Defensive sectors and developing economies set to be key investment focuses

LONDON and NEW YORK, November 12, 2009 — In a recent panel debate on the outlook for global markets in 2010, a team of Newton's global fund managers agreed that a 'traditional' consumer driven cyclical recovery appeared unlikely in the face of continued household debt and high levels of unemployment. High quality defensive stocks and exposure to developing economies emerged as some of the key investment focuses for 2010.

Opening the discussion, Iain Stewart, Investment Leader, global funds at Newton, commented: "We're entering a less leveraged and higher savings environment which means that both the supply of, and demand for, credit are likely to be significantly reduced. As a result of this, we are entering a structural rather than a cyclical change which may last for many years to come.

"Our theme-led approach helps to identify sectors that we believe will benefit from the continuing change in financial markets. We are fully invested to take advantage of this change by focusing on very high quality defensive areas as well as those companies we believe stand to benefit from growth in emerging markets."

Ben Russon, Investment Manager - UK Equities, added: "Many UK companies have positioned themselves for a more bullish outlook than we expect. With the pressures of unemployment, levels of debt and restricted access to credit for the foreseeable future, recovery is likely to be fragile and elongated. We are therefore currently avoiding economically sensitive areas of the market and are positioning ourselves in non-cyclical sectors where we see the best value in line with our thematic investment approach."

Looking to Europe, the feeling was that it had not experienced the property bubble that had hit the US and UK markets and many European economies entered the recession with lower levels of leverage. Raj Shant, Investment Leader, Pan-European equities, suggested Europe was better positioned for a recovery than other developed markets.

He said: "With the European Central Bank pumping money into Europe's money markets as far back as the summer of 2007, Europe has been better placed to weather the recent crisis than the US or the UK. Also, the announced government stimulus programmes will likely have more of an economic impact in 2010 than they have to date."

He added that European growth was also less reliant on consumers and more export driven, an area which was seeing strong recovery boosted by demand from the emerging economies. However, he cautioned that the Euro's continued strength may start to impinge on exports and become a source of dispute with trading partners.

Looking ahead, Shant said Germany's recovery as the engine of Europe could see the European Central Bank raising rates next year, putting pressure on the weaker peripheral economies.

Simon Laing, Investment Manager, US Equities, was just as pessimistic about a lasting recovery: "Whilst the short term outlook remains positive, the sustainability of growth beyond 2010, with consumption unlikely to rise significantly, will need to be driven by a return of private investment spend. The risk of tax increases and government policy mistakes will likely handicap this. "

Increased mergers and acquisition activity is likely to be the next driver of growth in many Asian markets, according to Jason Pidcock, Investment Leader, Asia-Pacific Equities. "With Asia in line with the 10 year average, markets could easily go higher, driving leverage buyouts and cross border trades as we saw at the end of the mid-1980s boom," he said. "Many Asian companies should benefit over the longer term from the relative strength of their balance sheets, with corporate indebtedness significantly lower in Asia than in the US and Europe".

Charlotte Ryland, Investment Manager, global funds said: "We are currently undergoing a period of global realignment whereby Western economies are in the midst of adjusting to lower growth, lower levels of leverage and significantly more regulatory oversight of the banking system. As a result of this realignment, the developing world continues to present longer-term investment opportunities, particularly those countries able to stimulate domestic demand such as China, India and Brazil.

"Equity risk should remain biased towards relatively economically insensitive sectors with stable cash flows and visible earnings such as telecoms and medical technology. Commodities such as oil remain interesting, driven by new sources of demand and declining production."

Iain Stewart fuelled this cautious approach to the next few years, concluding: "While we cannot predict the shape of the recovery, our theme-led investment strategy enables us to take advantage of those sectors that are positioned for growth over the coming years. We believe our defensive positioning will ensure that we emerge in better shape than those investors who have put all their money in very high beta stocks."

Newton* is a London-based global asset management subsidiary of The Bank of New York Mellon Corporation and part of BNY Mellon Asset Management. With assets under management of more than $65 billion, including assets managed by Newton Investment Management as dual officers of Newton Capital Management Limited and The Bank of New York Mellon, Newton's group of affiliated companies provides a broad range of award-winning investment products and services to individuals, pension funds, charities and corporations. News and other information about Newton is available at www.newton.co.uk.

BNY Mellon Asset Management is the umbrella organisation for The Bank of New York Mellon Corporation's affiliated investment management firms and global distribution companies.

BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation. BNY Mellon is a global financial services company focused on helping clients manage and service their financial assets, operating in 34 countries and serving more than 100 markets. BNY Mellon is a leading provider of financial services for institutions, corporations and high-net-worth individuals, providing superior asset management and wealth management, asset servicing, issuer services, clearing services and treasury services through a worldwide client-focused team. It has $22.1 trillion in assets under custody and administration and $966 billion in assets under management, services $11.9 trillion in outstanding debt and processes global payments averaging $1.6 trillion per day. Additional information is available at www.bnymellon.com.

*'Newton' refers to the following group of affiliated companies: Newton Investment Management Limited, Newton Capital Management Limited, Newton International Investment Management Limited, Newton Capital Management LLC and Newton Fund Managers (CI) Limited. Assets under management include assets managed by all of these companies except Newton Capital Management LLC, which provides marketing services in the U.S. for Newton Capital Management Limited. Except for Newton Capital Management LLC and Newton Capital Management Limited, none of the other Newton companies offer services in the US and Canada. Newton Capital Management Limited is an investment management firm authorized and regulated in the United Kingdom by the Financial Services Authority in the conduct of investment business and is a wholly owned subsidiary of The Bank of New York Mellon Corporation. Registered in England no: 2675952. Newton Capital Management Limited is registered in the United States as an investment adviser under the Investment Advisers Act of 1940. All information source BNY Mellon Asset Management as at 30/09/09. This press release is qualified for issuance in the UK, US and Canada and is for information purposes only. It does not constitute an offer or solicitation of securities or investment services or an endorsement thereof in any jurisdiction or in any circumstance in which such offer or solicitation is unlawful or not authorised. This press release is issued by BNY Mellon Asset Management (US & Canada) and BNY Mellon Asset Management International Limited (ex-US/Canada) to members of the financial press and media and the information contained herein should not be construed as investment advice. Past performance is not a guide to future performance. Registered office of BNY Mellon Asset Management International: The Bank of New York Mellon Centre, 160 Queen Victoria Street, London, EC4V 4LA. Registered in England no. 1118580. Authorised and regulated by the Financial Services Authority. A BNY Mellon Company(SM)