GLOBAL ECONOMIC UNCERTAINTY

HOW INDIVIDUAL WORLD ECONOMIES REACT & COPE

Although many businesses perceive FX market volatility and rising costs as their number one risk, almost half of all businesses worldwide cite global economic uncertainty as its greatest threat. However, this year overall confidence levels rose in 68% of global markets despite global economic uncertainty. Global consumer confidence increased five index points to 94, which is reflected in the increase in discretionary spending as people shake off the recession. The Eurozone debt challenge is perhaps the key challenge of economic uncertainty. The EU is Chinas second largest trading partner, and China is the EUs second largest trading partner after the US. Large Asian exporting companies are struggling as the United States and European consumers face financial and economic difficulties.

The Australian dollar jumped to a five week high of $1.0383 against the US dollar after employment data exceeded forecasts. Australia saw the biggest decline in over a decade for unemployment levels. The Australian economy looks set to remain robust despite other countries grappling with economic uncertainty. Business Sentiment rose in Australia this month fron 53 to 63.

This past week, European shares hit a five-year high despite the turmoil of one of the smallest EU members, Cyprus. Crisis in Cyprus was averted by the closure of one of Cypruss two largest banks, and haircuts on large bank deposits. Although these measures seem severe, it was the best the EU could do to avoid economic collapse in Cyprus which would have led to their exit from the euro. Adding reassurance to the strengthening of the Eurozoneth European FTSEurofirst 300, following the high hit by the Dow Industrial Avertage, opened up 0.6 per cent to hit its highest level since mid-2008. London's FTSE climbed 0.4 per cent, Frankfurt's DAX rose 0.8 per cent and Paris's CAC40 was up 0.6.

Katherine Anne Doerr, Associate Analyst for Economic Analysis 25 March 2013 Sources: Bloomberg, NY Times, the Economist

South East Asian companies are outperforming some of Asias top exporting companies in Japan and China due to strong local consumption and government driven investment in infrastructure. Thompson Reuters Asia Business Sentiment Index rose to 65 this month from 63 in December. Any reading over 50 indicates an overall positive economic outlook. Malaysia and the Philippines both have readings of 100. Investors should expect to see business sentiment in Asia rising past 50 for many of these countries as the year continues. China, Japan, and South Korea had the lowest readings of 50. These three countries are weighed down by world economic uncertainty and rising prices. If companies, such as Qualcomm, are to penetrate China deeper we must first see continued growth in consumption. Unfortunately, corporate sentiment in China fell this month after a rebound in December. Most Chinese companies report new orders are stagnant, and unemployment levels are worsening. Although Chinese business sentiment is 50, which is considered positive, China should be watched carefully. Economic stagnancy/downturn will be a threat for companies banking on China being their next big market. Optimistically, surveys show business sentiment in China should not fall below 50 in the future, indicating that optimistic stances are being taken. However, rising business sentiments in China will not occur until employment numbers rise, allowing the Chinese to continue to consume United States and European products.

The dollar hovered close to a seventh month peak last week, which is largely attributable to strong US sales figures, which helped bolster hopes of an economic recovery. Consumer spending is growing at its fastest pace since September 2012. This month, the United States regained some strength as the unemployment rate edged down to 7.7%. Employment increased most notably in business and professional services and in health care. Overall total private real hourly earnings rose 0.06(p). In addition, the manufacturing average weekly overtime hours for all employees rose 0.1(p). This gain is numbers is attributable to Congress and the President agreeing on the sequestration cuts before March 27. Cuts have been pushed back to the end of the year. Investors can sigh a sigh of relief in the short term as they forget about budget cuts until fall of next year.

There has been improved consumer confidence, which has led to more discretionary spending from consumers around the world, since the start of 2013. This is most likely attributable to pent-up demand to spend as they did prior to the recession, despite consumers not feeling confident with the economy. We will see more and more discretionary spending in all homes, even those who are still being hit by the recession. Consumers are getting more comfortable with the current state of our economy; accepting that we are in recession, but continuing to function as if they were not. In particular, new clothes sales have grown globally by 2 points since the last quarter. This is a key element for clothing companies such as VF Corporation. We should see higher sales in all regions this year for VF companies a good sign for investors.