Mise en page 1 - UniCredit Bank Slovakia as
Mise en page 1 - UniCredit Bank Slovakia as Mise en page 1 - UniCredit Bank Slovakia as
Pioneer Funds Annual Report 2012 Annual Commentary on the Financial Markets The Economy Europe: Risk of a euro break-up averted By the end of 2012, tensions in financial markets appeared to have abated, as leading central banks’ efforts at restoring confidence offset evidence of a weak economy. The European Central Bank (ECB) managed to allay the worst-case scenario of a collapse of the single currency and showed the ultimate commitment, having promised to do “whatever it takes” to save the euro. The ECB’s announcement of its latest support program (Outright Monetary Transactions) reduced the implied sovereign credit risk of peripheral European countries. These countries have also made some genuine progress in implementing structural economic reforms, notably in the labour market and the pension system. In addition, policies enacted by national governments hit by the sovereign-debt crisis seem to be going in the right direction and are being pursued even at the risk of social unrest. In 2013, Italy and Spain may deserve particular attention, as they account for about a quarter of European Monetary Union-wide GDP and still face challenging conditions. Moreover, in 2013 European political leaders should exploit the breathing room allowed by the ECB’s actions in order to find a long-term solution to the debt crisis. Averting the worst-case scenario of a euro collapse was badly needed, but putting the whole issue to rest may still prove difficult. While the European Monetary Union’s crisis is mostly referred to as a “sovereign-debt” crisis, it is actually a macroeconomic one. The deep rift exposed by the global recession is still in place, pitting “core” countries, led by Germany, against “peripheral” (mostly Southern) economies whose fiscal troubles are compounded by a structural lack of competitiveness. From an EU perspective, the first task may be a comprehensive agreement over the creation of a “banking union” (Single Supervision Mechanism), where the ECB takes a supervisory role and an EU-wide liquidation procedure of unhealthy banks is promptly established. Another radical solution to the crisis may be a “Fiscal Union” (or Transfer Union) in which budget policies are governed from a central institution. Getting all of the recipients of EU funds under the strict supervision of creditor countries would likely set this process in motion, although debtor countries are likely to oppose the probable loss of fiscal sovereignty. United States: Downside risks to growth somewhat receding Looking at the United States in 2012; rarely has US GDP growth moved so little in a 12-month period, with year-on-year gains registering between 2% and 2.5%. On a positive note, the US economy proved resilient in the face of challenging global conditions throughout the year. Domestic household consumption continued to lead growth, helped by positive momentum in the housing sector as mortgage rates fell to record lows and helped revive both home sales and prices. Also on a recovery path is the Housebuilding sector, with housing-starts up by more than 40% from their trough. Employment growth was fairly broad-based and has consistently included the highly cyclical Manufacturing sector. The number of applications for jobless claims was much closer to levels predating the recession, another key labour market indicator. The US corporate sector ended the year in healthy shape and we believe that the current levels of profit margins can be sustained going forward. In 2012, the US Treasury market enjoyed the windfall of low yields amid a global flight to safety, but as both the federal debt and deficit are at record highs and well above the average for the G20 group, this is an issue that needs to be addressed with some urgency. Going forward, we expect the political negotiations over US fiscal policies to reach a compromise agreement in order to avoid the fiscal cliff. The US Federal Reserve looks committed to retaining an overly loose monetary policy for at least another two years. Overall, we expect the US economy to grow at a subdued pace in 2013, with real GDP increasing by another 2% year-on-year. China: The challenges for China’s leaders Throughout the year, fears over a hard landing for the Chinese economy prevailed. However, the latest survey of manufacturers’ purchasing managers has eased concerns that China may suffer a serious downturn. In fact, this highly cyclical index did not collapse as it had in 2008, but dipped briefly just below the expansion threshold of 50. This evidence helped investors to regain some optimism for a soft-landing scenario for China. But threats to China’s growth remain: the real estate sector, accounting for about 15% of GDP, and its impact on bank balance sheets (although many loans were made by other financial firms, belonging to a “shadow” banking system) is one of them. Another risk is that policy makers are not responsive enough. They acted quickly in 2012, when monetary policy was switched from a tightening to an easing mode based on signs that the Chinese economy was growing less, but then the pace slowed down. Banks’ reserve ratios are a case in point: This key gauge was lowered three times in 2012, but remains close to the peak of 21.5%. The new political leadership, appointed by the ruling party’s five year congress in November, is said to be even keener on taking a gradual approach. A more fundamental reason for concern is that China’s growth relies on exports and investments, rather than on stable sources like household spending, as structural changes are needed for the Chinese economy to become consumer-driven. The shift in China’s growth model from investment-led to consumer-driven may take time, but the new political leadership needs to move beyond the rhetoric of economic reforms to actually implementing them in areas, such as a more efficient welfare state and the liberalisation of both the Financial sector and currency markets, not to mention the further advancement of privately-owned companies (long subjugated to large state-owned enterprises). India: An elusive trade-off between inflation and growth At the end of 2012, the Indian central bank (RBI) was facing the dilemma of a slowing economy in need of a looser monetary policy, while adhering to its medium-term goal of 4% to 5% inflation. The wholesale price index is inflation’s main gauge in India and it has remained stubbornly above target. So there appears to be little room to cut benchmark interest rates in order to revive bank loans, investment spending and, with it, overall economic growth. 6 Pioneer Funds - Annual Report
Pioneer Funds Annual Report 2012 Annual Commentary on the Financial Markets (continued) The Economy (continued) India: An elusive trade-off between inflation and growth (continued) Investors expected the Indian government to implement the structural changes, aimed at making the economy more efficient and push inflation down, and the reform measures which the government announced in September. If these prove effective, the RBI may be more willing to let interest rates decline. However, the main reform, the liberalisation of the retail sector, has been pursued only very gradually. Recent laws letting foreign-owned chains open business in India were shelved and then only partially restored after intense lobbying. Another disadvantage to business is the Indian government’s excess borrowing, which made it hard for them to raise money from private investors and therefore left the corporate bond market undersized. So far, India has been an exception to the pattern of debt-light emerging markets and there is little evidence of a change in this trend. In 2012, the Indian stockmarket has benefited from the return of risk aversion and has quickly recouped all of its previous losses, both in absolute terms and against the area’s benchmark. Brazil: The central bank focuses on preserving growth, just like in developed countries In 2012, Brazil’s economy slowed down markedly and struggled to recover despite policy makers’ repeated efforts to stimulate it. Hence, GDP grew by only 0.6% in the third quarter. As a net commodity exporter, Brazil’s prospects are heavily reliant on China’s demand for resources. Exports of iron ore to China may pick up again, but are unlikely to grow at the same frantic rate as before. In addition, on the domestic side, Brazilian consumers also bought fewer durable goods and started a debt-reduction process. As in India’s case, structural reforms are called for, mainly because companies are burdened by heavy taxes and excess regulation. The government has recognised the need to make Brazil more business-friendly and improve competitiveness. In 2012, its main tool was letting the currency weaken on the back of repeated interest rate cuts. The inflation target rate was still above the current rate, but the spread was rapidly dwindling. On present trends, it may disappear altogether in 2013, if the Brazilian central bank continues to focus on growth targets. Russia: Making the economy less commodity-driven The Energy sector remains a key source of growth for the Russian economy, accounting for about three-quarters of its exports. The Energy sector includes oil as well as several other mineral resources for which Chinese demand from has weakened in 2012, to the detriment of overall growth. If China’s economy were to undergo a structural change and households’ demand for consumer goods replaced industrial demand for resources, Russian exports would suffer on a long-term basis. Admittedly, private consumption’s contribution has improved a lot, as people’s purchasing power increased and unemployment declined. Recent patterns, however, were less reassuring as real wages and disposable incomes fell amid rising inflation. On the investments’ side, the challenge for the next few years is to attract foreign direct investments. In that respect, recent progress in corporate governance looks encouraging, as Russia rose sharply in the World Bank’s latest survey based on the ease of doing business. The Markets Bonds Central banks have kept policy rates at rock-bottom levels since the financial crisis, in an effort to stimulate economic growth. This stance led investors to search for additional yields in credit markets and to buy up large amounts of newly-issued bonds. US companies raised more than $3 trillion in 2012, which is near the record set before the recession. One could argue that there is more room for spread tightening in high-yield credit markets, as yields started from much higher levels. In fact, companies exploited low borrowing costs by flooding the market with new issues and these have been welcomed by yield-hungry investors, who also turned to much riskier assets such as leveraged loans. Investors have been paying less and less attention to companies’ fundamentals in the search for yields. While we held an overweight in credit markets throughout the euro debt crisis (despite its implications on risk aversion), we picked our securities by blending risk and returns. There was little evidence of this selective approach in the market, as yields offered by low-rated issuers (such as single B and C) also fell to record lows. Central bank action has inspired confidence, notably in European Monetary Union government bond markets. The ECB’s pledge to do whatever it takes to save the euro left borrowing costs at two-year lows for governments’ hard-hit by the debt crisis. Even Italy was able to sell new bonds despite the impending elections. However, we acknowledge that the efforts for austerity and reforms pursued by these countries are worth lower yields and spreads. That is why we are retaining a medium-term constructive view on the EMU periphery. Our thoughts on the EMU periphery tend to apply to bank bonds, which account for a large share of European corporate credit markets. Spreads have fallen alongside the sovereign market, although the ECB provided no further emergency lending since the Long Term Refinancing Operations. Their decline appeared to be driven by an increasing risk appetite among bond investors and should therefore be viewed with some caution. On a more fundamental note, bank credit spreads may stay low if international regulators refrained from relaxing capital adequacy standards and revive bank lending. Profit estimates may be capped by high capital ratios, whereas bondholders are likely to feel more secure about the banking sector’s overall solvency. Going forward, emerging markets may provide the best combination between risk and reward. Admittedly, spreads have come down sharply too, but they reflect the actual improvements in government policies, particularly on the fiscal side. Reasonable alternatives may be found among emerging-market corporate issuers, though a selective approach should also apply to them, as demand from yield-hungry investors extended into this market and set a record-high for new issues in 2012. Pioneer Funds - Annual Report 7
- Page 1 and 2: Annual Report 31 December 2012 (Aud
- Page 3 and 4: Table of Contents Annual Commentary
- Page 5 and 6: Table of Contents Pioneer Funds - E
- Page 7: Table of Contents Pioneer Funds - L
- Page 11 and 12: Pioneer Funds Annual Report 2012 An
- Page 13 and 14: Risk Disclosure (continued) Sub-Fun
- Page 15 and 16: Risk Disclosure (continued) Sub-Fun
- Page 17 and 18: Risk Disclosure (continued) Sub-Fun
- Page 19 and 20: Risk Disclosure (continued) Maximum
- Page 21 and 22: Statement of Net Assets as at 31 De
- Page 23 and 24: Statement of Net Assets as at 31 De
- Page 25 and 26: Statement of Net Assets as at 31 De
- Page 27 and 28: Statement of Net Assets as at 31 De
- Page 29 and 30: Statement of Net Assets as at 31 De
- Page 31 and 32: Statement of Net Assets as at 31 De
- Page 33 and 34: Statement of Net Assets as at 31 De
- Page 35 and 36: Statement of Net Assets as at 31 De
- Page 37 and 38: Statement of Net Assets as at 31 De
- Page 39 and 40: Statement of Net Assets as at 31 De
- Page 41 and 42: Statement of Net Assets as at 31 De
- Page 43 and 44: Statement of Net Assets as at 31 De
- Page 45 and 46: Statement of Operations and Changes
- Page 47 and 48: Statement of Operations and Changes
- Page 49 and 50: Statement of Operations and Changes
- Page 51 and 52: Statement of Operations and Changes
- Page 53 and 54: Statement of Operations and Changes
- Page 55 and 56: Statement of Operations and Changes
- Page 57 and 58: Statement of Operations and Changes
Pioneer Funds Annual Report 2012<br />
Annual Comm<strong>en</strong>tary on the Financial Markets<br />
The Economy<br />
Europe: Risk of a euro break-up averted<br />
By the <strong>en</strong>d of 2012, t<strong>en</strong>sions in financial markets appeared to have abated, <strong>as</strong> leading c<strong>en</strong>tral banks’ efforts at restoring confid<strong>en</strong>ce offset<br />
evid<strong>en</strong>ce of a weak economy. The European C<strong>en</strong>tral <strong>Bank</strong> (ECB) managed to allay the worst-c<strong>as</strong>e sc<strong>en</strong>ario of a collapse of the single curr<strong>en</strong>cy<br />
and showed the ultimate commitm<strong>en</strong>t, having promised to do “whatever it takes” to save the euro. The ECB’s announcem<strong>en</strong>t of its latest<br />
support program (Outright Monetary Transactions) reduced the implied sovereign credit risk of peripheral European countries. These countries<br />
have also made some g<strong>en</strong>uine progress in implem<strong>en</strong>ting structural economic reforms, notably in the labour market and the p<strong>en</strong>sion system. In<br />
addition, policies <strong>en</strong>acted by national governm<strong>en</strong>ts hit by the sovereign-debt crisis seem to be going in the right direction and are being<br />
pursued ev<strong>en</strong> at the risk of social unrest. In 2013, Italy and Spain may deserve particular att<strong>en</strong>tion, <strong>as</strong> they account for about a quarter of<br />
European Monetary Union-wide GDP and still face chall<strong>en</strong>ging conditions.<br />
Moreover, in 2013 European political leaders should exploit the breathing room allowed by the ECB’s actions in order to find a long-term<br />
solution to the debt crisis. Averting the worst-c<strong>as</strong>e sc<strong>en</strong>ario of a euro collapse w<strong>as</strong> badly needed, but putting the whole issue to rest may still<br />
prove difficult. While the European Monetary Union’s crisis is mostly referred to <strong>as</strong> a “sovereign-debt” crisis, it is actually a macroeconomic<br />
one. The deep rift exposed by the global recession is still in place, pitting “core” countries, led by Germany, against “peripheral” (mostly<br />
Southern) economies whose fiscal troubles are compounded by a structural lack of competitiv<strong>en</strong>ess. From an EU perspective, the first t<strong>as</strong>k<br />
may be a compreh<strong>en</strong>sive agreem<strong>en</strong>t over the creation of a “banking union” (Single Supervision Mechanism), where the ECB takes a<br />
supervisory role and an EU-wide liquidation procedure of unhealthy banks is promptly established. Another radical solution to the crisis may<br />
be a “Fiscal Union” (or Transfer Union) in which budget policies are governed from a c<strong>en</strong>tral institution. Getting all of the recipi<strong>en</strong>ts of EU<br />
funds under the strict supervision of creditor countries would likely set this process in motion, although debtor countries are likely to oppose<br />
the probable loss of fiscal sovereignty.<br />
United States: Downside risks to growth somewhat receding<br />
Looking at the United States in 2012; rarely h<strong>as</strong> US GDP growth moved so little in a 12-month period, with year-on-year gains registering<br />
betwe<strong>en</strong> 2% and 2.5%. On a positive note, the US economy proved resili<strong>en</strong>t in the face of chall<strong>en</strong>ging global conditions throughout the year.<br />
Domestic household consumption continued to lead growth, helped by positive mom<strong>en</strong>tum in the housing sector <strong>as</strong> mortgage rates fell to<br />
record lows and helped revive both home sales and prices. Also on a recovery path is the Housebuilding sector, with housing-starts up by more<br />
than 40% from their trough.<br />
Employm<strong>en</strong>t growth w<strong>as</strong> fairly broad-b<strong>as</strong>ed and h<strong>as</strong> consist<strong>en</strong>tly included the highly cyclical Manufacturing sector.<br />
The number of applications for jobless claims w<strong>as</strong> much closer to levels predating the recession, another key labour market indicator.<br />
The US corporate sector <strong>en</strong>ded the year in healthy shape and we believe that the curr<strong>en</strong>t levels of profit margins can be sustained going<br />
forward.<br />
In 2012, the US Tre<strong>as</strong>ury market <strong>en</strong>joyed the windfall of low yields amid a global flight to safety, but <strong>as</strong> both the federal debt and deficit are at<br />
record highs and well above the average for the G20 group, this is an issue that needs to be addressed with some urg<strong>en</strong>cy.<br />
Going forward, we expect the political negotiations over US fiscal policies to reach a compromise agreem<strong>en</strong>t in order to avoid the fiscal cliff.<br />
The US Federal Reserve looks committed to retaining an overly loose monetary policy for at le<strong>as</strong>t another two years. Overall, we expect the<br />
US economy to grow at a subdued pace in 2013, with real GDP incre<strong>as</strong>ing by another 2% year-on-year.<br />
China: The chall<strong>en</strong>ges for China’s leaders<br />
Throughout the year, fears over a hard landing for the Chinese economy prevailed. However, the latest survey of manufacturers’ purch<strong>as</strong>ing<br />
managers h<strong>as</strong> e<strong>as</strong>ed concerns that China may suffer a serious downturn. In fact, this highly cyclical index did not collapse <strong>as</strong> it had in 2008,<br />
but dipped briefly just below the expansion threshold of 50. This evid<strong>en</strong>ce helped investors to regain some optimism for a soft-landing<br />
sc<strong>en</strong>ario for China.<br />
But threats to China’s growth remain: the real estate sector, accounting for about 15% of GDP, and its impact on bank balance sheets (although<br />
many loans were made by other financial firms, belonging to a “shadow” banking system) is one of them. Another risk is that policy makers<br />
are not responsive <strong>en</strong>ough. They acted quickly in 2012, wh<strong>en</strong> monetary policy w<strong>as</strong> switched from a tight<strong>en</strong>ing to an e<strong>as</strong>ing mode b<strong>as</strong>ed on<br />
signs that the Chinese economy w<strong>as</strong> growing less, but th<strong>en</strong> the pace slowed down. <strong>Bank</strong>s’ reserve ratios are a c<strong>as</strong>e in point: This key gauge<br />
w<strong>as</strong> lowered three times in 2012, but remains close to the peak of 21.5%. The new political leadership, appointed by the ruling party’s five<br />
year congress in November, is said to be ev<strong>en</strong> ke<strong>en</strong>er on taking a gradual approach.<br />
A more fundam<strong>en</strong>tal re<strong>as</strong>on for concern is that China’s growth relies on exports and investm<strong>en</strong>ts, rather than on stable sources like household<br />
sp<strong>en</strong>ding, <strong>as</strong> structural changes are needed for the Chinese economy to become consumer-driv<strong>en</strong>. The shift in China’s growth model from<br />
investm<strong>en</strong>t-led to consumer-driv<strong>en</strong> may take time, but the new political leadership needs to move beyond the rhetoric of economic reforms to<br />
actually implem<strong>en</strong>ting them in are<strong>as</strong>, such <strong>as</strong> a more effici<strong>en</strong>t welfare state and the liberalisation of both the Financial sector and curr<strong>en</strong>cy<br />
markets, not to m<strong>en</strong>tion the further advancem<strong>en</strong>t of privately-owned companies (long subjugated to large state-owned <strong>en</strong>terprises).<br />
India: An elusive trade-off betwe<strong>en</strong> inflation and growth<br />
At the <strong>en</strong>d of 2012, the Indian c<strong>en</strong>tral bank (RBI) w<strong>as</strong> facing the dilemma of a slowing economy in need of a looser monetary policy, while<br />
adhering to its medium-term goal of 4% to 5% inflation. The wholesale price index is inflation’s main gauge in India and it h<strong>as</strong> remained<br />
stubbornly above target. So there appears to be little room to cut b<strong>en</strong>chmark interest rates in order to revive bank loans, investm<strong>en</strong>t sp<strong>en</strong>ding<br />
and, with it, overall economic growth.<br />
6 Pioneer Funds - Annual Report
Change language