The slowing global economic growth scenario, together with the credit crisis impact, has seen a normalization of risk in credit and equity markets. The markets have been indiscriminate during this initial phase with all companies, barring the non-cyclical and energy sectors, having being impacted severely. The de-rating of the developed markets appears to have factored in a recession scenario for these economies. During the previous peak in global economic growth over the past 2 decades, markets were rated a lot higher than they are in this cycle. The de-rating appears to be overdone as companies are in much better shape than they were historically. Many sectors globally have seen massive consolidation over the last few years leading to more efficient companies and sectors. The higher quality companies, who are market leaders, have low gearing and generate strong cash flows, will continue to consolidate their industries by acquiring great companies. These potential acquisitions will be a lot cheaper in the current market environment with no major competition from private equity. As the dust settles, the markets will start to differentiate and reward the higher quality companies appropriately.

Our global portfolios are still overweight Europe while being underweight emerging markets and energy. We are currently buying companies with great franchises, strong cash flows, low gearing and proven management at attractive prices. Our portfolios are currently trading at significant discounts to their benchmarks, both on a PE and a cash flow basis. Further to this, they provide higher dividend yields and competitive and more sustainable ROEs'. Our portfolios are therefore well positioned for an environment of increasing volatility and downside risks.