economic & market outlook · 2019-10-16 · 2 who we are bank of hawaii corporation • founded...

Roger Khlopin, CFASenior Vice President

Chief Investment Officer

Economic & Market OutlookOctober 11, 2019

2

Who We Are

Bank of Hawaii Corporation• Founded in 1897, Bank of Hawaii is the largest

independent financial institution in the State of Hawaii with over $17.7 billion in total assets.

• Bank of Hawaii ranks No. 4 among U.S. financial institutions and No. 40 overall in the 2019 “100 Most Sustainable Companies list,” published by Barron’s magazine on Feb. 8, 2019. Bank of Hawaii is the only company in Hawaii to be recognized.

• Oldest and largest trust business in the State of Hawaii, with over $9 billion in assets under management and administration.

• Largest Hawaii municipal bond manager($1 billion plus) including largest and oldest state municipal bond fund, Hawaiian Tax-Free Trust.

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Trust Services Group Offerings

Individual & Families

• Cash Management

• Credit Solutions

• Investment Management

• Custody Services

• Trust & Probate Administration

• Foundation Administration & Philanthropy

• Retirement Planning

• Tax & Estate Planning

• Financial Planning

• Real Estate Management

Businesses & Non-Profit

• Cash Management

• Credit Solutions

• Investment Management

• Custody Services

• Trust Administration

• Foundation Administration & Philanthropy

• Real Estate Management

• Retirement Plan Administration

• Business Succession Planning

4

Full Spectrum of Investment Solutions

We offer a wide range of managed strategies, designed to meet a full spectrum of risk and return objectives

for a variety of client profiles.

Money Market Ultra -ShortFixed Income

Short-InterFixed Income

CoreFixed Income

Fixed Income& Equity Equity

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News Headlines From Last December

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Recent News Headlines

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MainstreamMedia

EconomicFacts

8

Putting Recent Equity Sell-Offs in Perspective

Source: Pension Partners

9

Powering Through Recessions

Dow Jones Industrial Average

Source: Bloomberg Finance LP

10

ISM Manufacturing Survey

Activity Expanding

Activity Contracting

?


11

ISM Non-Manufacturing Survey

Activity Expanding

Activity Contracting


12

Yield Curve Flattening/Inversion

September 2018

October 2019


13

S&P 500 Level Yield Curve Level


The Yield Curve & Stock Bull Markets

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-0.72%

-0.47%

-0.33%

-0.24%

-0.21%

-0.14%

0.20%

0.22%

0.59%

0.90%

1.41%

1.67%

Switzerland

Germany

Netherlands

Sweden

Japan

France

Portugal

Spain

U.K.

Australia

Canada

U.S.

Comparative 10-Year Gov’t Bond Yields(As of 10/10/2019)


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$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19

Negative Yielding Debt By Country/Region

Japan Euro Area Ex-Germany & France Germany France Rest of World

Negative Yielding Debt($ in trillions)


0%

10%

20%

30%

40%

50%

60%

Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19

Negative Yielding Debt as a Percentage of Global Bond Index

BB Global Aggregate Ex-US BB Global Aggregate

17Source: Bloomberg Finance LP

Negative Yielding Debt

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25-year average: 4.6%

30-Year U.S. Treasury Bond Yields


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The Upside of Low Rates

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The Upside of Low Rates

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Trade “Wars”

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Communism at 70

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Brinkmanship: The art or practice of pushing a dangerous situation or confrontation to the limit of safety especially to force a desired outcome of

Madman theory: A political theory commonly associated with President Nixon’s foreign policy. Nixon and his administration attempted to convince leaders of hostile communist bloc nations that he was irrational and volatile. According to the theory, those leaders would then avoid provoking the United States fearing an unpredictable American response.a desired outcome

Trade Gamesmanship

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Trade Flows($ in billions)

$62.8

$65.4

$73.8

$88.5

$89.1

$100.4

$106.4

$173.6

$281.0

$539.5

$0 $100 $200 $300 $400 $500 $600

United Kingdom

Vietnam

India

Mexico

Germany

Netherlands

South Korea

Japan

Hong Kong

United States

China's Export Customers

$33.7

$42.1

$46.1

$57.3

$58.9

$65.4

$83.6

$156.3

$228.8

$249.2

$0 $100 $200 $300 $400 $500 $600

France

Singapore

Netherlands

Germany

South Korea

United Kingdom

Japan

China

Mexico

Canada

America's Export Customers


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No progress is madeAdministration is tough

on trade with China

Market sells off ontrade war fears

Administrationhints at resolution

Market ralliestemporarily on news

The Trade War Cycle

October 10th

President Trump says trade talks between the

U.S. and China are “going really well.”

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3.7%

2.2%2.5%

1.9%

6.8%

3.5%

2.9%

1.9%

0.8%

6.6%

3.2%2.8%

1.8%

0.7%

6.2%

3.4%

2.3%

1.6%

0.6%

6.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

World US Euro Area Japan China

Global Growth Outlook

2017 2018 2019 2020

Slowing Growth But No Recession

Source: OECD

Source: Organization for Economic Cooperation and Development (OECD)

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Moderate Growth Expected Through 2021

-0.1%

-2.5%

2.6%

1.6%2.2%

1.8%2.5%

2.9%

1.6%2.2%

2.9%2.3%

1.8% 1.8%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

U.S. Real Gross Domestic Product(Year-over-Year Change)

-37% 26% 15% 2% 16% 32% 14% 1% 12% 22% -4%

S&P 500 Total Returns

19%


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Longest Economic Expansion in History


Gross Domestic Product: $21.3 trillion

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Solid Labor Market


Unemployment Rate

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Improving Wages


Average Hourly Earnings(Year-over-Year Growth)

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Rising Consumer Confidence


Conference Board Consumer Confidence Index

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Strong Household Sector

Source: JP Morgan

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Healthy Retail Sales

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Hawaii Economy

IndicatorsActual Forecast

2017 2018 2019 2020 Real GDP(Y-o-Y% change) 1.1% 1.4% 1.3% 0.9%

Unemployment Rate 2.4% 2.5% 2.8% 3.2%

Real PersonalIncome(Y-o-Y % change) 1.2% 1.0% 1.2% 0.6%

Honolulu Inflation Rate 2.5% 1.9% 1.7% 1.6%

Visitor Arrivals(Y-o-Y % change) 5.2% 5.9% 5.1% -1.2%

Average Length of Stay(# of days) 9.0 9.0 8.8 8.8

Real Visitor Expenditures(Y-o-Y% change) 3.0% 3.9% -0.5% -0.7%

Source: UHERO

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Hawaii Economy

Source: UHERO

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15.7%

19.1%

15.2% 15.2%

11.2%

5.5%

8.6%11.0%

7.4%

Dow JonesIndustrial

S&P500

DJ SelectDividend

RussellSmid Cap

Int'l Dev(MSCI EAFE)

Int'l Emg(MSCI EM)

BarclaysAggregate

BarclaysHigh Yield

BarclaysMunicipal

Performance of Major Market IndicesYear-to-Date Total Return as of 10/10/2019

Capital Markets Review


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$35

$55

$75

$95

$115

$135

$155

$175

$195

650

1050

1450

1850

2250

2650

3050

3450

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

S&P 500 (left scale) Corporate Earnings (right scale)

S&P 500 Index & Corporate Earnings


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582%

340%

263%

126%

229%

101%

82%

80%

74%

48%

21%

177%

12.3

10.6

8.1

6.2

5.0

5.0

4.2

3.6

2.6

2.1

1.7

5.6

12/1987 ‒ 03/200003/2009 ‒ 09/201906/1949 ‒ 07/195710/1974 ‒ 11/198008/1982 ‒ 08/198710/2002 ‒ 10/200710/1957 ‒ 01/196206/1962 ‒ 02/196605/1970 ‒ 01/197310/1966 ‒ 11/196810/1946 ‒ 06/1948

Average

Post-World War II Bull Markets Bull Market Length in years

Percentage Gain in S&P 500

A Great Bull Market

YouAre

Here


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Reasonable Market Valuation

Source: JP Morgan

S&P 500 Index: Forward P/E ratio

Valuation measure Description Latest

25-year avg.*

Std. dev. Over-/under-

ValuedP/E Forw ard P/E 16.59x 16.23x 0.11CAPE Shiller's P/E 29.06 27.10 0.32Div. Yield Dividend yield 2.08% 2.10% 0.04P/B Price to book 3.06 2.95 0.15P/CF Price to cash f low 12.10 10.62 0.80EY Spread EY minus Baa yield 2.22% -0.05% -1.16

25-year average: 16.23x

+1 Std. dev.: 19.41x

-1 Std. dev.: 13.05x

Oct. 7, 2019:16.59x

8x

10x

12x

14x

16x

18x

20x

22x

24x

26x

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18

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Stock & Bond Yields

0%

2%

4%

6%

8%

10%

12%

14%

1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017

10-year U.S. Treasury Yield S&P 500 Dividend Yield


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Mutual Fund & ETF Flows


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MAHALO

economic & market outlook · 2019-10-16 · 2 who we are bank of hawaii corporation • founded...

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