guests of the hotel, he is on the right track to making this a sustainable reality. Mr. Tschirky, what brought about your commitment to needy children? My wife Edith and I were married 30 years ago. For the first 15 years we had no children. During that time, a desire grew in us to do something for children from less privileged countries and families. One in four children in the world lives in poverty. Isn’t that reason enough for anyone to help? Everything we regard in our society as worth aspiring to – these children can only dream of. I lived in Africa for six years and saw the need up close. Later, when I became CEO of the Grand Resort, I made it a goal to multiply my personal commitment. So we came up with the idea to include our guests in the project.

planning. In addition, Christina Fenyödi, our ambassador, makes regular on-site visits and is in personal contact with the local population.

For Smiling Children With the project “For Smiling Children”, the Grand Resort Bad Ragaz provides support to children and young people who need help because they live in poverty or are sick and needy. On checking out of the resort, five francs are placed on guests’ hotel bill – an amount they are free to cancel. One hundred percent of the collected donations go into a special “For Smiling Children” account, while the Grand Resort Bad Ragaz covers all administrative costs. Currently, the organization is supporting the Siyabulela Pre-Primary School in Kleinmond, South Africa, the construction of a kindergarten in Mgbele, Nigeria, and a well for a Fulani village in Nigeria. Contact: christina.fenyoedi@resortragaz.ch www.resortragaz.ch ➝ Company ➝ For Smiling Children

What projects have you already implemented? “For Smiling Children” is still a young undertaking. Nevertheless, in a short time we have achieved quite a lot. In Kleinmond, South Africa, we are supporting the Siyabulela Pre-Primary School, a small school for 90 children between the ages of three and six. Last year we were able to present two sizeable donations to the responsible people locally. On World Water Day, we donated two francs to our project from each admission to the Tamina Thermal Baths, which belong to the hotel. With this money, we are financing a new freshwater well in a small village in Nigeria, which is being excavated right now. What is special about “Smiling For Children”? The special aspect of our project is that every cent collected actually flows through to the children. Through entrusted local contacts, we assure that the donations are used according to our projections. We only make commitments for specific projects that are based on transparent

Christina Fenyödi, ambassador of the project “For Smiling Children”, together with pupils from the school in Kleinmond.


Column: Dr. phil. Manuel Bachmann

Reading the signs

Dr. phil. Manuel Bachmann is a Lecturer and the Head of Studies of the Executive Master’s Programme “Philosophy and Management” at the University of Lucerne, as well as an Instructor at the University of St. Gallen. He publishes a monthly e-magazine for decision-makers called “absolutum”.

Anyone who is oriented toward the future must have some vision of what the future will be. One has to interpret its signs. This is the day-to-day type of forecasting – something we all practise, non-stop. It is not scientific, requiring no methodology, formulas or indeed any basis in data. Those who try to interpret the signs are relying on the most

Contextual knowledge is the amazing ability to read the current situation as an indication of the future. imprecise knowledge that is even imaginable. However, when it comes to the uncertain future, the least precise knowledge is the most valuable knowledge. This is because such knowledge functions on an individual basis: it is situational and is constantly updating itself. In philosophy, this is called contextual knowledge. It describes the amazing ability to read the current situation as an indication of the future and immediately to align oneself with this knowledge. One man who possessed this talent to a marked degree was the adventurer, womanizer and writer Ernest Shackleton. Shackleton wanted to be the first man to cross Antarctica via the South Pole. On 8 August 1914 he set sail for the

Weddell Sea in his ship Endurance. On 15 April 1916 he and his crew found themselves stranded in three lifeboats on Elephant Island. His men were at the end of the line, his plan to reach the South Pole had failed, and their landfall on the tiny, uninhabited island did not amount to a rescue, as they were still over 1,000 kilometres away from the whaling station on South Georgia which represented true salvation. If one had ventured a prediction at this point, the situation appeared without hope. In spite of this, Shackleton had done everything right up till then. He took his bearings from the current situation and proceeded based on a selection of clues and indicators which he did not allow to dictate his actions but which he merely took into consideration, continuously replacing them with new clues, which, if he chose to rely on, he constantly reassessed, following them because they were independent from each other and yet fit together into an overall picture. Such situational orientation depends on quickly combining facts; it is constantly being overtaken and replaced, changing immediately whenever radically new facts are encountered. After the catastrophe, Shackleton had a new goal: saving his men. Therefore he not only reached Elephant Island, but also, 137 days later, assured their rescue, after an odyssey through the ice and cold. He managed to reach this objective by continuously reading the signs in front of him and orienting himself accordingly. Because what is going to happen is only indicated to those who, when looking at the future, see a goal to be reached.

Just published: Manuel Bachmann Golam, Novel 2010, Published by Verlag Johannes Petri, ISBN 978-3-03784-006-1


Culture and cuisine blue 30/31

Culture and cuisine: January to April 2011

Inside Zurich Concerts

Events

Kylie Minogue Hallenstadion, Wednesday, 9 March 2011, 8:00 p.m. Tickets: Tel. +41 (0)44 316 77 88, www.hallenstadion.ch Kylie Minogue is among the small group of pop singers who have successfully managed to stay on top in the highly competitive show business arena for more than 20 years. Known for her powerful and spectacular live performances, this year’s world tour promises to be a very special experience.

Art on Ice Hallenstadion, 3 to 6 February 2011 An enchanting fireworks, with Donna Summer and Katherine Jenkins – the icon of pop music and the No. 1 crossover classic in a wonderful, uniquely staged extravaganza together with the best figure skaters in the world. NZZ Podium NZZ Foyer, Falkenstrasse 11, 8008 Zurich Tickets available two weeks before the podium. Tel. +41 (0)44 258 17 80, www.nzzpodium.ch Thursday, 10 February 2011 World economy – what’s next? With Prof. Jan-Egbert Sturm of the KOF Swiss Economic Institute at the ETH Zurich Thursday, 24 March 2011 England – the courage to depart with Martin Alioth, foreign correspondent in the UK for the NZZ and DRS Partners: Bank Vontobel, Swiss Re. Moderated by Dr. Martin Meyer.

Museums The Ten Tenors Theater 11, Zurich, 14 to 16 April 2011 www.theater11.ch “The Ten Tenors” are a phenomenon on the international music scene: opera singers, pop stars, rock ’n’ rollers and entertainers all at the same time. The show by this Australian vocal ensemble combines demanding arias and thrilling rock and pop classics in a unique live experience.

Restaurants Restaurant Bärengasse Bahnhofstrasse 25/Bärengasse, 8001 Zurich, Tel. +41 (0)44 210 08 08, www.restaurant-baerengasse.ch http://www.restaurant-baerengasse.ch A modern brasserie on Zurich’s Paradeplatz with a classic smokers lounge. Nicolas Maeder and his team assure a stylish yet cozy atmosphere. Guests can look forward to Argentine beef and wines from the farm of proprietor Dieter Meier, the well-known voice of “Yello”.

Alberto Giacometti – The Art of Seeing Kunsthaus Zurich, 11 March to 22 May 2011 Vision is the foundation of all visual art, but hardly an artist puts the process of seeing into the center of his artistic quest quite like the Swiss artist Alberto Giacometti (1901–1966). The Kunsthaus will display the collection of the Alberto Giacometti Foundation, the most important and most extensive inventory of Giacometti’s works in a museum.


“We all know that any clear forecast or unambiguous estimate for the future is wrong.” Peter Brabeck-Letmathe, Chairman of the Board, Nestlé

Locations

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Contact blue@vontobel.com Printing Climate-neutral printing by Schellenberg Druck AG. Published four times per year in German and English. Reproduction, in part or in whole, is strictly prohibited without written permission from Bank Vontobel AG. Photographers and illustration Cover: Gallery Stock; pages 3, 27; Jonas Kuhn Fotografie; illustration on page 29: Jürgen Willbarth; page 31 bottom: Alberto Giacometti, Lotar I, 1965, © 2010 ProLitteris, Zurich

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Vontobel Private Banking The magazine for private clients Winter Edition 2011

Forecasts

Vontobel Private Banking Das Magazin The magazinefür forPrivatkunden private clients Ausgabe Frühling 2010 Winter Edition 2011

Forecasting in a global enterprise: Peter Brabeck: “I will fight for every drop of water” Demographic projections: Old north, young south Macro: Global shifts as drivers of new investment opportunities

Forecasts Forecasting in a global enterprise: Peter Brabeck: “I will fight for every drop of water” Demographic projections: Old north, young south

I am interested! Please send me, without obligation:

ZRH

Macro: Global shifts as drivers of new investment opportunities

Future issues of “blue” (published quarterly) Current market commentary (available only by e-mail) Further information on the Vontobel Fund – Emerging Markets Equity Please contact me. I am interested in a personal discussion with an advisor.

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blue - Forecasts