Prudential experts: Equity markets post solid gains in first half of 2013 as US economy improves; Fed action could inject some

  Prudential experts: Equity markets post solid gains in first half of 2013 as
  US economy improves; Fed action could inject some volatility

         Prudential experts provide market outlook at annual briefing

Business Wire

NEW YORK -- June 26, 2013

Prudential market experts say they expect the U.S. economy to continue its
recovery and still fragile global markets to begin to stabilize over the rest
of the year and into 2014. However, U.S. fiscal policy remains a drag on the
economy and Federal Reserve policy could create some volatility depending on
when the Fed decides to begin easing interest rates higher, through the
so-called “tapering” many have been expecting. The experts, all from
businesses of Prudential Financial, Inc. (NYSE: PRU), outlined their views
today at the Prudential 2013 Midyear Global Markets & Economic Outlook
briefing in New York City.

A replay of the outlook briefing is available on Prudential’s newsroom.

Ed Keon, managing director of Quantitative Management Associates and a member
of its asset allocation team, said stock markets have come roaring back
following the recent financial crisis and a “near-miss” of a second Great
Depression, more than doubling from their lows of March, 2009. Though many
investors remain fearful as they watch carefully to see how the Federal
Reserve may alter its policy, he believes the economic recovery is likely to
continue and could lead to robust GDP growth in 2014.

“Extraordinary actions by the U.S. Federal Reserve have had a profound
influence on the markets and the economy, but if the Fed reduces its support,
will the economy and the markets come crashing back to earth?” Keon said.
“Might the Fed’s actions so far have already sown the seeds of future
inflation and instability? Ultimately, we offer an optimistic view of the
economy, and suggest that the recovery is real and likely to gain strength
over the next couple of years.”

Quincy Krosby, a Prudential market strategist, noted that the U.S. is on the
road toward interest rate normalization as long as the data continue to gain
traction. She also said that global markets will face detours along the road
to normalization.

“As employment data gain modest traction, markets will obsess and unwind as
taper concerns similarly gain traction. The Federal Reserve will most likely
employ the 'increase or decrease' phase as it emphasizes that it remains
data-dependent,” Krosby said. “But markets will interpret the data as well,
and act accordingly. Nonetheless, the re-pricing of assets, while inherently
volatile, will ultimately leave markets with a firmer underpinning.”

John Praveen, chief investment strategist for Prudential International
Investments Advisers, is also optimistic about the market recovery, though he
agrees that volatility will be in play until there is more certainty about the
Fed’s interest rate and liquidity strategy. He believes that for the remainder
of 2013, global equity markets are supported by a number of positives,
including: low interest rates and plentiful liquidity; strengthening global
growth and benign inflation; improving risk appetite as the Eurozone continues
to re-stabilize; a healthy earnings rebound and attractive valuations.

“However, global equity markets are likely to remain volatile and continue to
struggle in the near-term on heightened anxiety about the Fed’s exit
strategy,” Praveen said. “The global equity rally is likely to resume once the
current interest rate and liquidity uncertainty eases with Bernanke and other
Fed officials reassuring that the Fed is unlikely to 'taper' QE buying until
late 2013/early 2014, and Abe-Kuroda delivers the next tranche of stimulus and
policy measures in Japan.”

In the fixed income markets, Michael Lillard, chief investment officer of
Prudential Fixed Income, views the recent turbulence in the fixed income
markets as an overreaction to the Federal Reserve’s plan to begin “tapering”
its quantitative easing program later this year provided unemployment
continues to trend lower.

“In particular, the sell-off in the credit-related sectors was fueled by a
shift in market technicals, not fundamentals, resulting in market dislocations
that have created long-term value opportunities,” Lillard said. “We expect
interest rates to remain relatively low from a historical perspective, and
while they may drift somewhat higher over time, the extreme volatility we’ve
witnessed recently is unlikely to persist.”

The improving economy and market rally has also been a positive for the
commercial real estate market, says Cathy Marcus, managing director at
Prudential Real Estate Investors. Yet, as much of a boon as a strong recovery
represents, the commercial real estate markets are not banking on it to the
same extent as other sectors because the lack of new development is keeping
supply in check.

“A significant recovery would be good for markets overall, but we are not
relying on that to continue delivering strong real estate returns this year,”
Marcus said. “As long as the economy remains stable or improves – and there
are no major shocks – the real estate sector will stay healthy.”

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approximately $1.06 trillion of assets under management as of March 31, 2013,
has operations in the United States, Asia, Europe, and Latin America.
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