Capital Market Presentation

September 2011:

Limits to growth

Hans-Jrg Naumer, Dennis Nacken, Stefan Scheurer

Not for circulation to private investors

Limits to growth

OECD-Leading Indicators: Almost every economic indicator is weakening.

3 0 /0 8 /1 1 1 5 1 5

1 0

1 0

- 5

- 5

- 1 0

- 1 0

- 1 5 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0

- 1 5

U S A E M U O E C

J a p a n D
S o u rc e : T h o m s o n D a ta s tre a m

Source: Datastream; Allianz Global Investors Capital Market Analysis

CDS premia are close to their peak levels.

iTraxx Senior Financials & iTraxx Europe

3 0 / 8 /1 1 3 0 0 2 2 0

2 0 0 2 5 0

1 8 0

1 6 0 2 0 0 1 4 0

1 2 0 1 5 0 1 0 0

8 0 1 0 0 6 0

5 0

4 0

2 0

0 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1

I tr a x x I tr a x x

S E

e n io r F in a n c i a l s (5 y e a r s ) u r o p e (5 y e a r s )(r h s )
S o u rc e : T h o m s o n D a ta s tre a m

Source: Datastream; Allianz Global Investors Capital Market Analysis

Emerging Markets: Economic strength

Share of global economic growth and market capitalisation. (MSCI World AC, in US-Dollar).

USA

Europe Japan

China

Brazil India

Russia 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Share market cap

Share economic growth

Source: Datastream; Allianz Global Investors Capital Market Analysis

Economic leading indicators: Affected by capital market sentiment.

ifo-busines climate index and purchasing manager indices of the US and China.
3 0 / 8 /1 1 1 2 0 6 5

1 1 5

6 0

1 1 0 5 5

1 0 5 5 0 1 0 0 4 5 9 5

4 0 9 0

8 5

3 5

8 0 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0

3 0

ifo -In d e x IS M P u r c h a s in g M a n a g e r In d e x (r h s ) P u r c h a s in g M a n a g e r In d e x C h in a (r h s )

S o u rc e : T h o m s o n

D a ta s tre a m

Source: Datastream; Allianz Global Investors Capital Market Analysis

Most regional surprise indices are at their historical turning points.

Indicators concerning surprise events in global macro data (Surprise Indicators)
150

100

50

-50

-100

-150 US EMU JAP

-200

19.05.03

19.08.03

19.11.03

19.02.04

19.05.04

19.08.04

19.11.04

19.02.05

19.05.05

19.08.05

19.11.05

19.02.06

19.05.06

19.08.06

19.11.06

19.02.07

19.05.07

19.08.07

19.11.07

19.02.08

19.05.08

19.08.08

19.11.08

19.02.09

19.05.09

19.08.09

19.11.09

19.02.10

19.05.10

19.08.10

19.11.10

19.02.11

19.05.11

19.08.11

19.11.11

19.02.12

Surprise-Indicators are calculated as the deviation between actual economic data and the consensus estimates.
Source: Datastream; RCM 6

19.05.12

Valuations continue to suggest equity investments

P/E ratios 12 months forward.

3 0 / 8 /1 1 5 0 5 0

4 5

4 5

4 0

4 0

3 5

3 5

3 0

3 0

2 5

2 5

2 0

2 0

1 5

1 5

1 0

1 0

5 9 2 9 3 9 4 9 5 9 6 9 7 9 8 9 9 0 0 0 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8 0 9 1 0

D A X P /E r a tio (b a s is : 1 2 -m D A X P /E a v e r a g e 1 0 y B u n d s P /E (1 0 0 /y ie ld )

o n th -fw d -p r o fits B ) u n d s

P /E

a v

e r a g e
S o u rc e : T h o m s o n D a t a s t r e a m

Source: Datastream; Allianz Global Investors Capital Market Analysis

Investment theme: Dividends

The Standard & Poors 500 also shows that dividends made up most of the losses caused by price fluctuations.

Capital gains/losses

Dividend income

Source: Datastream; Allianz Global Investors Capital Market Analysis

Investment theme: High Yields

Solid liquidity reserves and the ongoing trend in the coming year of conservative corporate financial policy should continue to provide a positive environment for corporate bonds.
3 0 / 8 /1 1 4 .5 0 2 5

4 .0 0

2 0 3 .5 0

3 .0 0 1 5 2 .5 0

2 .0 0 1 0 1 .5 0

1 .0 0 5

0 .5 0

0 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0

E E

M M

U U

H C

Y - G o v e r n m e n t B o n d s ( M L ) ( r h s ) o r p o r a te B o n d s - G o v e r n m e n t B o n d s

( M

L )
S o u rc e : T h o m s o n D a ta s tre a m

Source: Datastream; Allianz Global Investors Capital Market Analysis

Decisive Insights:
In terms of price/earnings ratios, the equity markets are already anticipating an economic decline and a drop in earnings. Equities now look distinctly cheap relative to government bonds, although there are regional variations here, too. Concerns about the economy and the (EU) debt crisis dominate the picture and are apparently also beginning to have an effect on real economic sentiment indicators. This widespread pessimism provides room for positive surprises. The medium- to longer-term outlook for equities is positive. However, given the current uncertainties, not least about progress in resolving the debt crisis, it is advisable to retain a neutral weighting between equities and bonds.

It is advisable to retain a neutral weighting between equities and bonds

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Disclaimer
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