GLOBAL OUTLOOK ECONOMY & FINANCIAL MARKETS
Andbank’s Corporate Review Strategic Outlook 2016 “International politics is never about democracy and human rights. It's about the interests of states. Remember that, no matter what you are told in history lessons” (Egon Bahr)
ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW DECEMBER-15
Contents Executive Summary
3
The World at a Glance
4
Country Pages USA
5
Europe
6
Emerging Asia
7
China
8
India
9
Japan
10
Brazil
11
Mexico
12
Other EMEA & Latam economies
13
Equity Markets Fundamental Assessment
14
Short-term Assessment. Risk-off shift probability
14
Technical Analysis. Main indices
14
Fixed Income Markets Fixed Income, Core Countries
15
Fixed Income, European Peripherals
15
Fixed Income, Corporate Bonds
16
Fixed Income, Emerging Markets
16
Commodities
17
Forex
19
Summary Table of Expected Financial Market Performance
20
Monthly Tactical Asset Allocation Proposal
21 2
ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW DECEMBER-15
Executive Summary Global – Investors’ opinions about the 2016 global economy are unusually mixed. Admittedly, there are still some major vulnerabilities in the global economy, but in our view the balance of risks in 2016 lies on the upside, with global growth likely to be set at around 3% in 2016. (1) A weighted average of the three flash manufacturing PMIs which Markit publishes covering the euro-zone, Japan and the US has been fixed at 52.7 in November, remaining fairly stable since mid-2014 and consistent with advanced-economies GDP growth of around 2%. (2) The full benefits of lower oil prices have yet to be felt. The initial impact is usually negative (fall in investments and general air of uncertainty about economic backdrop), but over time the effects are positive. Experts expect commodity prices to recover gradually, while remaining low enough to provide a substantial boost to spending on other goods and services. (3) Not to mention that an extended period of low commodity prices and inflation will help to keep monetary policy loose. (4) Markets have become too pessimistic about the outlook for global demand, but we expect the news from China to improve in 2016, leading to a mild improvement in general sentiment towards global activity, commodities, etc. (5) Broad money aggregates are growing, with the M3 growth running at around 6% in the OECD economies. (6) The drag from fiscal austerity is fading. According to current fiscal goals, fiscal policy will still put some pressure on the economy, but by a much smaller amount. (7) Key emerging economies are showing signs of improvement. In China, policy stimulus is now kicking in and the economy has stabilized or even accelerating. Relative stability of commodity prices should also help countries like Brazil and Russia. (8) Financial markets are now calmer and investors seem more relaxed about the prospects that the Fed may soon start to raise rates towards more normal (but still low) levels. The surge in the USD may be close to an end (good for the US), with current levels in the US$ that are supportive for the external sectors of the mercantilist minded emerging economies. USA - We expect three hikes in the year. Equity returns should be much lower than in the past six years. The corporate sector has been the main buyer of equities since the market trough, buying 12.2% of market cap since 2009. Europe - We see 2016 GDP growth exceeding 2015 pace. Equity returns could be considerable. Peripheral bonds will continue benefiting from the ECB’s ultra loose policy. Emerging Markets - Nervousness about the impact of a Fed hike is hard to justify. The impact of an eventual Fed interest rate hike on EM economies should be very little. Admittedly investors remain jumpy, although they also expect the Fed to tighten more gradually than ever before. China - Seen in perspective, the PBoC is still far from having reached the climax in the monetary easing seen in other countries, leaving a leeway for further stimulus. If further rate cuts have to come, this will be good news for the Chinese equity market and other CNY denominated assets. India – The country has initiated the path of reforms, signaling that a new environment is right around the corner. India is likely to continue its gradual acceleration into 2016 helped by loose monetary policy and support from the reform process. Japan – We see no extra action from the BoJ (QQE). Although structural reforms gain traction, they will not offset the lack of further monetary stimulus. Brazil - The government has gained an effective majority, although more is needed to pass key issues in Congress. Mexico - 2016 Growth expectations exceed 2015 figures. We see another year of positive equity 3 returns.
ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW DECEMBER-15
The World at a glance 2016 Andbank’s Global GDP Growth Estimates
1.9%
2.6%
2.9%
-4.5%
2.8%
-2%
2.5%
0.7%
3,9%
2.4%
1%
2.7%
2,8%
1.5% 2.9%
2,2% 1,9% 1.4%
1.7%
-0.8%
7.3% 6%
3,2% 7
4.1%
1.5%
6.3%
5.3%
2.3%
4
ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW DECEMBER-15
USA:
We expect three hikes in the year. Equity returns lower
Do you feel dizzy?
Defining what a crash is
Economy & macro estimates Expected 2016 GDP growth at 2.6%. Unemployment rate at 4.8%. Headline CPI y/y at 1.7%. A low pace for an election year? Indeed, the run-up to a presidential election year is normally a source of “political inertia”. That may especially be the case given the current success of populist candidates in the polls. As it happens, the leading candidates are suggesting fiscal expansion in the form of tax cuts (Republicans) or infrastructure expenditure (Democrats). However, if the measures are implemented at all, they are likely to occur in the first 100 days of a new administration, meaning any policy shift would be in 2017. Fed: We expect three hikes in 2016 Dovish view: A U.S. government shutdown just before the Fed meeting could stop an interest-rate hike in December and a weak winter quarter could pre-empt a rate rise in the spring of 2016. Then, the impending U.S. elections could discourage a rate rise in summer 2016. And all of a sudden it’s 2017! Hawkish view: US real growth has, since mid-2013, averaged 2.5%. Household finances have improved considerably (this will support residential investment). Job gains during the last 2 years (unemployment rate is near full employment) should fuel wage growth and labor income. Services inflation (a reflection of domestic price pressures) has been rising steadily in the US and we expect it to continue increasing as any remaining spare capacity in the economy is used up. In addition, the drag on goods inflation should ease next year because the dollar is unlikely to rise as fast in the future as it has done over the past 12 months. Financial Markets Fixed Income: 10Y UST yield at 2.7%. Equity: Returns should be much lower than in the past six years. The corporate sector has been the main buyer of equities since the market trough, buying 12.2% of market cap since 2009. Some argue that corporate and private equity funds have the firepower to buy a 13% of market cap. The key factor supportive of this buying remains the gap between Net margins and corporate bond yield. Sales growth of 4.9% for US companies. Margins falling to 9.7% (from 10.4%), EPS growing at 2.5%. We expect a PE expansion to 18.5, resulting in a target price for the S&P at 2140, which points to flat returns in 2016. Historically, equity downgrades are not enough to lead to a bear market. Earnings would have to fall by more than 5% and, for this to happen, we need some of the following conditions: Corporates to show signs of overinvesting, interest charges to rise by 80bp, GDP to be sub -1,2% or labor to have clear-cut pricing power. We see none of these conditions in place. Earnings could accelerate in 2H16, led by consumer, technology, financial and health care sectors.
Financial Market Outlook: S&P: NEUTRAL 10yr UST bond: NEGATIVE IG Credit: NEUTRAL-POSITIVE HY Credit : POSITIVE
5
ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW DECEMBER-15
Europe:
We see 2016 GDP growth exceeding 2015 pace. Equity returns could be considerable Economy
Does this makes sense?
Should we UW banks?
GDP estimates show steady recovery with growth prospects exceeding 2015 figures. Expected GDP growth: EU 2%, Spain 2.7%, UK 2.4%, GE 1.9%, FR 1.4%, IT 1.5%, PO 1.7%, GR 1.3%, IR +4.1%, POL 3.5%, NE +2.1%, SWE2.8% Drivers: Less headwinds from the fiscal front, low oil prices, lower unemployment, high confidence, pending 3 month loan demand, loose monetary policy and ECB’s QE will drive growth. Risks: Uncertainty remains in politics, capital expenditures (public and private) and the external backdrop, although we expect it to improve gradually, especially in Asia and Latin America. 2016 CPI All items EU at 1%-1.2%. This pickup from 2015 levels will come from an annual base-effect of the oil price collapse on global CPI that is about to disappear, and as employment should keep increasing. ECB Despite a likely pickup in CPI numbers, this will remain subdued into 2016, causing Mr. Draghi to loosen policy further (beyond market expectations, since most investors project a clear rebound in inflation): (1) The recent rebound in underlying prices has been due to the depreciation of the euro since the middle of 2014, causing the prices of imported non-energy goods to rise by almost 10% y/y in August. Unless the euro depreciates much more, inflation will be much lower in the months ahead. (2) As in Japan, where underlying CPI has increased as a lagged response to previous falls in the yen (from 102 to 123), there is no pickup in services inflation suggesting that domesticallygenerated price pressures remain weak, and will continue as far as GDP growth remains subpar. Politics Portugal: The situation remains uncertain about the final outcome (early elections or a left wing coalition comprising radical parties). On the positive side, DBRS kept its rating within the IG space (good in terms of QE eligibility), and the stress tests for banks showed manageable capital shortfalls. Spain: Sentiment remains relaxed as polls point to a coalition that seems a reasonable outcome for markets. Financial Markets Fixed Income: The scenario, as described above, is benign for bonds (low growth, low inflation, ECB purchases), except for 10yBund (target yield 0.7% => UW). Peripherals: ECB’s QE will put downward pressure on yields, although much lower than the previous years. SP 1.5%, IT 1.4%, PO 2%, IR 1.1% Credit: Itraxx Europe at 50. Itraxx HY at 250 Stoxx 600: Sales growth 3.5%, Margins 8%, EPS growth 9.2%, PE2016 at 16.7. Target = 424
Financial Market Outlook: STOXX 600: POSITIVE 10yr Benchmark bond: NEGATIVE Peripheral bonds: NEUTRAL-POSITIVE Credit. - IG: NEUTRAL. HY: NEU- POSITIVE.
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ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW DECEMBER-15
Emerging Asia:
Nervousness about the impact of a Fed hike is hard to
justify
3,8% 4%
What effects should we expect from the start of a Fed rate hike? • Impact on EM economies: the effects should be very little, as they should also be in the US economy. Basically because there is no economic model in which the difference in short rates of 25 or 50bp causes a big shift in the decisions of consumers, savers or investors. Instead, a 2550bp rate hike may even boost confidence in the sustainability of the US expansion. • Impact on EM financial markets: admittedly investors remain jumpy, although they also expect the Fed to tighten more gradually than ever before. Nervousness is hard to justify: 1. The start of this rate hike cycle will be the most predictable and predicated events in financial history (in contrast to the 1994 and 2004 cycles, whose timings surprised investors, causing volatility). According to this, the EM financial markets should not be very vulnerable. 2. The prior USD appreciation derived from the expected rate hike will cause the typical transfer of wealth from EM consumers to EM producers (the latter will be able to cut USD prices while keeping local prices stable, or even increasing them). 3. Equity prices depend on long-term discount rate (and not on over-night rates), and if bond markets remain calm at the prospects of the first rate hike, thus equity markets should be too. 4. Fx: Looking at the two episodes of Fed tightening after long periods of exceptionally easy money (that began in Feb 94 and June 04) we find that the USD strengthened in the 6 months leading up to each initial rate hike, while the EM currencies recovered ground in the six months that followed. Asia’s central banks will not reverse rate cuts We think that central banks are now done with cutting rates (they reacted to the sharp downturn in exports, that took them by surprise). However, the start of a tightening cycle is unlikely in the region: (1) Inflation is likely to remain below targets, and any rebound will not be a reflection of an increase in underlying prices, but a simple unwinding of temporary effects. (2) Exports should soon recover, led by an improvement in China, but the recovery will not be strong enough for any central bank to start withdrawing support. (3) The region has close ties with Japan, China and the EZ, where central banks are in easing mode. Financial Market Outlook: MSCI EM Asia: NEUTRAL 10Yr Government Bonds: POSITIVE 7 FX: NEUTRAL-POSITIVE
ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW DECEMBER-15
China:
Key Forecasts
Are there additional stimulus available for Chinese assets? Stimulus The answer to our question depends much on the capacity of the PBoC to cut rates further. Seen in perspective, the PBoC is still very far from having reached the climax in the monetary easing seen in other countries (see chart 2). If further rate cuts have to come, this will definitely be good news for the Chinese equity market, according to the correlation among rates and equities seen in the last 5 years (see chart 2). What will determine the occurrence of further stimulus? The driver will be the headline inflation (currently at 1.6%). If CPI remains stable at record lows, we will see additional stimulus and equities will rally. CPI numbers could remain low and the PBoC will maintain its full capacity to implement stimulus. 1. Authorities have been adjusting regulated prices on the up-side, but this might not last long. 2. Admittedly, the drop in oil prices during the 2H14 provides a weaker base for comparison. Nevertheless, we cannot rule out the grim scenario for crude oil like the one seen for natural gas in the 2008-2015 period, following the incorporation of unconventional gas sources. 3. Nor can we rule out the 1986-2004 scenario for crude oil following the inclusion of Iran in the international arena. 4. Property sales have rebounded recently but this has been a policy driven rebound. Admittedly, we are not overly pessimistic on the Chinese real estate sector, which means that it will not continue dragging rental costs and CPI numbers. But we definitely do not see the sector as a source of reflation. 5. The big falls in pork prices in 20013 led Chinese farmers to cut back on sows, which results in less production that could drive food prices higher. However, a change in pig rearing, from smallholdings to large farms (one of the reasons of the big jump seen in production in 2013) makes it easier to adapt production to peaks in demand. Certainly an aspect that prevents strong rises in pork and food prices. 6. Producer prices remain in negative territory, and lower import prices are still pushing down PPI. The excess in global supply has caused most of the falls in commodities, and the big falls could already be behind us, but we do not see global capacity constraints that could cause a spike in commodity prices. Financial Market Outlook: SSE COMPOSITE Index: POSITIVE 10Yr Government Bond: POSITIVE 8 FX: NEUTRAL-POSITIVE
ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW DECEMBER-15
India:
Is a new business environment right around the corner? Reforms India has initiated the path of reforms, signaling that a new environment is right around the corner. Modi is trying to fix the cause of India’s sclerosis. So far, Delhi defines policies and dictates the big projects, and this tends to create bureaucratic hindrances. To remedy this dysfunction, Modi tries to transfer more powers and resources to state governments in a broad platform dubbed “Competitive and cooperative federalism”. This includes the proposal to increase their borrowing capacity by 0.5% of GDP (debt must remain below 25%, deficits below 3%). Impact: (1) The states will have the capacity to deliver, rather than be incentivized to look for excuses. (2) Having been given the powers and funds to do the job, a process of competition could hopefully make the states engage in a race to the top. (3) This fiscal rebalancing paves the way for a simplification of a tax code, (4) improving the business climate and private sector investment. Other reforms: (1) The inefficient state monopolies are being targeted (Indian railways’ modernization of network, separating ownership and operational activity, with foreign firms being able to operate). (2) New mining law, opening up this activity to private firms. (3) Passing of the Coal Bill, setting the conditions to privatize state-owned firms. (4) Fiscal reforms, with spending autonomy in exchange for caps on deficits. Economy India is likely to continue its gradual acceleration into 2016 helped by loose monetary policy and support from the reform process. External imbalances are fading. Current account deficit fell from -5% of GDP to just -2%. This should help to keep the Rupee stable, allowing monetary policy to remain loose and support a cyclical rebound. CPI remains at record lows (4.4%) and well below the RBI's 6.0% target. Another argument to think that RBI will remain supportive. Public finances have been improving: The debtto-GDP ratio has been slashed to just 46% of GDP (from 53% in 2009), and the budget deficit is being pared down (from 5% to 3.9%). Risks are of a political nature: Attempts to push through reform of domestic tax policy law and land acquisition have been rebuffed recently in parliament.
Financial Market Outlook: India Sensex Index: POSITIVE 10 Yr Gov Bond yield: POSITIVE
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ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW DECEMBER-15
Japan:
No extra action from the BoJ. Structural reforms gain traction but will not compensate.
131%
6.8%
Monetary Policy Easing With the headline CPI at around 0% the BoJ could continue doing “whatever it takes” to hit its 2% target. However we can discern some reasons why the BoJ may prefer to stick with its current “QQE” program. 1. The CPI has been weighed down but the core-core inflation is running at a decade high. 2. The BoJ will be reluctant to expand QQE ahead of an additional consumption tax hike (April 2017). 3. The BoJ is crossing the technical limits of its QQE program. Being the largest holder of JGBs, with 30% of all outstanding issues, it is now facing the prospect of diminishing returns from further purchases, combined with a higher risk. 4. Some officials (Kuichi) are increasingly concerned about the QQE side–effects (liquidity in market). 5. Enthusiasm among business leaders for a further devaluation also cooled lately. They argue that Japanese manufacturers are now more linked in to the global supply chain, with fewer of their costs denominated in JPY. 6. The QQE is attracting criticism for exacerbating economic inequality by boosting exporters’ profits at the expense of domestic consumers. 7. When one export-oriented economy devalues, the currencies of other competitors also come under pressure, leading to tighter financial conditions (since the cost of servicing foreign debt rises). Major steps forward in PMs reform agenda We are in the first phase of Japan Post’s privatization program, which is projected to raise some ¥4trn ($33bn) by 2022. It is the largest IPO since the 1998 IPO for NTT DoCoMo. Japan Post is the largest financial conglomerate in the country, holding the largest pool of savings in the world, with deposits of ¥180trn or 37% of Japan’s GDP. The implications: Deployment of the proceeds should (1) help lift public demand, (2) It will shake up Japan’s financial services industry. (3) As with for-profit companies, Japan Post will have little choice but to move up the risk curve rather than simply taking deposits and investing in JGBs. (3) With combined assets of ¥300trn, two-thirds of which are invested in JGBs, it is likely it will increase its portfolio allocation to equities, with a potential impact even greater than the GPIF reform (which helped to propel the 29% rally in the Topix).
Financial Market Outlook: Nikkei: NEGATIVE 10 Yr Gov Bond yield: NEGATIVE FX: NEUTRAL
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ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW DECEMBER-15
Brazil:
The government has gained a working majority, although more is needed to pass key issues in Congress Economics & Politics Economic deterioration has been very pronounced, with public spending collapsing (the mission in 2015 was to start a process of fiscal adjustment, to regain private sector confidence). A political crisis, worsened by the implication of the “Lava-Jato” federal investigation, led to Congress paralysis, which in turn led to a collapse of private investment, the unemployment rate and thus household consumption. Fiscal front: The weak activity had a huge impact on tax revenues and thus on public sector primary surplus, which led to credit rating revisions by the main agencies, and ultimately to the loss of the investment grade by S&P. Markets reacted fast and negatively, with a sharp deterioration of the BRL and increases in the yield curve and CDS spreads. Recent Developments Future drivers: The main driver going forward will be the neutralization of the political crisis and the paralysis in the Congress. First victories: (1) The government gained some relief by giving more ministries and power to the PMDB. (2) One of the most powerful opponents in Congress, Eduardo Cunha, has been weakened by the “Lava-Jato” investigation. As a result, the case for impeachment has lost momentum. (3) The recent votes on the presidential vetoes on the “Pauta-bomba” showed that the government has, for now, a working majority (although the support is not as wide as needed yet to approve CPMF). (4) Some other gains on the fiscal front are also helping: Proposals of additional cuts of R$26bn in the 2016 budget sends a strong signal of the government’s compromise with a budget balance (R$-2.7bn in PAC spending, -R$7bn readjustment in civil servants, R$-1.5 in suspended public tenders, -R$ 1.2 in the so-called “abono de permanencia”, the implementation of wage caps on civil servants, review of subsidies in agricultural prices, a -R$3.8 cut in discretionary spending in Saude, etc.) 2016 Outlook 2016 GDP -2%, CPI 6.5%, Policy rate 13.25% Bovespa: Sales 10.3%, Margins 6.5%, PE 13.2, Target 50232 Financial Market Outlook:
Bovespa: NEUTRAL 10 Yr Gov Bond yield (Loc): POSITIVE 10 Yr Gov Bond yield (USD): POSITIVE BRL/USD: NEUTRAL - NEGATIVE
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ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW DECEMBER-15
Mexico:
2016 growth expectations exceed 2015 figures. We see another year of positive equity returns 2015 environment has restricted growth expectations GDP estimates have been cut from 3.80% at the start of the year to an estimate of barely 2.80%. The main drags have been (1) Dampened automobile production stemming from legal restrictions on a large assembler. (2) A further drop in oil production. (3) Uncertainty on U.S. monetary policy and (4) China’s prospects. 2016 Growth expectations exceed 2015 figures. From 2.8% to 2.9% Mexico’s reform agenda should encourage activity in 2016. In fact, some data already indicate the first benefits in the form of higher investment and lower prices in telecoms and energy. The greatest gain, however, should come in the form of higher long‐term productivity (i.e. due to the entry of new private players in the energy sector), although an evident improvement necessarily requires time and hinges on the quality of reform implementation. We have better expectations on the subsequent bidding rounds of the energy reform, where more attractive fields will be offered. Central Bank Monetary Policy to follow the Fed Mexican inflation has headed down, reaching all‐time lows this year. The pass‐through from peso depreciation to prices has been modest. For 2016, upside risks to the inflation outlook must be monitored. Mainly a persistent peso weakness and the corresponding pass‐through effects to prices. Medium and long-term inflation expectations have been anchored at around 3.5%. We expect Banxico to react to the Fed’s first hike with an increase before the end of the year, with the subsequent moves being dependent on the strategy of the Fed, and trying to avoid a disorderly capital outflow. Financial Markets IPC Index: Sales growth 9%, Net Margins 7.5%, EPS 2016 of MXN2.304, PE at 21.3, IPC Target price of 49.000 The Mexican peso is significantly undervalued according to its real exchange rate. Mexican Government bonds are cheap. Financial Market Outlook: Mexico IPC index: POSITIVE 10 Yr Gov Bond yield (Loc): POSITIVE 10 Yr Gov Bond yield (USD): NEUTRAL MXN/USD: NEUTRAL
12
ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW DECEMBER-15
Other EM: Argentina Political backdrop: The election of pro-business candidate Mauricio Macri as Argentina’s new president is likely to herald a much-needed shift towards orthodox economic policymaking. In the near term, this is likely to be painful. Indeed, the necessary macro adjustment would create shortterm pain. In particular, we suspect that tighter monetary and fiscal policy would push the economy back into recession next year, but the medium term outlook has undoubtedly brightened, with most analysts thinking the economy could return to sustainable growth of 3.0-3.5% by 2018. Why this victory brightens the outlook for Argentina’s economy? Thirteen years of populist and interventionist policymaking under first Nestor Kirchner and then Cristina Kirchner, has left the country needing a drastic overhaul of its economic model. However, Macri’s coalition will hold just over 30% of seats in both the Senate and Chamber of Deputies combined, well short of a governing majority, particularly in the Senate. This could mean some of Mr. Macri’s more radical reforms are rebuffed, watered down or delayed. Despite the narrow margin, having won in 5 of the most important provinces of the country, Macri´s coalition will rule 54% of the population and 67% of the GDP, apart from the Federal Government. Risks: there is a risk that, following the short-term pain, Mr. Macri’s coalition suffers a heavy defeat in the 2017 mid-term elections. That could prevent the adjustment from being fully completed. Challenges for 2016: (1) Capital Controls: Macri said early in the campaign that he will eliminate capital controls from day one, however this tone moderated as he gave further details of his plans: capital controls will be eliminated from day one for new “flows” but for the “stocks” accumulated during last 4 years he announced the use of debt to compensate this “stocks” (i.e.: importers and foreign companies for retained earnings account for approx. 16lbln). (2) Holdouts (HO): Analysts are now expecting a settlement with HO during 2016. We are sceptical that a deal with holdout creditors is imminent. As well as lacking the congressional support, Mr. Macri has given little indication that he would pay holdouts creditors in full. At least some negotiations will need to take place, which will delay any deal until next year. (3) Reserves: Current situation is critical with net reserves now at zero. In order to improve this, Macri will try to reach a settlement with HO, eliminate export taxes in order to unlock hoarded grains (estimated 6-10bln USD), and perform economic policies aimed at attracting USD. (4) FX Policy: Since capital controls started, REER has appreciated considerably and in order to recover same the level of competitiveness, the USDARS should stand at 17 (actually at 9.67). Also in a comparative exercise with other LATAM currencies USDARS should stand at 16.10 in order to recover competitiveness. (5) Monetary and Fiscal Policy: Current government has consistently used BCRA money printing in order to cover fiscal deficit. Moreover Fiscal Deficit is approaching 8% this year, and such a situation is unsustainable. Macri already asked current BCRA president to resign in order to gain BCRA control. Additionally, it has been said that some subsidies and other costs will be cut in order to improve fiscal balance. Financial Markets: In the next months we expect Argentina to issue big amounts of debt (some 10bln USD), without taking into account the HO settlement that could amount some additional 20bln. So there will be a lot of supply pressure in the debt market. However it is expected that after a settlement with the HO, Argentina could enter back into Emerging Markets indices (with a positive flow capacity of 1-2bln USD per year just from passive mutual funds). Yields are expected to be well anchored due to the lack of EM Sovereign USD bonds yielding in the 8% space (only Venezuela, Zambia, Belize, Ghana and some few others are above this levels). In this context, we like: Bonar 7% 04/17/2017 @98.75 YTW:8.55% // YPF 8.5% 2025 @ 97.75 YTW: 8.85% // Bs. As. Province 10.875% 2021 @ 107.50 YTW: 8.66%. Equity: On the equity side there has also been a great recovery in the last several months, but continuity will depend mostly on the success Macri gets with his measures in order to reestablish a macro equilibrium in Argentina. Examples of companies that could benefit from Macri policies are: YPF: The stock has underperformed regional and asset class peers massively after nationalization. Now, a new legislation in offshore investments could help the company to develop new explorations. Financial Sector (BMA, BFR & GGAL): Compared to regional peers Argentinean Banks have slightly recovered from 2001 crisis levels. Also, in an economy that has low levels of bancarization, a normalization in the macro arena could actually be positive. Utilities (PAM, EDN & TGS): Kirchner´s governments freezed utility tariffs during the last 12years. A 13 gradual normalization of utilities tariffs could be a big trigger for this companies.
ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW DECEMBER-15
Equity Markets GLOBAL EQUITY INDICES - FUNDAMENTAL ASSESSMENT:
Index
Sales per Share 2015
S&P 500 INDEX/d 1.136
EPS 2015
Andbank's Sales Andbank's Net Margin Sales Growth per Share Net Margin 2015 2016 2016 2016
EPS 2016
EPS Growth PE ltm PE ltm 2016 2015 2016
118,6
10,4%
4,9%
1.192
9,7%
116
-2,5%
17,61 18,50
23,3
7,6%
3,5%
318
8,0%
25
9,2%
16,48 16,70
IBEX 35 INDEX/d 9.577
665,3
6,9%
2,3%
9.793
7,31%
716
7,6%
15,50 16,00
MXSE IPC GRAL /d28.180
1.916,2
6,8%
9,0%
30.716
7,5%
2.304
20,2%
23,09 21,30
BVSP BOVESPA I/d 53.078
3.636,6
6,9%
10,3%
58.545
6,5%
3.805
4,6%
12,61 13,20
NIKKEI 225 INDEX20.388
1.049,4
5,1%
3,3%
21.061
4,9%
1.032
-1,7%
18,95 18,00
SSE COMPOSITE/d2.602
234,5
9,0%
8,0%
2.810
9,0%
253
7,9%
14,65 16,00
HANG SENG INDE/d 11.570
1.348,0
11,7%
7,5%
12.438
11,0%
1.368
1,5%
16,37 16,33
S&P SENSEX/d
13.646
1.529,1
11,2%
12,0%
15.284
11,8%
1.803
17,9%
17,09 17,00
MSCI EM ASIA
411
34,1
8,3%
10,1%
453
9,0%
41
19,4%
19,96 17,25
STXE 600 PR/d
307
INDEX CURRENT PRICE 2.089 384 10.311 44.248 45.873 19.884 3.436 22.068 26.128 681
2016 2016 TARGET E[Perform.] PRICE % Ch Y/Y 2.140 2,4% 424 10,6% 11.449 11,0% 49.069 10,9% 50.232 9,5% 18.575 -6,6% 4.047 17,8% 22.342 1,2% 30.659 17,3% 703 3,2% ANDBANK ESTIMATES
RISK-OFF SHIFT PROBABILITY: LOW
Andbank's Global Equity Market Composite Indicator (Breakdown)
Buy signals Positive Bias Neutral Negative Bias Sell signals FINAL VALUATION
Previous
Current
Month
Month
6 3 12 1 0 3,2
5 2 13 2 0 2,3
Andbank’s Global Equity Market Composite Indicator Preliminary assessment of the level of stress in markets
0
-5
-10 Market is Overbought
+5
Area of Neutrality Sell bias
Buy bias
+10 Market is Oversold
o Score. Our Andbank GEM composite indicator shifts from 3.2 to 2.3 in a +10/-10 range, suggesting that the market remains, to some extent, slightly oversold. We therefore consider that: 1) the market IS NOT EXPENSIVE; and 2) a Risk-off shift in the equity markets would mean the market would be heavily oversold. o Positioning (speculators, HF, Asset Allocators): remain long cash and short risk. o Flows (Funds & ETFs): Net Flows to risky assets have been negative in the past weeks. o Sentiment: Most indicators remain very cautious (contrarian view).
TECHNICAL ANALISYS (2016 view):
o S&P: LATERAL (1.814 - 2.134). If the upper bound is breached, we could propose 2.400 o STOXX50: LATERAL (2.789 – 3.900) o IBEX 35: LATERAL (9.230 – 11.884)
14
ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW DECEMBER-15
Fixed Income – Core Country Bonds:
NEGATIVE
UST 10Yr BOND: “UW”. Entry point above 2.7% yield. 1. Swap spread: Swap rates remained stable (2.08%), and the 10Y UST stays at 2.23%. Thus, the swap spread fell sharply to -15bp (from -6bp). For this spread to normalize towards the 20bp area, with CPI expectations (swap rate) anchored in the 2%-2.25% range, the 10yUST yield should move to 1.92%. 2. Slope: The UST yield curve has flattened (from 139bp to 128bp). With the short end stable in the 1.25% area, to reach the 10yr average slope (171bp), the 10Y UST yield could go to 2.9%. 3. Given the “new normal” (ZIRPs), a good entry point in the 10Y UST could be when real yield hits 1%. Given that 2016 CPI could reach 1.7%, UST yield should rise to 2.7% and become a “BUY” EURO BENCHMARK 10Yr BOND: “UW”. Entry point at 0.7% yield. 1. Swap Spread: Swap rates fell (from 0.94% to 0.85), and the Bund yield fell (from 0.63% to 0.48%). Swap spread rose to 37bp (from 31bp). For the Swap spread to normalize towards the 30-40bp area, with inflation expectations (swap rate) anchored in the 1%-1.25% area, the Bund yield should move towards 0.7%. 2. Slope: The slope of the EUR curve remained stable at 86bp (from 87bp). With the short end stable in the -0.25% area, to reach the 10yr average slope (112bp), the Bund yield should go to 0.85%.
Fixed Income – Peripheral Bonds: •
•
•
POSITIVE STANCE
The probability for QE 2.0 from the ECB keeps rising. Despite a likely pickup in CPI numbers, this will remain subdued into 2016, causing Mr. Draghi to loosen policy further (beyond market expectations, since most investors project a clear rebound in inflation). In our view, the recent rebound in underlying prices has been due to the depreciation of the euro since the middle of 2014, causing the prices of imported nonenergy goods to rise by almost 10% y/y in August. Unless the euro depreciates much more, inflation will be much lower in the months ahead. This more flexible stance on QE will prolong the associated scarcity of paper derived from QE. Additionally, a benign auction calendar (with negative net issuance adjusted by QE) should be supportive for these government bonds.. Targets (10yr Yields): Spain 1.5%, Italy 1.4%, 15 Portugal 2%, IE 1.1%, Greece 6.5%
ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW DECEMBER-15
Fixed Income – Corporate Bonds & EM Govies FIXED INCOME – CORPORATE CREDIT IG US$: NEUTRAL. HY US$: POSITIVE Moderately supportive environment for US credit risk appetite: (1) Fed’s rate normalization could be one of the shallowest on record (recovery is good but not great). (2) 10Y UST yields will remain low. (3) Divergent monetary policies raising doubts on investments in euros. (4) Spreads widened (20bp in IG and 124bp in HY), due to a heavy supply and falling oil prices respectively. Summer volatility also helped. CDX IG target at 70. Positive drivers: (1) Low dealer positions. Negative drivers: (1) A “fairvaluation” for the asset class suggests that coupons may not cover for the long-duration losses driven by unexpectedly high rises in yields. (2) The recent rash of M&A announcements requiring HG bond market funding is not slowing and will continue. Sectors: Consumer cyclicals, Materials, Financials. CDX HY target at 400. Positive drivers: (1) Higher coupons offer a better cushion. (2) Default rates to remain below the LT average of 3.7%. (3) Stabilization in oil markets. Negative drivers: (1) Liquidity will remain an issue if negative surprises take place, with dealers’ inventories at minimums. (2) Lower oil prices. Sectors: Retail, Media, Financials
IG EUR: NEUTRAL. HY EUR: NEUT-POSITIVE With low yields in the government space, investors are forced to be present in corporates “hunting for yield”. We could foresee additional spread tightening in 2016, in a shift that could bring spreads to the lows seen in 1Q15, on the back of default rates under control, though the room for significant improvement seems limited as lower debt levels seem behind us. Sector view in IG space: (1) Financials as a “safe haven bet” due to strict regulation, ECB supervision and recent credit recovery. (2) Some value in oil and just selectively in the “materials space”. Sector view in HY space: (1) industrials and some big names in basic materials are among our favorites. Targets: Itraxx Europe at 65bp. Itraxx HY at 290bp.
FIXED INCOME - EMERGING MARKETS (GOVIES): “SELECTIVE BUY” 10 Year
Indonesia India EM ASIA
Philippines China Malaysia Thailand Singapore South Korea
EME
Taiwan
Colombia Peru
10 Year Yield
Yield
Last reading
Real
8,55% 7,77% 4,13% 3,04% 4,19% 2,69% 2,49% 2,19% 1,14%
6,25%
2,30%
5,00%
2,78%
0,43%
3,71%
1,30%
1,74%
2,50%
1,69%
- 0,77%
3,46%
- 0,64%
3,13%
0,92%
1,27%
0,31%
0,84%
7,58%
2,35%
15,54%
- 5,68%
9,93%
5,80%
2,48%
3,74%
5,90%
2,25%
3,66%
3,53%
9,93% Russian Federation 9,86%
Mexico
CPI (y/y)
Govies
Turkey
Brazil LATAM
Our rule of thumb for EM bonds so far has been “buy” when: (1) US Treasuries are cheap or at fair value; and (2) real yields in EM bonds are 175bp above the real yield in UST. Is the UST cheap or at fair value? Historically, a good entry point in the 10Y UST has been when real yields are at or above 1.75%. However, given the “new normal” (ZIRPs globally), a good entry point in the 10Y UST bond could be when the real yield is 1%. Given our 2016 target for US CPI of 1.7%, the UST bonds should be at 2.7% to be considered cheap. Do real yields in EM bonds provide sufficient spread? Given that the first condition is met, according to the “new normal” (ZIRP), a good entry point in EM bonds could be when EM real yields are 100bp above the real yield in the UST. Since the current real yield in the UST is 0.53% (2.23%-1.7%), the real yield in the EM bonds should be at least 1.53% (see table).
15,73% 6,22% 8,15% 7,19%
16
ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW DECEMBER-15
Commodities ENERGY (OIL): “HOLD”. Fundamental Target range ($30-50). The price war among OPEC producers, which comes on top of the battle between OPEC and US shale oil, is bound to intensify as Iran rejoins the global economy. This will keep oil prices at very moderate levels. Iran could ramp up its crude output from the current 2.8mn bpd to the 3.6mn it produced before the latest tightening of sanctions in 2012, and ultimately to its peak production of 6mn bpd attained in 1970 (when it had access to Western technology and funding). Given that Iran has the fourth largest proven oil reserves and that those reserves are geographically as accessible as Saudi Arabia's, restoring (or exceeding) 1970 production levels seems a very modest long-term objective. This means that Iran will add about as much to global oil output in the second half of this decade as the US shale revolution did in the first half. In order to find room in the market for all this extra oil, Iran must compete fiercely not only with the burgeoning production from Saudi Arabia, Kurdistan (both producers pumping at record rates), Libya and Nigeria, but also with the Iraqi production capacity (which keeps improving, according to the EIA). The oil market has definitely shifted from monopoly price setting by OPEC to competitive pricing. In this new and competitive oil market, oil prices will fluctuate between a ceiling (determined by the break-even point of the high-cost swing producers, i.e. US frackers and Canadian tar sands) and a floor (determined by the lowest-cost producers among the Middle East OPEC members, Azerbaijan, Kurdistan, Russia, etc.). The oil market could be re-entering a competitive pricing period similar to 1986-2004, where $50 per barrel could perfectly well be a ceiling. Some still believe that OPEC countries (or Saudi Arabia) can set oil prices at whatever level they wish (as they did during the “monopoly periods” of 1974-85 and 2005-14). In a world where oil demand is constrained by advances in non-fossil fuel technologies and oil supplies keep expanding as a result of new production techniques, such monopoly power is now a mirage. Optimism based on possible cuts in oil supply in the US (shale) is not well founded. The US Energy Information Administration predicted that US production would fall by 160k bpd in 2016 (due to cuts in investment), but even if US production is cut, this reduction could be dwarfed by increases in Saudi output of 1 million bpd this year or the additional 1-3 million bpd that Iran is likely to add.
17
ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW DECEMBER-15
Commodities GOLD: Target US$ 900/oz Negative drivers: 1. Gold in real terms. Gold at constant 2009 prices is now at $1,016 (from $1,070 in the prior month and still above its 20 year average of $750). Given our global deflator (US Implicit Price Deflator – US domestic Final Sales base year 2009) at 1.096, for the price of gold in real terms to stay near its historical average, the nominal price of gold must remain near US$822. 2. Gold in terms of oil (Gold / Oil): The ratio has increased to 27.4 (from 25.4) and remains above its LT average of 13.9. If the oil price stays at $45, the nominal price of gold must approach US$700 for this ratio to be near its LT average level. 3. Gold in terms of the DJI (Dow Jones / Gold): This ratio (inverse) has moved to 16.7 (from 14.7 previously), still below its LT average of 20.3. Given our target price for the DJI ($18,250), the price of gold must approach US$900 for this ratio to be near its LT average. 4. Positioning in gold points to further falls: CEI 100oz Active Future non comm. contracts: longs 173k from prior 203k. Shorts 139k from 86k => Net of +34.4 from +117k. (Speculators are now less longer, but still long) 5. Financial liberalization in China. Higher “quotas” each month in the QFII are widening the investment alternatives for Chinese investors (historically focused on gold). 6. Central bank activity: Central banks are gradually cutting their stocks of gold after 7 years of heavy building up of stocks (see the chart below). 7. Monetary stimulus is continuing from the ECB and BOJ, but not from the Fed (remember the price of gold is in USD). This points to the following dynamics: gold stable or downward in terms of USD; gold price following an upward trend versus the EUR and the JPY, which means that the USD must rise relative to the EUR and the JPY. Positive drivers: 1. Amount of gold in the world: The total value of gold in the world is circa US$6.9tn, a fairly small percentage (3.2%) of the total size of the financial cash markets (212tn). The daily volume traded in the LBMA and other gold marketplaces is around US$173bn (2.5% of the world's gold and just 0.08% of the total in the financial markets).
120 100 80 60 40 20 0 -20 -40 -60
GOLD STOCK - CENTRAL BANK RESERVES (%Y/Y, MA6m)
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 India Thailand
Sing Philipp
Andbank, National Reserve Banks
Japan UK
C hile C hina
120 100 80 60 40 20 0 -20 -40 -60
Russia
©FactSet Research Systems
18
ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW DECEMBER-15
Currencies • EUR/USD: MT Target (1.00 – 1.05) The broadening build of USD longs has now pushed net notional positioning to $41.6bn longs USD vs. all currencies, beyond the recent August level. USD positioning is now the highest since 20-February, although it is still 23% below historic highs of $51.4bn seen in Nov 2014. Against the EUR, there has also been a shift by which speculators have been gradually increasing their EUR shorts, pushing the 3year Z-score into the -1,1 area. Although this magnitude is now much lower, there is still some space for speculators to reach the lower bound of the range and build shorter positions in EUR, according to their 12 month investment pattern. (see the chart). If true, the EUR/USD could fall further towards the 1.00-1.05
• JPY/USD: MT Target (120). JPY/EUR: MT Target (126) Speculators have continued to build short JPY positions vs. the USD and are now at 3 month lows, although still above the $-10.5bn seen in 14-August. Nevertheless, the intensity of the ¥ shorts is quite remarkable as measured by its 3-year Z-score (now in the lower bound of the 1-year range), and comes as a result of the imminent Fed first hikes and the uncertainty surrounding the BoJ’s decision about extending its QQE program. If investor patterns do not change in the months ahead and, as we think, Mr Kuroda decides not to extend its QQE, then we are likely to see speculators recover longer JPY’s positions.
• • • • • • • • •
GBP/USD: MT Target (0.65). GBP/EUR: MT Target (0.68) CHF/USD: MT Target (1.00). CHF/EUR: MT Target (1.05) EM FX/USD: NEUTRAL-BULLISH MXN/USD: MT Target (16.8). MXN/EUR: MT Target (17,6) BRL/USD: MT Target (4.00). MXN/EUR: MT Target (4.20) RUB/USD: Short RUB – long USD AUD/USD: long AUD – Short USD CAD/USD: Neutral (bearish bias in the CAD) CNY/USD: MT Target (6.20).
Currency
Values of Change vs Net positions last week 1-yr Max 1-yr Min 1-yr Avg (Bn $) (Bn $) (Bn $) (Bn $) (Bn $)
Current Z-score 3-yr
3,0
Max Min Current
SPECULATIVE POSITION IN THE FX MARKETS (3Yr - Z SCORES. Max, Min & Current in 1Yr)
2,0
USD vs All USD vs G10 EM EUR JPY GBP CHF BRL MXN RUB AUD CAD
41,64 40,61 -1,04 -21,84 -7,96 -2,40 -1,89 0,07 -1,14 0,04 -4,73 -2,13
7,92 7,31 -0,61 -2,68 -1,17 -0,91 -0,73 0,00 -0,58 -0,03 -1,01 -0,78
51,4 48,2 0,1 0,0 -0,4 0,7 1,4 0,3 0,3 0,2 0,6 0,6
0,0 12,9 -3,9 -30,4 -11,7 -4,3 -3,2 -1,9 -2,7 -0,2 -5,9 -5,1
31,1 31,0 -1,6 -17,3 -5,8 -2,1 -0,6 -0,3 -1,4 0,0 -3,0 -2,3
1,28 1,29 -0,68 -1,11 0,28 -0,54 -1,11 0,02 -0,81 0,09 -0,86 -0,12
ANDBANK
1,0 0,0 -1,0 -2,0 -3,0 -4,0
ANDBANK -5,0 USD vs USD vs All G10
EM vs USD
EUR vs USD
JPY vs USD
GBP vs USD
CHF vs USD
BRL vs MXN vs RUB vs AUD vs CAD vs USD USD USD USD USD
19
ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW DECEMBER-15
Market Outlook – Fundamental Expected Performance Performance
Performance
Current
2016
Expected
Last month
YTD
30/11/2015
Target
Performance*
USA - S&P 500
0,5%
1,5%
2.089
2140
2,4%
EUROPE - STOXX 600
2,4%
12,3%
384
424
10,6%
Asset Class
Indices
Equity
29/11/2015
SPAIN - IBEX 35
0,2%
1,0%
10.311
11449
11,0%
MEXICO - MXSE IPC
- 0,7%
2,6%
44.248
49069
10,9%
BRAZIL - BOVESPA
0,0%
- 8,3%
45.873
50232
9,5%
JAPAN - NIKKEI 225
3,5%
13,2%
19.884
18575
-6,6% 17,8%
CHINA - SSE COMPOSITE
1,8%
6,5%
3.436
4047
KONG KONG - HANG SENG
- 2,8%
- 6,8%
22.068
22342
1,2%
INDIA - SENSEX
- 1,9%
- 4,9%
26.128
30659
17,3%
MSCI EM ASIA
- 1,6%
- 6,3%
681
703
3,2%
Fixed Income
US Treasury 10 year govie
- 0,3%
1,5%
2,23
2,70
-1,49%
Core countries
UK 10 year Guilt
1,1%
1,0%
1,83
2,15
-0,77%
German 10 year BUND
0,8%
1,0%
0,47
0,70
-1,39%
Fixed Income
Spain - 10yr Gov bond
2,0%
2,0%
1,51
1,50
1,58%
Peripheral
Italy - 10yr Gov bond
1,3%
5,4%
1,40
1,40
1,43%
Portugal - 10yr Gov bond
2,5%
5,1%
2,30
2,00
4,66%
Ireland - 10yr Gov bond
1,5%
3,0%
0,97
1,10
-0,06%
Greece - 10yr Gov bond
5,9%
26,0%
7,11
6,50
11,95%
Fixed Income
Credit EUR IG- Itraxx Europe
0,1%
0,4%
70,13
65
0,71%
Credit
Credit EUR HY- Itraxx Xover
0,4%
4,8%
292,00
290
3,03%
Bono EUR 5y IG & HY
Credit USD IG - CDX IG
- 0,2%
0,1%
84,50
70
3,17%
Credit USD HY - CDX HY
- 2,1%
-10,0%
473,90
400
9,19%
Bono USD 5y Fixed Income
Turkey - 10yr Gov bond
EM Europe (Loc) Russia - 10yr Gov bond
- 5,1%
- 9,7%
9,90
9,15
15,90%
1,8%
44,2%
9,87
10,87
1,87%
Fixed Income
Indonesia - 10yr Gov bond
2,9%
0,6%
8,51
7,76
14,51%
Asia
India - 10yr Gov bond
- 0,6%
7,8%
7,77
7,02
13,77%
(Local curncy)
Philippines - 10yr Gov bond
- 1,1%
1,1%
4,13
3,13
12,13%
China - 10yr Gov bond
0,2%
7,7%
3,04
2,54
7,04%
Malaysia - 10yr Gov bond
- 0,2%
3,2%
4,19
3,69
8,19%
Thailand - 10yr Gov bond
- 1,0%
2,7%
2,69
1,69
10,69%
Singapore - 10yr Gov bond
0,3%
0,3%
2,49
1,49
10,49%
South Korea - 10yr Gov bond
- 1,2%
5,1%
2,19
1,69
6,19%
Taiwan - 10yr Gov bond
0,6%
5,1%
1,14
1,14
1,14% 3,98%
Fixed Income
Mexico - 10yr Govie (Loc )
- 49,8%
1,9%
6,22
6,50
Latam
Mexico - 10yr Govie (usd)
- 0,6%
2,7%
3,99
4,40
0,71%
- 125,8%
-15,4%
15,73
15,00
21,57% 9,10%
Brazil - 10yr Govie (Loc) Brazil - 10yr Govie (usd) Commodities
Fx
- 0,3%
-11,4%
6,34
6,00
CRY
- 20,3%
- 6,0%
183,2
190,0
3,69%
Oil (WTI)
- 21,7%
- 9,6%
41,7
40,00
-4,12%
GOLD
- 10,8%
- 6,8%
1.055,9
900,0
- 14,77%
EUR/USD ($ to 1€)
- 12,6%
- 3,9%
1,06
1,05
-0,74%
GBP/USD (£ to 1$)
3,8%
2,7%
0,67
0,65
-2,45%
GBP/EUR (£ to 1€)
- 9,1%
- 1,4%
0,70
0,68
-3,15%
CHF/USD (c hf to 1$)
3,6%
4,3%
1,03
1,00
-2,87%
CHF/EUR (c hf to 1€)
- 9,4%
0,3%
1,09
1,05
-3,64%
JPY/USD (¥ to 1$)
2,8%
1,9%
123,03
120
-2,46%
JPY/EUR (¥ to 1€)
- 10,1%
- 2,2%
130,14
126,00
-3,18%
MXN/USD (mxn to 1$)
12,7%
1,1%
16,61
16,80
1,13%
MXN/EUR (mxn to 1€)
- 1,5%
- 2,9%
17,57
17,64
0,39%
BRL/USD (brl to 1$)
44,7%
- 0,1%
3,84
4,00
4,03%
BRL/EUR (brl to 1€) CNY (c ny to 1$)
26,5% 3,1%
- 4,1% 1,0%
4,07 6,40
4,20 6,20
3,27% -3,10%
* For Fixed Income instruments, the expec ted performance refers to a 12 month period
20
ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW DECEMBER-15
Monthly Tactical Global Asset Allocation Proposal
This recommended asset allocation table has been prepared by the Asset Allocation Committee (AAC), made up of the directors of the portfolio management departments and the directors of products in each of the jurisdictions in which we operate. The recommended weights in each asset class are aligned with the conclusions of the Andbank Investment Committee (AIC), which are reflected throughout this document. Likewise, the distribution of assets within each customer profile meets the risk control requirements established by regulations.
21
ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW DECEMBER-15
Principal Contributors
Alex Fusté. – Chief Global Economist – Global & Asia: Macro, Rates & FX. +376 881 248 Giuseppe Mazzeo. – CIO Andbank US – U.S. Rates & Equity. +1 786 471 2426 Eduardo Anton. – Portf. Manager US – Credit & Quasi governments. +1 305 702 0601 J.A Cerdan. – Equity Strategist Europe – European Equity. +376 874 363 Renzo Nuzzachi, CFA. – Product Manager LatAm – Rates & FX. +5982-626-2333 Jonathan Zuloaga. – Analyst, Mexico – Macro, bonds & FX. +52 55 53772810 Albert Garrido. – Portfolio Manager Andorra – European Equity. +376 874 363 Ricardo Braga. – Product Analyst Brazil – Products. +55 11 3095 7075 Gabriel Lopes. – Product Analyst Brazil – Products. +55 11 3095 7075 Andrés Davila. – Head of A. Management Panama – Venezuela. +507 2975800 Mª Angeles Fernández. – Product Manager, Europe – Macro & Rates. +34 639 30 43 61 David Tomas. – Wealth Management, Spain – Spanish Equity. +34 647 44 10 07 Andrés Pomar. – Portfolio Manager Luxembourg – Volatility. +352 26 19 39 25 Carlos Hernández. - Product Manager – Technical Analysis. +376 873 381
22
ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW DECEMBER-15
Legal Disclaimer All notes and sections in this document have been prepared by the team of financial analysts at ANDBANK. The opinions stated herein are based on a combined assessment of studies and reports drawn up by third parties. These reports contain technical and subjective assessments of data and relevant economic and sociopolitical factors, from which ANDBANK analysts extract, evaluate and summarize the most objective information, agree on a consensual basis and produce reasonable opinions on the questions analyzed herein. The opinions and estimates contained herein are based on market events and conditions occurring up until the date of the document's publication and cannot therefore be decisive in evaluating events after the document's publication date. ANDBANK may hold views and opinions on financial assets that may differ partially or totally from the market consensus. The market indices have been selected according to those unique and exclusive criteria that ANDBANK considers to be most suitable. ANDBANK does not guarantee in any way that the forecasts and facts contained herein will be confirmed and expressly warns that past performance is no guide to future performance, that analyzed investments could be unsuitable for all investors, that investments can vary over time regarding their value and price, and that changes in the interest rate or forex rate are factors which could alter the accuracy of the opinions expressed herein. This document cannot be considered in any way as a selling proposition or offer of the products or financial assets mentioned herein, and all the information included is provided for illustrative purposes only and cannot be considered as the only factor in the decision to make a certain investment. In this document, other major factors influencing this decision are not analyzed; therefore the investor's risk profile, his financial expertise and experience, his financial situation, the investment time horizon and the liquidity for his investment are not analyzed. As a consequence, the investor is responsible for seeking and obtaining the appropriate financial advice to help him assess the risks, costs and other characteristics of the investment that he is willing to undertake. ANDBANK expressly disclaims any liability for the accuracy and completeness of the evaluations mentioned herein or for any mistakes or omissions which might occur during the publishing process for this document. Neither ANDBANK nor the author of this document shall be responsible for any loss that the investor may incur, either directly or indirectly, arising from any investment made based on information contained herein. The information and opinions contained herein are subject to change without notice.
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