Growth expectations for developing economies have been revised lower since the beginning of the year given the negative impact of interest rate increases and currency volatility on domestic demand. Although these headwinds are likely to persist over the short term in the form of economic imbalances and deteriorating terms of trade, we maintain our positive long-term view on developing economies, given favorable demographics, high saving rates and strong urbanizing trends. However, over the near term horizon, the impetus to global growth will likely be driven by developed economies such as the US, where personal consumption expenditure growth has remained robust on the back of improving employment conditions, rising consumer confidence and the positive wealth effect from rising home prices. In Europe, investment growth has been depressed over the past five years, and a pickup on this front combined with a lower fiscal drag could also provide an important tailwind to its recovery over the next decade.

Global equity markets continued their upward march during the past quarter, however the growth in earnings outpaced the growth in the index levels. During the past few years emerging markets have been the beneficiaries of strong inflows while developed market equities have lagged. As a result of the withdrawal of the financial stimulus (tapering of quantitative easing) we saw a reversal of trend during which funds started flowing into developed market equities - during the past quarter this trend however has slowed. Emerging market companies have continuously increased their debt levels over the past few years and this trend recently accelerated. The inevitable turn in the rate cycle should create the potential for higher demand for quality developed market equities and in turn creates significant risk for their highly leveraged emerging market peers. This bodes well for our portfolios as we have maintained our investment in high quality companies that have strong competitive advantages, and the ability to leverage off those competitive advantages to deliver a higher level of sustainable Return on Equity (ROE) through the economic cycle. We believe that companies which have healthy balance sheets and strong cash flows have the ability to sustain themselves during challenging economic environments while delivering real earnings growth over the long-term. Our portfolios trade at a significant discount to the global equity market across various measures and provide sustainably higher ROE through the economic cycle which will deliver real wealth creation for our clients over the long term.

Global economic growth is likely to improve during the current year despite a weather related slowdown in the US economy during quarter 1. Personal consumption expenditure has remained robust in economies such as the US and UK on the back of better employment prospects and rising home prices, which has led to greater consumer confidence. Furthermore, normalisation in private sector fixed capital formation is likely to be a significant tailwind to growth over the medium to long-term. Europe's leading indicators and purchasing managers' indexes continue to point towards improving growth prospects. Consumer confidence is rising and retail sales are showing marginal signs of recovery, while employment levels have also risen moderately. While demand indicators have been picking up, inflationary pressures in developed markets remain subdued, which should allow low rates to be maintained over the short-term. Developing markets have faced some short-term challenges due to rising inflation and increasing interest rates. However, capital flows have stabilised in recent months, which could see the weaker emerging market currencies translate into greater export competitiveness. Over the long term, we believe that given their high saving rates and young urbanising populations, developing markets remain well positioned to drive global growth.

Global equity markets continued their upward march during the past quarter, but the index levels outpaced earnings growth. During the past few years emerging markets have been the beneficiaries of strong inflows while developed market equities have lagged. As a result of the withdrawal of the financial stimulus (tapering of quantitative easing) we saw a reversal of trend during which funds started flowing into developed market equities - during the past quarter this trend has continued. Flows into developed market equities should continue to receive support as pension fund allocation normalises. The inevitable turn in the rate cycle should create the potential for higher demand for quality developed market equities. This bodes well for our portfolios as we have maintained our investment in high quality companies that have strong competitive advantages, and the ability to leverage off those competitive advantages to deliver a higher level of sustainable Return on Equity (ROE) through the economic cycle. We believe that companies which have healthy balance sheets and strong cash flows have the ability to sustain themselves during challenging economic environments while delivering real earnings growth over the long-term. Our portfolios trade at a significant discount to the global equity market across various measures and provide sustainably higher ROE through the economic cycle which will deliver real wealth creation for our clients over the long term.

Global economic growth prospects have continued to improve over the last quarter driven primarily by developed markets. The better growth outlook for countries such as the United States and United Kingdom is underpinned by improving employment prospects, leading to greater confidence and increasing consumer spending. Europe has probably experienced the worst effects of austerity as peripheral countries continue to reign in their budget deficits, and it is expected that the drag on economic growth will be significantly reduced going forward. Furthermore, inflationary pressures in the developed world remain subdued, which should allow central banks to maintain relatively low interest rates over the medium term. Developing markets continue to face short-term headwinds due to volatile capital flows following the scaling back of quantitative easing in the US. Growth over the short-term is thus likely to be impacted by weaker currencies, higher inflation and higher interest rates. However, we believe that weaker exchange rates in developing economies are likely to boost their competitive standing and ultimately exports. Additionally, given their high saving rates, young urbanizing populations and rising consumer incomes, developing markets still remain well positioned to drive global growth over the long-term.

Global equity markets have continued to move higher during the past quarter with the index levels outpacing earnings growth. During the past few years global bond and emerging markets have been the beneficiaries of strong inflows while developed market equities have lagged. As a result of the withdrawal of the financial stimulus we saw the trend of flows reverse and this continued during the past quarter with inflows into global equities, specifically developed market equities, and outflows from global bonds. Global pension funds have increased their allocation towards equities, however it is still below the long term average which combined with the inevitable turn in the rate cycle create the potential for higher demand for quality developed market equities. This bodes well for our portfolios as we have maintained our investment in high quality companies that have strong competitive advantages, and the ability to leverage off those competitive advantages to deliver a higher level of sustainable Return on Equity (ROE) through the economic cycle. We believe that companies which have healthy balance sheets and strong cash flows have the ability to sustain themselves during challenging economic environments while delivering real earnings growth over the long-term. Our portfolios trade at a significant discount to the global equity market across various measures and provide sustainably higher ROE through the economic cycle which will deliver real wealth creation for our clients over the long term.