Economic Summary for the week ended 19th Oct 2012

China - China's economy has slowed for a seventh quarter as problems in Europe and the U.S. dented demand for its goods. The annual rate of growth was 7.4% in the third quarter, down from 7.6% in the previous three months.

However, there are signs that the world's second-largest economy is now stabilising and rebounding.

That would be good news for China, which is facing a leadership change, and the rest of the world, which has benefited from its recent boom.

"Clearly, concerns over continued slowdown can now be put to rest," said Dariusz Kowalczyk, senior economist at Credit Agricole. "The last month of the quarter brought acceleration of industrial output, retail sales and fixed asset investment in year-on-year terms, highlighting the fact that improvement of momentum of the economy was particularly strong in September."

Japan - Japan's Prime Minister, Yoshihiko Noda, has ordered his cabinet to draw up fresh stimulus measures in a bid to spur economic growth.

Japan's growth has suffered due to falling demand for its exports amid a slowdown in key markets such as the U.S., eurozone and China. At the same time, domestic consumption in Japan continues to remains subdued.

Mr Noda ordered the stimulus package to be compiled by next month, but did not give details on how big it would be.

"Considering what the government and the central bank are forecasting, I doubt we can simply stand by and let the economy continue as it is," Finance Minister Koriki Jojima said.

U.S. - New homes were constructed at the fastest pace since July 2008 in September, official figures show.

The Commerce Department said single family homes and apartments were started at a seasonally adjusted annual rate of 872,000 in September, which was up 15% from the previous month, but it is still well below the 1.5 million seen as a healthy 'pre-recession' figure.

The big U.S. banks reporting third-quarter results in the past week have referred to a housing market recovery. JP Morgan Chase chief executive Jamie Dimon said last week: "Importantly, we believe the housing market has turned the corner."

Applications for building permits, which are an indicator of future building activity, jumped 12% to an annual rate of 894,000 in September.

Germany - The German government has slashed its forecast for economic growth in 2013 from 1.6% to 1%. "We are still talking about 1% growth [for 2013], so there's no talk about a crisis for Germany," said Economy Minister Philipp Roesler.

The economy ministry also raised its forecast for 2012 to 0.8% from the 0.7% it predicted in April. The cut brings the government in line with a group of four leading think tanks, which cut their forecasts last week.

"Although growth of 1% is weak in absolute terms, it still leaves Germany outperforming the rest of the euro area," James Ashley, European economist at RBC Capital Markets said.

Spain - Spain sold EUR4.6bn of bonds on Thursday, slightly higher than its maximum target and at a lower cost to the treasury, as investors positioned themselves for widely expected central bank intervention in the country's bond market.

Spanish borrowing costs have tumbled since the European Central Bank said it would intervene in the sovereign bond market of any eurozone country that applied for aid and accepted the conditions attached.

The rally was given further impetus by Moody's unexpected decision to affirm Spain's investment-grade rating, when a downgrade to "junk" had been widely expected.

Commodities - Gold traded flat on Thursday, retaining gains from the previous two days, as investors looked for fresh leads from a European Union summit after shrugging off data showing China's economy slowed for a seventh quarter, as expected.

"In the short term, the $1,730 support level will continue to feel a lot of pressure as investors focus on the euro zone summit, but beyond that, gold's outlook is still bullish thanks to support from the easing measures by central banks." said Chen Min, an analyst at Jinrui Futures in China.

Spotlight on: Good news for India-focussed funds

Sanjiv Duggal, senior portfolio manager, India equities, at HSBC Global Asset Management, takes a look at the recent announcement from the Indian government & its' likely impact for investors that allocate their portfolio to the emerging market.

The Indian government surprised the markets with a series of new reforms in September 2012. It is hoped that the reforms will encourage foreign direct investment to the country, which has been accused in the past of being closed to the outside world.

The government sharply raised prices of diesel (a heavily subsidised transport fuel), capped cooking gas subsidies, and opened up its Retail, Aviation and Power Exchange sectors to foreign direct investors. Divestment in various government-owned entities has also been announced. Most significantly for India's critical infrastructure story, a National Investment Board has been proposed, which should speed up decision-making for projects above USD200m and bring it directly under the supervision of the Prime Minister. Unlike Great Britain which punched well above its weight in the recent Olympics, India has been performing well below the levels it needs to perform at, in the crucial infrastructure sector. The Prime Minister estimates India's infrastructure needs at least USD1tn in spend over the next five years. A starting point is the USD90bn Delhi-Mumbai Industrial Corridor, India's largest ever project, which could help in transforming infrastructure in India.

These measures were particularly significant, as they marked India emerging out of its 'INDertIA'. Since October 2010, India has faced questions involving the Commonwealth Games, telecom spectrum and coal mine allocation amongst others. A newly activist national auditor looked at pricing policies on 2G telecom spectrum and now more recently, on coal mine allocations, and alleged that these had been mispriced. While the higher level of transparency to processes and policies should be beneficial in the longer term, they were initially greeted by a paralysis in decision making.

This inaction over an almost two-year period, persistently high inflation over the past two years, coupled with a very weak start to the monsoon season, brought the pessimism on India to a head - until now.

These moves - a mix of structural reforms and urgent ad hoc measures - have awed the markets, and should restore investor confidence. These steps are a starting point to address the important issues of the fiscal deficit (reducing the subsidy burden), inflation (global retail giants are expected to lower cost to the consumer) and currency weakness (more foreign investor inflows should boost the strength of the Rupee). The government has already implemented some of its recent decisions, in contrast with its record over the past couple of years. We expect more measures in the next few weeks as India attempts to maintain its investment grade sovereign rating.

Meanwhile, long-term investors continued to bring capital into India. BP, Coca-Cola, Ikea, Nippon Life, Starbucks are amongst the names which have committed investments towards India. Institutional investors too brought in funds in 2012, bringing in USD 12.4bn (to 31 August).

In the market, we see domestic cyclicals in a sweet spot. Cyclicals are at a 12-year low compared to defensives. The government's announcements in the second week of September coincided with the heaviest rains this year, and now the 2012 monsoon season is forecast to be near-normal. The central bank has made supportive noises and we expect rate cuts in the coming months to support the re-rating of India. When it rains, it does indeed pour.

Economic Summary for the week ended 29th Sep 2012

Global - Christine Lagarde has warned that the International Monetary Fund (IMF) will probably cut its global growth forecast in the coming weeks.

Speaking at the Peterson Institute for International Economics, the IMF managing director warned that global growth is likely to be "a little weaker" than in its most recent forecast.

In July, the IMF's World Economic Outlook predict that global output will expand by 3.5% this year and by 3.9% in 2013. The group is due to publish its updated forecast in next couple of weeks.

Lagarde said: "We continue to project a gradual recovery, but global growth will likely be a bit weaker than we had anticipated even in July, and our forecast has trended downward over the last 12 months."

Spain/Europe - European stock markets fell on Wednesday amid concerns about Spain and as trade unions hold a general strike in Greece. Spain's Ibex index was down 3.5%, while markets in London, Paris and Frankfurt were down up to 2%.

The Bank of Spain said in a report that the Spanish economy had continued to shrink at a "significant rate" in the third quarter of the year.

Spain is currently in a deepening recession, with the unemployment rate at its highest level since the 1970s. Worries about Spain also caused the country's borrowing costs to rise, with the yield on 10-year Spanish bonds traded on international markets rising to 6.02% from 5.67%.

On Thursday, the government will unveil a new budget, its latest attempt to get its borrowing under control. Then on Friday, independent auditors will tell the world the extent of the country's banks problems.

China - Some of China's richest people have felt the effects of economic slowdown in the country, with their wealth reducing in the past year, according to the Hurun Rich List.

China has 251 people worth $1bn or more, 20 fewer than last year. However, the number is still a huge increase compared with 2006, when there were only 15.

It is the first time in seven years that the number of billionaires in China has fallen.

India - Foreign investors are showing renewed interest in India following reforms recently announced by the government, but further steps are needed to improve the environment for economic growth, experts say.

According to a research report by Bank of America Merrill Lynch, there has been a sea change in interest in India post the reforms announced last week that included allowing Foreign Direct Investment in multi-brand retail and the civil aviation sector.

"Clients sensed a change in the political environment in India and some investors who earlier were staying away from India were keen to meet and understand the shape of things to come," Bank of America - Merrill Lynch Research Analyst Jyotivardhan Jaipuria said.

China - The Chinese central bank has injected a record amount of money into the financial system this week to alleviate a cash crunch that had driven up borrowing costs.

The People's Bank of China has poured Rmb365bn ($58bn) into money markets over the past three days through reverse repurchase agreements, the largest weekly amount in history.

With the Chinese economy grinding to its slowest growth in three years, analysts and investors have been looking to the central bank to intensify its monetary easing by cutting the portion of deposits that commercial banks must hold in reserve.

Trends - Global mergers and acquisitions slumped this quarter to a level not seen since the aftermath of the financial crisis, amid increasing concern that the economic recovery is deteriorating.

Companies have announced $446bn of takeovers since June 30, the smallest amount since the third quarter of 2009, according to data compiled by Bloomberg.

Cross-border takeovers have accounted for about half of all announced deals this year, while chief executive officers worldwide are reluctant to spend an estimated $3.4tn in cash reserves Europe's sovereign-debt crisis drags on and some signs suggest that China's economy is slowing.

Commodities - Gold prices edged higher on Thursday, recovering from the previous day's two-week low in line with stock markets and other commodities, but uncertainty over when Spain would request a rescue program limited investors' confidence.

Spot gold was up 0.2% at $1,755.69 an ounce, while U.S. gold futures for December delivery were up $5.00 an ounce at $1,758.60.

Gold is on track to end September with its largest quarterly gain in more than two years, of nearly 10%, after the Federal Reserve unveiled a third round of 'bullion-friendly' monetary stimulus measures earlier this month.

Spotlight on: Investing with a social conscience

Sarah Mumford, marketing director at Alquity Investments, says the recent debacle at Barclays serves as a reminder that considering a company's corporate social responsibility principles is something investment providers should be doing as a matter of course.

Over the past few weeks, the goings on at Barclays (colluding in the fixing of the LIBOR rate) have illustrated perfectly how poor behaviour within a company towards the outside world (or how seriously it takes its corporate social responsibility (CSR) obligations), can have devastating consequences for both that organisation and its stakeholders, be they employees, suppliers, customers or indeed shareholders.

The long-term impact on the bank's reputation, and in turn its share price, can only at this point be guessed at, but the outrage felt by many at the behaviour of members of the banking fraternity, will live on.

And for those of us involved in the marketing of investment funds, we can be sure that many more questions will start to be asked about what safeguards are taken to ensure that our investors' money is not going into companies whose actions could lead to reputational damage, and in turn, to a loss in company value.

Noted business strategist, Michael Porter, recently argued in the Harvard Business Review that ensuring genuine and strong CSR credentials is now something that should be a part of every business's long-term planning.

There has also been plenty of research done which shows consumers not only understand the importance of a genuine CSR policy, but are more and more frequently considering this as a part of their purchasing process.

Sustainable practices

Ethical or sustainable investing (which is really what the consideration of CSR policy amounts to) is becoming more and more important to the consumer.

Investment management marketing material generally focuses on either performance, the fund manager's skills or the size and strength of their businesses, and no doubt some of these factors are important to the end consumers.

But independent research, along with fund sales data, show this is not all the consumer care about.

An EIRIS survey recently showed that 44% of consumers want to look seriously at ethical financial products and that a massive 75% of them intended to act on this interest the next time they buy.

Combine this with the fact in the UK, the amount of money in ethical investment funds has trebled to over GBP11bn in the last ten years, and this demand has to be taken seriously.

So how does this consumer need for a good CSR agenda marry up with a widespread perception that sustainable or ethical funds perform poorly in comparison to those managed without screening? Well the answer is this perception is a false one. Investing sustainably does not detract from portfolio returns. In fact, quite the contrary.

Environmental, social and governance (ESG) screening as a part of an investment process considers the reality behind a company's CSR policy, including the impact that the business has on the local community, its employees, health and safety record, and its record/approach to corporate governance.

If ESG standards had been applied to British Petroleum (BP) prior to the April 2010 Gulf of Mexico disaster, they would have highlighted the fact that in the three years up to that point the company had been fined 760 times by U.S. Health and Safety Executives for safety violations, while Exxon had been fined once.

Over the three years to the end of June 2012, the share prices of BP and Exxon have fallen by 15% and risen by 22% respectively.

Boosting returns

So all of this points to one conclusion. Poor CSR standards are likely to hit the value of the company and consumers are becoming more and more aware of this.

There is a large market out there for 'ethical' funds, and as the consumer continues to increase its awareness of the impact of businesses' actions on their world, this market is likely to get bigger.

If we add into the mix the potential for increasing returns to investors by actually applying sustainable principles, then we can really start providing products for investors that tick a lot more than just the 'performance' box.

Alquity Investment Management offers a new model for investment management built around three core principles: attractive returns, sustainable investment and transforming lives.

Economic Summary for the week ended 14th Sep 2012

Europe - Germany's top court rejected calls to block the permanent eurozone rescue fund (the European Stability Mechanism (ESM)) and the European fiscal treaty, on Wednesday. European markets hit a 14 month high in reaction to the news.

But the Constitutional Court imposed conditions including a cap on Germany's contribution, which it said could only be overruled by the German parliament.

Critics had argued that the ESM commits Germany to potentially unlimited funding of debt-ridden eurozone states. Some 37,000 people had signed a petition to the court asking it to block the ESM, and make it subject to a referendum.

U.S. - The U.S. trade deficit grew slightly in July as exports fell at a faster pace than imports.

The Commerce Department said the trade deficit widened to $42bn, 0.2% more than June's gap of $41.9bn. However, the deficit was still lower than many analysts' forecasts of approximately $44bn.

U.S. exports fell 1% to $183.3bn, lowered by weaker sales to eurozone nations. Imports fell 0.8% to $225.3bn, with oil imports falling 6.5%.

But imports from China hit a record $37.9bn in July, pushing the trade gap with the country to a record $29.4bn.

U.S. - Moody's will strip the U.S. of its AAA rating if a deficit reduction deal is not agreed in Congress, it has warned.

The ratings agency made the threat ahead of the U.S. elections in November, where the national debt will be critical in negotiations and swaying votes.

Moody's said tax increases and spending cuts, due in early January, may not be enough to prevent a downgrade and an agreement on the debt over the medium term will need to be met.

China - China's Premier, Wen Jiabao, has told the World Economic Forum in Tianjin that his country is on track to hit growth targets for this year. He also called on international leaders to strengthen co-ordination and oppose trade protectionism during the global economic slowdown.

His address comes amid signs that China's economy may be slowing faster than previously thought. Manufacturing and export growth have slowed, while imports have dipped.

This has raised concerns about a decline in both external and domestic demand, in turn sparking fears that Beijing may miss its growth target for 2012.

But Mr Wen said: "We are fully confident that we have the conditions and capability to overcome difficulties on the way ahead, maintain fast and stable economic growth and realise development at a higher level and with better quality.

India - Indian stocks rose to the highest level in more than six months on Wednesday, on speculation the central bank will cut interest rates next week and as German authorities cleared the way for a permanent euro-area rescue fund.

The BSE India Sensitive Index, or Sensex, increased 0.8%, the highest close since Feb. 23. The gauge climbed 4% in the previous six days, the longest streak since January.

South Korea - South Korea has unveiled a fresh stimulus plan, its second in four days, in an attempt to revive growth in its economy. Its central bank will inject 1.5tn won ($1.3bn) into banks, which will use it to provide low-interest rate loans to small businesses.

South Korea's growth has been hurt by slowing global demand for its exports.

Exports account for almost half of South Korea's economic output and the central bank warned the sector may remain sluggish amid economic uncertainty.

"The Committee considers the economic recovery in the U.S. to have weakened somewhat and the sluggishness of economic activities in the euro area to have deepened," the bank said in its monetary policy statement.

Commodities - Gold climbed for a second day on Wednesday, prior to a Federal Reserve policy meeting on Thursday that may introduce more stimulus to boost the world's largest economy.

Gold rose as much as 0.3% to $1,736.45 an ounce. Holdings in bullion-backed exchange-traded products expanded to a record 2,487.361 metric tons on Tuesday, data compiled by Bloomberg show.

Spotlight on: The insatiable demand for luxury goods

The reporting season has demonstrated the luxury goods industry's resilience, according to Caroline Reyl, senior investment manager of the Pictet-Premium Brands fund.

On the surface, it would certainly seem like investors in premium brands should be concerned about a China slowdown. Luxury goods companies rely on Asia for 40% of their sales, with Chinese consumers accounting for around two thirds of that total. So, with China's growth rate having recently weakened to 7.6%, its slowest pace since 2009, luxury goods companies would understandably have cause for concern.

However, looking at the majority of the earnings reports released recently, such fears look overdone for now.

Although there is evidence of a moderation in demand for luxury goods, sales growth in emerging markets eased from an average of 21% in the first quarter to 16% in the second. We believe companies in the sector remain on track to post a healthy 15%-20% rise in revenue from developing economies this year.

Indeed, we have seen resilience across many sub-sectors in the luxury goods industry. The world's largest luxury goods company, LVMH, owner of brands such as Louis Vuitton, Moet & Chandon champagne and Tag Heuer watches, said expansion in Asia Pacific boosted sales by 13% in the second quarter, while Hermes, the most exclusive handbag maker, reported sales up 27% in the region over the same period.

Swiss watch group Swatch, meanwhile (owner of Omega and Breguet and Blancpain) said it was still seeing overall growth rates of more than 20% in China, and stood by its forecast for record worldwide annual sales of 8bn Swiss francs in 2012.

The reporting season also confirmed that luxury goods companies continue to enjoy strong earnings momentum. In 2011, margins on earnings before interest and tax stood at 22.6% for the luxury sector against 12.8% for the MSCI Consumer Discretionary segment, helped by strong pricing power and cost discipline.

This quarter, Swatch Group and PPR's luxury division were still able to report operating margins of nearly 25%, and 20.5% for LVMH. Although the sector's exceptional sales and margin growth of the past two years is normalising, margins for the full year look set to remain healthy.

Lust for exclusive brands

These encouraging developments in part reflect the fact that Asian consumers are not as sensitive to shifts in the economic climate as shoppers in other regions. They tend to be more selective, preferring very exclusive goods to "masstige" products (so-called mass-market prestige brands).

Another bright spot in the luxury goods earnings season was Asian consumers' strong propensity to shop while holidaying abroad. Asian shoppers accounted for half of luxury goods sales in Europe last year, and this trend continued through into the second quarter of 2012 as tourists from the region took advantage of favourable price differentials and a strong yuan.

Long-term growth drivers

Longer term, while China will continue to be key in shaping the prospects of luxury goods companies, it will not be the only source of growth. A ramp-up of consumption from Brazil, Russia and India, the largest emerging markets after China, looks set to take place over the next decade: as duties are lowered and restrictive import regulations are relaxed, prestige brands can be expected to gain a firm foothold here too.

Whether it is luxury leather goods, fine cognacs or luxurious tourism, demand for luxury goods will remain strong throughout the emerging world for years to come. And with luxury goods stocks trading at levels equivalent to 14.6 times forward earnings, well below their historical average of 19.89 times, investors have the opportunity to capitalise on these trends at an attractive price.

Economic Summary for the week ended 8th Sep 2012

Europe - European stocks advanced on Thursday as investors waited for ECB President Mario Draghi to give details of his plan to stem the region's debt crisis. U.S. index futures and Asian shares also gained.

The Stoxx Europe 600 Index advanced 0.3%. The measure has surged 14% from this year's low on June 4 as Draghi pledged to do everything possible to preserve the euro. Standard & Poor's 500 Index futures also climbed 0.3% on Thursday, as did the MSCI Asia Pacific Index.

It is thought likely that Draghi will propose a blueprint to lower borrowing costs in Spain and Italy which will involve unlimited buying of government debt, with maturities of up to three years.

Greece - Greece's international lenders have suggested measures which include increasing the maximum working week to six days.

This is thought to be one of several unofficial proposals to liberalise the labour market and increase government revenue, such proposals were not included in the original bailout agreement signed with the Greek government.

Greece needs the next payment of EUR31.5bn to allow it to continue servicing its debts.

Proposals in the document from the troika included:

• Setting a single rate statutory minimum wage
• Reducing regulatory burdens
• Making work schedules more flexible
• Setting a minimum daily rest of 11 hours
• Eliminating restrictions on the minimum and maximum time between morning and afternoon shifts.

China - The China Development Bank will sell USD1.6bn in asset-backed securities this week, the country's biggest securitisation deal, and its first in three years.

China had barred the sale of asset-backed securities in 2009 when the global financial crisis dampened their reputation & popularity.

But after a boom in lending over the past few years, Chinese banks need to free up balance sheet space, and parcelling loans to investors via securitisation is likely to be an important part of this process.

Chinese regulators remain cautious, placing sharp limits on how banks can operate. They will be able to convert no more than Rmb50bn of assets into securities this year, less than 0.1% of outstanding loans in the banking system.

The resumption of securitisation, however small, is seen by analysts as an answer to many bottlenecks in China's financial system.

India - Indian equities are attracting the highest foreign flows in the emerging market regions, as investors speculate that the worst may be over for the nation's biggest companies after profitability slumped to an eight-year low.

Offshore funds have invested a net USD12.3bn into Indian shares this year, the most among 10 Asian markets outside China, tracked by Bloomberg. The average profit margin before interest, taxes, depreciation and amortization of the 30 companies in the BSE India Sensitive Index, or Sensex, narrowed to 19.5% in the June quarter, the lowest since December 2003, data compiled by Bloomberg shows.

"With China's growth slowing, India looks the best among BRIC countries year to date," Taina Erajuuri, a fund manager in Helsinki at FIM Asset Management overseeing about USD1.2bn of emerging-market assets, said. "India's economy is less dependent on exports to Europe than China and Russia." Erajuuri said she's been a buyer of Indian equities this year.

Brazil - Brazil sold USD1.25bn of bonds in the Latin American country's first international dollar debt sale since January, the government sold the 2.625% bonds due in January 2023, Brazil's Treasury announced.

Brazil returned to international markets as record low interest rates in Europe, Japan and the U.S. spur demand for higher-yielding assets.

"There's demand out there for higher-quality emerging- market paper," according to David Bessey, who helps manage about USD16bn of emerging-market debt including Brazilian bonds at Prudential Financial Inc.

Trends - Equities will be the most popular asset class for advisers in 2012/13, that's according to research from Neptune Investment Management.

60% of advisers interviewed believe equities will be the favoured asset class for investors, this is followed by 23.5% for fixed income, with commodities and property gaining 3.5% and 2.4% of the votes.

The news contrasts strongly with figures from the U.K.'s Investment Management Association (IMA), which show fixed income funds continue to dominate sales. The latest figures from the IMA show fixed-income funds witnessed GBP480m of net retail sales in July, which is the 11th month running fixed-income has been the bestselling asset class.

Commodities - Gold topped USD1,700 an ounce for the first time since March on Thursday, as speculation that the European Central Bank (ECB) will announce unlimited purchases of government bonds to defuse the region's debt crisis boosted the euro.

"The ECB action today is going to be beneficial for gold," said Walter de Wet, the head of commodities research at Standard Bank Plc.

Meanwhile, it has been suggested that gold will be at USD1,840 an ounce by the end of 2012, Jeffrey Currie, head of commodities research at Goldman Sachs Group Inc. told Bloomberg.

Spotlight on: Being best-placed for the next equity bull run

Pessimistic investors are overlooking signs that the global recovery is already underway and should increase their exposure to equities now if they don't want to miss out on the next bull run, according to Bob Doll, senior adviser to BlackRock.

Doll claims that policymakers have upped their game and are providing reflationary support to the world's markets, meaning that stocks should continue to grind unevenly higher.

"On balance, we believe that the cyclical outlook is improving and that the near-term dangers may be receding instead of intensifying," he said.

"If our outlook is correct, global financial markets may currently be discounting an overly pessimistic economic outlook, suggesting that risk assets may have more room to run.

BlackRock predicts growth of 2% in the U.S. economy and says the market is in reasonable shape. "Given better relative economic and earnings growth levels as well as highly accommodative monetary policies, we continue to favour U.S. stocks vs global benchmarks," he commented.

He also claimed that a third round of quantitative easing (QE3) would be positive for the country and said he was unconcerned about the threat of a "fiscal cliff" as he believes policy makers will once again reach an agreement at the last minute to prevent this.

"Although the sides remain far apart and statesmanship is sorely lacking in Washington DC, we still think there is a better-than 50% chance that we'll see an eleventh- or twelfth-hour agreement to enact a temporary extension of the Bush-era tax cuts and a delay in scheduled spending cuts with real and hopefully long-term action being taken in early 2013," he explained.

Although the U.S. unemployment rate isn't coming down, Doll says there are signs of a recovery.

"We have been seeing signs of improved business investment levels, increases in consumer spending and a recovery in the housing market, but the labour market remains troubled and the recent rise in energy prices will weigh on sentiment and spending levels."

On the prospects for the eurozone Doll is also cautiously optimistic.

"This Thursday, the ECB will meet and expectations are high that president Mario Draghi will clarify plans to purchase distressed bonds and help repair Europe's financial markets."

"The outlook for Europe remains murky, but we expect that policy-makers' pro-growth policies should help the region's economy to recover (although peripheral European countries will likely remain in recession into next year)," he said.

Economic Summary for the week ended 31st Aug 2012

U.S. - U.S. shoppers spent a little more in July compared with June, according to the U.S. Commerce Department, raising hopes that the country's economy is continuing to recover.

Consumer spending rose 0.4% in July, the largest increase for five months and following no change in June.

On Wednesday, figures showed that the U.S. economy grew at an annualised pace of 1.7% in the April-to-June period.

Brazil - Brazil's central bank has cut its benchmark interest rate to a record low of 7.5% in an attempt to reignite a stalled economic recovery.

The cut, from the previous level of 8%, in the main Selic rate follows recently unveiled government stimulus measures.

The central bank move is the ninth cut in a row since August last year, as the Gross Domestic Product (GDP) growth rate has fallen dramatically from the 7.5% recorded in 2012.

Trends - Japanese equities have seen huge inflows over the past year as money has been sucked out of Europe, the U.K. and the U.S., according to U.K.'s Investment Management Association (IMA) figures.

Money has also been flowing into emerging market, Asian and globally focused funds, but Japan is the surprising addition to that list, as a developed market with well-known demographic and debt-related issues.

Richard Troue, investment analyst at Hargreaves Lansdown, said: "The country has been hit by everything that has been going on in Europe, but it is sheltered to some extent because a lot of Japanese companies are managing to capture growth in Asia."

"Approximately 60% of Japanese exports are going to Asia and emerging markets rather than Europe or the U.S."

India - India's economy grew faster than expected in the three months to the end of June, easing some fears about a sharp slowdown in Asia's third-largest economy.

Annualised growth was 5.5% in the April to June period, most analysts had forecast a rate of 5.2%.

"Whilst an upside surprise at 5.5%, the pace of growth is undeniably below potential and validates the need for the government to address sluggishness in investment and external sector activity," said Radhika Rao an economist at Forecast Pte.

China - China's top banks are stepping up their lending activities in the U.S. as large U.S. companies diversify their funding sources and seek to penetrate more deeply into the world's second-largest economy.

Chinese banks' share of U.S. syndicated lending has risen to 6.1% of the total market so far in 2012, up from 5.1% last year, according to data from Dealogic. So far this year, the total value of syndicated loans from Chinese banks into the U.S. has reached $51bn.

Liao Qiang, Chinese banking analyst at Standard & Poor's, said: "Many global banks have been deleveraging as a result of the 2008 global financial crisis and the debt crisis in Europe. Their retreat in lending markets provides opportunities for Chinese banks to deepen relationships with the multinational companies and steadily increase their international presence."

Philippines - A hefty rise in government spending on infrastructure and private investment in durable equipment helped the Philippine economy continue to grow in the second quarter, albeit at a slower pace, despite slowing exports and weak farm output.

GDP grew 5.9% in the second quarter year on year, the National Statistical Co-ordination Board said on Thursday. This was above analysts' average forecasts of 5.3% but below the first quarter's surprising 6.3%.

Euben Paracuelles, south-east Asia analyst at Nomura in Singapore, downplayed the fears. "While the Philippines, like many export-dependent countries, was affected by the global slowdown" he said "it had strong domestic drivers of growth such as government spending and private investment."

"There is no question that the export sector is going to be a drag, but it's a question of what happens to domestic demand. Domestic demand is the bigger offset in the Philippines," said Mr Paracuelles. He recently upgraded his forecast for the country's 2012 growth from 5.1% to 6%.

Commodities - Global food prices have leapt by 10% in the month of July, raising fears of soaring prices for the planet's poorest, the World Bank has warned.

The bank said that a U.S. heatwave and drought in parts of Eastern Europe were partly to blame for the rising costs.

The price of key grains such as corn, wheat and soybean saw the most dramatic increases, described by the World Bank president as "historic".

Spotlight on: A key development for Russian equity funds

Russia's entry into the World Trade Organisation (WTO) is likely to result in a significant boost for economic growth and direct foreign investment, according to BlackRock's David Reid.

Reid, head analyst of the BlackRock Eastern European Investment Trust, believes this "historical reform" will be a big help to fund managers focused on the region, who are already encouraged by strong fundamentals and cheap valuations across a number of sectors.

"Almost all the countries that have joined the WTO in the past have experienced sustained improvements in foreign direct investment and economic growth," he explained.

"China's entry in 2001 is often held up as one of the big success stories, but the eastern European region can also boast a record of success including countries like Poland, Hungary and the Baltic states."

"Many sectors stand to benefit from this accession. For example, many export industries where Russia has a competitive advantage, such as steel and chemicals, will have easier access to foreign markets."

"The consumer sector will also benefit from higher employment and wages as foreign investment in the economy takes effect."

"Greater competition and lower tariffs will improve the quality and cost of goods and services, freeing up resources across the whole economy for additional investment and consumption."

"Perhaps the most important point to note is that Russia's accession comes after 18 years of talks, which could easily have dragged on for longer."

"Russia's leadership has decided now is the time to send a signal to the world that it is finally serious about engaging with global commerce, a key message to take away from these events."

While Reid believes this is a long-term trend, he says historically cheap valuations in the Russian market imply a good entry point.

According to Financial Express data, the MSCI Russia index is down 14.09% over six months, compared with a gain of 0.74% from MSCI World.

"This is a historic development, but we are not anticipating miracle results in the short term," Reid said. "Only a certain proportion of reforms are immediate, with the rest being phased in over a period of several years. Ongoing work by the government is required, but the WTO accession agreement is a powerful 'anchor' for policy that should ensure the direction of travel is firmly positive."

"The Russian equity market is very close to historic lows in its valuation, both compared to its own history and to other emerging markets. This is in spite of the fact that the economy has been growing steadily since the crisis and has achieved record low inflation and unemployment levels this year."

"WTO accession will help to highlight the country's strong investment fundamentals and the market deserves renewed consideration from investors," he finished.

Economic Summary of the week ended 24th Aug 2012

Emerging Markets - Emerging-market stocks headed for the biggest gain in two weeks on Thursday, following that speculation policy makers in the U.S. and China will ease monetary policy to boost growth in the world's largest economies.

The MSCI Emerging Markets Index climbed 0.8%, bound for the steepest rise since Aug. 9.

"Everybody is waiting for easy money to come to lift up all asset prices," Pankaj Kumar, who helps manage 1.8bn ringgit ($580mn) as chief investment officer at Kurnia Insurans (Malaysia). "When you have more money being printed in the system, it encourages risk-taking and equities will be the direct beneficiaries."

China - Property prices in China rose in July amid cuts in borrowing costs and after some local governments eased restrictions on purchases. Beijing has been trying to curb speculation in the property sector to prevent the formation of asset bubbles.

New home prices rose in 50 cities, compared to the previous month, figures released over the weekend showed.

"A new trend does appear to be materialising as home prices continue on an upward trajectory after the Chinese government began to loosen certain levers to address concerns around a slowing economy," said Mark Budden, of consultancy firm EC Harris.

Thailand - Thailand's economy grew more than forecast in the April to June period helped by domestic consumption and continued recovery in manufacturing.

Growth was 3.3% in the second quarter, analysts had forecast growth of 1.7%.

Thailand has taken various measures to boost domestic demand to help recover from last year's devastating floods. Analysts said the steps had helped offset a decline in global demand for exports. "Thailand is one of the more resilient economies compared with its Asian peers with regards to the risk and headwinds from the U.S. and Europe," said Philip Wee, of DBS bank.

U.S. - Spending cuts and tax rises due to take effect in 2013 could trigger a sharp slowdown in the U.S. economy, Congress's budget office has said.

It warned that unless Congress acts to avert a "fiscal cliff", the U.S. could see its gross domestic product (GDP) shrink by 0.5% next year.

In its report, the CBO said it expected the U.S. recovery "to continue at a modest pace" for the rest of 2012 and estimated that unemployment would remain stuck at above 8%.

But it warned that "substantial changes to tax and spending policies" would cause the U.S. to tip back into recession in 2013.

Russia - Russia finally entered the World Trade Organisation (WTO) on Wednesday after 19 years of negotiations that meant the country was the last big economy outside the global trade body.

World Bank economists estimate a boon for Russia's economy of $49bn a year, or about 3% of GDP, over the mid-term from the increased competition and greater foreign investment that entry is expected to bring.

"In terms of overall economic impact, it will be relatively low. Russia is a country where most of its exports are not products that other countries want to keep out," said Roland Nash, chief strategist at Verno Capital, a Moscow hedge fund.

"But this is a watershed moment that is much more about signalling that Russia is open for business and is adopting an institutional framework that it can't change and that the rest of the world can trust."

Australia - Australian Resources Minister Martin Ferguson said the nation's mining boom has ended as BHP Billiton Ltd. delayed approval of its Olympic Dam expansion that Deutsche Bank AG estimated at A$33bn ($34.7bn) of spend.

"You've got to understand, the resources boom is over" Ferguson told Australian radio. "It has got tougher in the last six to 12 months."

Australia's economy has been powered by the biggest resource bonanza since a gold rush in the 1850s as Chinese-led demand for iron ore, coal and natural gas brought investment projects the government estimated to be worth A$500bn. BHP, the world's biggest mining company, said it doesn't expect to approve any spending on major projects this fiscal year as metal prices decline amid sluggish global growth.

Commodities - The spot price of gold climbed by over 1% to $1,655 an ounce onThursday as the Federal Reserve said it is likely to ease monetary policy soon unless there is a sharp change in economic data.

It is the first time the precious metal has risen above the $1,660 an ounce mark since early May, as investors waited for clarity on Fed policy.

Spotlight on: Latin America - reasons to be optimistic

Will Landers, senior portfolio manager of the BlackRock Latin American investment trust (the underlying asset to C08, available in HIL & HEL), shares his thoughts on why the region has much to offer canny investors who are prepared to think long term.

For many investors, Latin America evokes memories of hyperinflation, debt defaults, less than ideal corporate governance, and an investment universe that is mostly correlated with commodities (and therefore China).

On the other hand, those investors who have been involved with Latin America over the last decade, have experienced one of the best regional equity performances in the world, with a ten-year accumulated return of over 450% to the end of July 2012 - hardly the type of reward to be expected from the former.

The reality is that Latin America has come a long way during the past decade, placing the region as a core component of global asset allocators given its attractive risk reward for those with more than a very short-term investment horizon. So what has changed? Plenty.

For starters, hyperinflation is a thing of the past. Brazil was the poster child of hyperinflation during the 1980s and 1990s - at one point inflation surpassed 80%, on a monthly basis, in 1989. The Real Plan, started by then finance minister Fernando Henrique Cardoso in July of 1994, marked the end of hyperinflation.

Its three pillars of inflation targeting as the only mission for its central bank, a free trading currency, and running a primary surplus to reduce the country's debt levels have helped to bring Brazil today to a situation where the central bank is conducting monetary policy to manage the decimal point of the annual inflation rate.

Other serious countries in the region like Mexico, Chile, Colombia and Peru have a similar policy on the inflation targeting mission, allowing all these countries to have annual inflation rates in the single digits.

The biggest impact of the low inflation rate has been on the growth of domestic demand in these economies. It is well documented that inflation is a tax burden on economies overall, but especially on the less affluent segments of the population. Falling inflation allowed domestic interest rates to fall, while also allowing for wages to grow in real terms.

Again, this has been evident to an extreme in Brazil, where income distribution has improved to levels not seen in many economies - the poorest 10% of Brazil's population enjoyed a 69% growth in annual income from 2001 to 2009 (vs. 13% for the wealthiest 10%).

This wealth effect is multiplied by the fact that the region sports one of the most attractive demographic pyramids in the world, with 55% of its population being below the age of 30 years.

As a result, not only does the region enjoy a young population, but this population is reaching peak earnings years at a time of economic prosperity, which should give continuity to its growth.

Furthermore, the growth in domestic consumption moves Latin America away from being "just" a commodity story. Commodities are certainly important for many countries in the region, and many companies listed on its exchanges. From oil in Mexico and Venezuela to copper in Chile and Peru, commodities can be an important factor for economic growth. Brazil's stock market is also led by two commodity giants - Petrobras on petroleum and Vale on mining (especially iron ore, but also copper and nickel).

Exports overall (and not just commodities) account for approximately 11% of Brazil's GDP - a smaller participation in GDP than even the U.S. Exports in general, and China specifically, are more important growth factors for countries like Chile and Peru where copper represents a larger portion of gross domestic product.

Overall, Latin America has come a long way to now becoming an interesting investment alternative for investors, local or global. While no market has proven to be a safe haven in periods of high stress, the region has proven its ability to differentiate itself when fundamentals are driving the market, outperforming global markets when the focus is on country and company-specific fundamentals. Are we entering another one of those phases? Only time (and Europe) will tell.

Economic Summary for the week ended 18th Aug 2012

China - Chinese Premier Wen Jiabao has said the world's second largest economy can meet its growth target this year in an effort to allay concerns over recent economic data. "We have the conditions and capabilities to fulfil this year's economic and social development target," said the Chinese Premier.

He acknowledged downward pressure remained "relatively large" and difficulties were set to continue for some time, China National Radio reported. Meanwhile China Central Television quoted him saying that rising prices were easing and there was "growing room for monetary policy operation".

Brazil - Brazil's government has unveiled the first phase of a major economic stimulus package designed to boost growth in the flagging economy.

More than $60bn will be invested in the country's roads and railways over the next 25 years, with more than half in the next five years. The government's recent measures, such as the recent devaluation of the currency, the real, and the progressive reduction in interest rates, have so far failed to stimulate growth.

"The measures unveiled by the Brazilian government this afternoon are good news insofar as they will help tackle some of the supply-side problems that are holding the economy back," said Neil Shearing at Capital Economics.

U.K. - Financial firms in London, under pressure with Europe's sovereign-debt crisis, will most-likely shrink their workforce this year, as a hiring rebound from 2008's credit crisis as New York's industry attempts to create job growth.

Banks, insurers and other financial-services firms may eliminate a total of about 3,000 jobs across greater London as companies in the New York region add 9,000, according to U.K.- based researcher Oxford Economics Ltd. Reductions will be particularly acute in London's financial district, where the industry may cut 25,200 positions, according to the Centre for Economics and Business Research Ltd.

Asset Trends - Global fund managers have taken allocations to eurozone equities to their highest in more than a year as sentiment builds that the European Central Bank (ECB) will unveil new policy measures to preserve the single currency.

The latest Bank of America Merrill Lynch global fund manager survey shows that 13% of asset allocators are running an underweight position in eurozone equities during August.

BofA ML Global Research head of European equities strategy Gary Baker says: "August's surge in confidence seems to be more a triumph of policy projection and potential than positive economic data.

"As indicated by the survey, the risk is now that inaction by policymakers would lead to a negative reaction in global markets."

Commodities - The U.S., France and Mexico are planning talks to consider whether an emergency meeting is needed to tackle the soaring price of grain.

The three will hold a conference at the end of this month after the worst U.S. drought in 50 years threatens to cause a sharp rise in the cost of staple crops.

It will be decided whether to convene the first meeting of the newly-formed G20 Rapid Response Forum, formed to promote united action.

A French agriculture ministry official said: "If the situation requires it, a meeting of the Rapid Response Forum could be called as soon as the start of September.

"The aim is to talk about the situation and avoid measures like export embargoes which would be damaging for everyone."

Commodities - Global demand for gold is seeing a significant slowdown as top consumers in India and China cut purchases amid weak economic growth, abruptly halting a consumption boom that started five years ago with the onset of the financial crisis.

The consumption slowdown is driving prices downward, denting the profitability of gold miners such as Barrick Gold of Canada and New York-listed Newmont, and hurting top hedge funds managers such as John Paulson and George Soros.

Spotlight on: Brazil's plan to kick-start growth

Brazilian President Dilma Rousseff has announced plans to stimulate economic growth through high level investment in the country's infrastructure network.

What has happened?

President Dilma Rousseff has announced a $66bn package to stimulate the economy through infrastructure developments on highways, airports, ports and railways.

Designed to improve the transport system in order to aid trade and commuting, the money will also help strengthen its infrastructure ahead of the 2014 FIFA World Cup and 2016 Olympics Games in Rio.

Commentators have questioned how much of the plan is actually new developments, with elements of it echoing her $50bn PAC-2 infrastructure project currently held up in Brazilian government bureaucracy.

Why has Rousseff announced this now?

Growth is a major factor. From obtaining 7.5% GDP growth in 2010, current projections for this year sit at 2% and Rousseff has seemingly taken a proactive step to foster investment in the country.

Sceptics could view the timing as an attempt to put Rio on the same footing as London as a city able to cope with major sporting events by improving its infrastructure base.

However, the need for improvement in the Brazilian infrastructure cannot be dismissed, with fund managers such as Franklin Templeton's Marco Freire and Ashmore's Jerome Booth both previously stating the need for $1tn worth of foreign and private investment in the country.

Will it deliver?

Brazilian equity investor Michael Konstantinov, who runs five Brazil and BRIC equities on behalf of Allianz including the Allianz Brazil fund, said infrastructure developments in the Latin American powerhouse are very much a case of seeing is believing.

'The announcement is one thing and the implementation is another,' he said. 'We don't know whether these plans will actually happen. It looks like they are asking for much lower internal rates of return, so these projects could be a bit less profitable.'

'On the other hand, they have got quite strong support from the BNDES - the Brazilian Development Bank - which will offer funding at below market rates.'

Does this affect what the Brazilian central bank is doing?

In short, no and Konstantinov said the majority of projects outlined by Rousseff will be set on a five-to-six year time horizon, while the Brazilian central bank is working on a much more near-term basis.

The central bank has drawn both praise and criticism for its decision to undertake systematic cuts to its benchmark interest rate - the SELIC - since the end of last year.

In a move designed to stave off a global economic downturn, the central bank's monetary board, known as Copom, has cut the rate from a 30-month high of 12.5% in August 2011 to a record-low of 8% last month.