Dear Fellow Investors
EXECUTIVE DIRECTOR’S LETTER
Unit Trust Corporation
Annual Report 2012
31
I
t is my great pleasure to present to
you the Executive Director’s Report
on the Corporation’s financial outturn
and the investment performance of its unit
schemes and mutual funds for the year
ended December 31, 2012.
Economic Review
and Outlook
In the 2012 financial year, global econom-
ic performance surpassed expectations as
policymakers across the world intervened,
coordinating monetary and fiscal poli-
cies in order to revitalize global economic
growth which has been decelerating since
2011. The global economy grew by 3.2 per-
cent in 2012 following growth of 3.9 per-
cent in 2011 according to the International
Monetary Fund (IMF).
Real GDP in the US rose 2.2 percent in 2012
compared to 1.8 percent in 2011. This in-
crease was recorded despite declining gov-
ernment spending and is chiefly reflective of
increased personal consumption and invest-
ment spending along with decelerating im-
ports. The US housing market showed signs
of resilience and the US Federal Reserve ex-
tended its accommodative policy measures
in a bid to maintain low interest rates. The
“debt ceiling debate” and the “fiscal cliff” re-
main the key legislative issues on the agen-
da for US policymakers as both issues have
the potential to cause serious economic fall-
out if not properly managed.
In Europe, much of the market fears that
characterized 2011 spilled-over into the
first half of 2012 as Standard & Poor’s
(S&P) downgraded a total of nine out of
seventeen countries in the Euro-Zone in
mid-January 2012. France, the region’s sec-
ond largest economy, and Austria, were
both stripped of their coveted AAA credit
ratings and assigned AA+ ratings.
On July 18th, Italian and Spanish ten-year
bond yields breached critical levels, spik-
ing at 6.074 percent and 7.498 percent
respectively amid escalating concerns of
a Euro-Zone exit by one or more troubled
members. This resulted in increased capi-
tal outflows from the southern periphery,
fragmentation of the credit markets and
reduced consumer and investment de-
mand at the national level, with negative
implications on economic output, em-
ployment, fiscal balances and bank bal-
ance sheets. By July 26th, the European
Central Bank (ECB) President, Mario Draghi
calmed the markets, pledging to “do what-
ever it takes” to save the Euro. The ECB
subsequently announced a new Outright
Monetary Transaction (OMT) programme,
which played a pivotal role in reducing the
yields on Italian and Spanish debt to 4.497
percent and 5.265 percent by the year-end.
Overall investor sentiment towards the
region improved in the latter half of 2012
primarily on account of the ECB’s interven-
tions. Economic growth for the Euro-area,
however, contracted by 0.6 percent in 2012
after expanding by 1.4 percent in 2011.
Much work is still required in order to im-
plement an effective regional banking un-
ion, and to address the lingering economic
problems of high public debt, unemploy-
ment, and contracting growth. With this in
mind, it is obvious that the sovereign debt
crisis is far from over, and stability within
the region remains volatile.
