view of the global markets may 2015. moderate global growth 2 source: imf, weo april 2015
TRANSCRIPT
View of the Global Markets
May 2015
2
Moderate global growth
Source: IMF, WEO April 2015
2014 2015 2016 2015 2016
World 3.4 3.5 3.8 0.0 0.1
Advanced economies 1.8 2.4 2.4 0.0 0.0
United States 2.4 3.1 3.1 -0.5 -0.2
Euro Zone 0.9 1.5 1.6 0.3 0.2
Germany 1.6 1.6 1.7 0.3 0.2
Spain 1.4 2.5 2.0 0.5 0.2
J apan -0.1 1.0 1.2 0.4 0.4
United Kingdom 2.6 2.7 2.3 0.0 -0.1
Developing economies 4.6 4.3 4.7 0.0 0.0
Emerging Asia 6.8 6.6 6.4 0.2 0.2
China 7.4 6.8 6.3 0.0 0.0
India 7.2 7.5 7.5 1.2 1.0
Emerging Europe 2.8 2.9 3.2 0.0 0.1
Russia 0.6 -3.8 -1.1 -0.8 -0.1
South Africa 1.5 2.0 2.1 -0.1 -0.4
Latin America 1.3 0.9 2.0 -0.4 -0.3
Brazil 0.1 -1.0 1.0 -1.3 -0.5
Mexico 2.1 3.0 3.3 -0.2 -0.2
Chile 1.8 2.7 3.3 -0.1 -
Peru 2.4 3.8 5.0 -0.2 -
Colombia 4.6 3.4 3.7 -0.4 -
GDP annual % changeProjections Difference from
Jan 2015
3Source: BCA, Weekly Report, May 8; Bloomberg
Interest rates “tantrums”
Oil price and inflation expectations
>Rates would raise gradually in the US
>And stay low in Europe and Japan
>Short term overreactions to news (oil price recovery) are usual
Pre-announcement
75 days after
US Treasury yield curve after QE1 announcement
Announcement
2 years after
4
US Dollar strength
Source: Bloomberg; data as of May 12, 2015
0
20
40
60
80
100
120
140
-10
-8
-6
-4
-2
0
2
4
6
8
10
1Q95 1Q97 1Q99 1Q101 1Q103 1Q105 1Q107 1Q109 1Q111 1Q113 1Q115
Dolla
r (DX
Y In
dex)
US
GD
P, v
ar, %
QoQ
Annualiz
ed
GDP (QoQ Annualized)
Dollar (DXY Index)
US growth vs. Dollar
US GDP Growth 3%-7%
US GDP Growth2%-5%
>Drivers> Economic fundamentals
> Interest rates differentials
> Flows
>But current global scenario does not justify the 90s level
1m 3m YTD
US Dollar -5.8 -0.5 3.9
Euro 7.3 -0.5 -6.3
UK - Pound 7.0 2.0 0.8
J apan - Yen 0.7 -0.4 0.5
China - Renmimbi 0.2 0.6 0.0
Brazil - Real 3.8 -5.7 -11.6
Currencies % change - USD
5
Commodities: Bottoming?
Source: Bloomberg; data as of May 8
>Mean reversion after the super-cycle
>Supply and demand would be the driver in lower growth conditions
>For the long term current prices are not that low
*WTI and Brent: USD por barrel; Copper and Sugar: USD por pound
Actual Level* 25Y average* YTD 1y 5y* 10y*
WTI C rude Oil 59.4 46.8 8.5 -40.6 -4.6 1.1
Brent C rude Oil 64.3 47.8 11.2 -40.3 -3.8 2.1
Copper 2.9 1.8 0.5 -5.9 -1.6 6.4
Sugar 0.1 0.1 -8.7 -22.0 -0.5 4.7
Commodities% change - USD
6
The US growth is sustainable, but at a slow pace
Spurce: Bloomerg
4
5
6
7
8
9
10
11
-900
-600
-300
0
300
600
Apr-07 Apr-09 Apr-11 Apr-13 Apr-15
Unem
plo
yment
Ra
te (
%)
No
n F
arm
Pa
yro
lls (Th
ousa
nd
)
Labor Market
Creación de Empleo
Tasa de Desempleo-9.0
-6.0
-3.0
-
3.0
6.0
1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15
GDPVar. (%) QoQ annualized
7
Europe: Remains to be seen
Source: Bloomberg
UK
>Elections results avoided a Hung Parliament
>The Tories and the Scottish Nationalist Party were the big winners
>Permanence in the EU could become more uncertain
>Positive economic momentum
>Greece crisis outcome uncertain but unlikely catastrophic
42
44
46
48
50
52
54
56
Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15
Manufacturing
Services
Composite
Euro Zone PMIOver50 points indicates expansion
8
Japan
Source: Bloomberg
>The third arrow of the Abenomics> Corporate tax reduction
> Labor, agriculture and health reforms are being discussed
> Changes in corporate governance regulation
>Monetary authority open to further easing
-2.5
-1.5
-0.5
0.5
1.5
2.5
3.5
Mar-07 Mar-09 Mar-11 Mar-13 Mar-15
InflationAnnual % change
Headline
Ex food and energy
-60
-45
-30
-15
0
15
30
Mar-04 Jan-06 Nov-07 Sep-09 Jul-11 May-13 Mar-15
TankanOver 0 points indicates expansion
Manufacturing
Services
9
China: Avoiding hard landing
Source: Bloomberg
5.5
6.0
6.5
7.0
7.5
8.0
8.5
4
7
10
13
16
19
22
May-05 Nov-07 May-10 Nov-12 May-15
De
pre
ica
tion
RE
NM
INBI
Ap
pre
cia
tion
Inte
res Ra
tes
(%)
Monetary Policy Tools
Interes Rate Reserve Requirement RatioRenminbi (Right Axis)
45
47
49
51
53
55
57
59
Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15
China: PMIOver 50 points indicates expansion
Manufacturing
Non Manufacturing
India’s structural reforms will take time
10Source: Goldman Sachs; BCA
>Positive outlook1. Dynamic growth
2. Palpable changes in economic policies
3. Corporates structural problems being addressed
Such processes take time
Plenty of room for infrastructure development
-
500
1,000
1,500
2,000
2,500
3,000
3,500
dic
-04
jun-
05
dic
-05
jun-
06
dic
-06
jun-
07
dic
-07
jun-
08
dic
-08
jun-
09
dic
-09
jun-
10
dic
-10
jun-
11
dic
-11
jun-
12
dic
-12
jun-
13
dic
-13
jun-
14
dic
-14
New project starts - Government
New project starts - Private
Rs bn India - Average quarterly new project starts(Industrial and Infrastructure)
11
Russia
Source: IMF; Bloomberg
>Gloomy outlook
-5
-4
-3
-2
-1
0
1
2
2013 2014 2015 E 2016 E
Projections J an 15
Projection Apr 15
GDP GrowthFMI | %
0
2
4
6
8
10
12
14
16
18
Aug-13 Nov-13 Mar-14 Jun-14 Sep-14 Dec-14 Apr-15
Refinancing Rate
Inflation
Inflation | Monetary Policy Rate%
12
Latin America: IMF revises downward 2015 GDP growth projections
Source: IMF, Central Banks
>1% contraction of the Brazilian economy
>Lower commodity prices
>Absence (in general) of reforms aimed at increasing productivity
Argentina Brazil Chile Colombia Mexico Peru
GDP Growth% | 2015 E
Inflation% | 2015 E
Unemployment% | 2015 E
Fiscal BalanceAs a % of GDP | 2014
Current AccountAs a % of GDP | 2014
External DebtAs a % of GDP | 2014
International ReservesAs a % of GDP | 2014
Total InvestmentsAs a % of GDP | 2014
4.2 6.0
-6.2 -1.4 -1.4 -4.6 -0.1
21.5 24.4 21.9 26.8
26.7 29.7 41.2
20.5 39.9
-3.8 -1.2 -5.0 -2.0 -4.1
3.0 3.8-0.3
20.5
7.0
-1.0 2.7 3.4
8.0 2.8 3.6 3.0 2.2
5.9 7.1 9.0
20.0
-1.0
-0.8
--
5.5
19.6
16.0 60.1
16.0 16.7 12.5
-2
-1
0
1
2
3
4
5
6
7
2003 2006 2009 2012 2015 E
Latin America: GDPAnnual % change
13
No major catalyst…. But a rebound would be seen in 2H15
>Increase of competitiveness given weaker currencies
>Low but stable commodity prices
>Counter-cyclical measures in some countries
Source: IMF
A change in sentiment depends on whether or not governments address structural issues….
…And become able to increase GDP potential beyond commodities
-3
-2
-1
0
1
2
3
4
5
6
Colombia Peru Mexico Chile Brazil
WEO Octuber 2014
WEO April 2015
Change April-Octuber
GDP 2015 proyected growth % change YoY
14
Argentina
Source: Bloomberg, information provided by companies, Compass Group
>Currently in recession, high inflation, regulated prices, unfriendly environment for investors
>But potential is huge and…
>…October elections could unlock it
0
2
4
6
8
10
12
14
16
Galicia Bancolombia Average Bradesco Credicorp
Market value per BranchUSD millions
-
0.2
0.4
0.6
0.8
1.0
1.2
Pampa Brazil Average Chile Peru Colombia
Market value per installed MWUSD millions
?
15
Brazil
Source: Bloomberg, Compass
>No growth, inflation pressures, confidence at historic lows, etc..
>New economic team, led by Joaquim Levy (a well known and respected economist) has been appointed last January
>Gradually tightening fiscal accounts and taking other measures to revert the situation
-4
-2
0
2
4
6
8
10
4Q05 2Q07 4Q08 2Q10 4Q11 2Q13 4Q14
GDP growth
Inflation
Brazil:GDP Growth | InflationAnnual % change
16
Chile
Source: Bloomberg, Compass
>Recent improvement of economy, politics and institutional conditions
>Growth modestly picking up
> President Bachelet cabinet reshuffle towards more business friendly team
1.1
1.6
-3
0
3
6
9
Mar-12 Mar-13 Mar-14 Mar-15
Chile: Monthly Economic Activity IndexAnnual % change
Surprise
Estimated
Current
17
Colombia
Source: Bloomberg, IMF Compass
>Collapse in oil prices has led to a severe fiscal expenditures cut
>Still, the economy will grow 3% this year
>Ambitious infrastructure plan remains intact
>Peace process with the FARC guerrillas on its way
-6
-4
-2
0
2
4
6
8
10
2020201620122008200420001996
IMF estimates
Colombia: GDPAnnual % change
18
Mexico
Source: Bloomberg, Compass
>Economy re-accelerating
>Impact of low oil prices offset by government hedging mechanism
>Positive structural reforms on its way…they would add as much as 2% to potential GDP
-10
-8
-6
-4
-2
0
2
4
6
8
feb-09 feb-10 feb-11 feb-12 feb-13 feb-14 feb-15
% change YoYMoving Average (12 months)
Global Economic Activity Indicator(IGAE)
44
48
52
56
Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15
Manufacturing
Services
IMEFOver 50 points indicates expansion
19
Peru
Source: Compass, Central Bank “Economic Expectations Survey”
>Economy and pessimism at bottoms
>Set of counter-cyclical measures have been adopted and another set just announced
4.0%
4.2%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15
2015
2016
Perú:Growth EstimatesAnalysts expectations
20
Flows to equities have been volatile in the past 3 years…
Source: Deitsche Bank
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
2012 2013 2014 2015YTD
Total Equity Funds
Total Bond Funds
Money Market Funds
Flows per Asset ClassAll funds (ETF included) | % AUM
21
Emerging equities have paid the price
Source: Deitsche Bank
-20%
-15%
-10%
-5%
0%
5%
2012 2013 2014 2015YTD
Latin America
EMEA
Asia
Flows to Emerging Markets EquityFunds (ETFs included) | % AUM
-5%
0%
5%
10%
15%
20%
25%
30%
2012 2013 2014 2015YTD
US
Europe
J apan
Flows to Developed MarketsEquityEquity funds (ETFs included) | % AUM
22
Emerging markets are under-represented in global equity indices
>China produces 16% of the world´s GDP and weighs 2.5% in the MSCI World Index
Source: IMF, International Comparison Program, 2011, Bloomberg.
49.4%43.6%
60.8%
89.4%
50.6%56.4%
39.2%
10.6%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
base 2005 base 2011
Paridad de Poder de Compra USDnominal
MSC I ACWI
Participación en el PIB Global vs participación en mercados globales
Economías Desarrolladas Economías Emergentes
GDP Share vs Market Cap Share
Purchasing Power ParityNominal Dollar
Developing EconomiesAdvanced Economies
23
Emerging markets have lost ground since 2011
>The size of emerging relative to developed markets capitalization peaked at the end of 2010 and has systematically fell since then
Source: Bloomberg
1
6
11
16
21
26
31
ene
-01
no
v-0
1
sep
-02
jul-03
ma
y-04
ma
r-05
ene
-06
no
v-0
6
sep
-07
jul-08
ma
y-09
ma
r-10
ene
-11
no
v-1
1
sep
-12
jul-13
ma
y-14
ma
r-15
Market cap emerging equity vs developed equity (%)(MSCI developed/MSCI emerging)
24
4%
8%
15%
17%
14%
3%
8%10%
3% 3%
8%
10%
15 Year 10 Year 5 Year 3 Year 1 year YTD
¿Reversión a la media?Desempeño USD
S&P 500
MSC I GEMs
Promedio anual
Emerging markets: Time to come back?
Fuente: WisdomTree (datos al 1 de mayo de 2015). JPMorgan
¿Mean Reversion?Performance, USD
CAGR
25
Emerging markets: Enough outflows?
Source: Deutsche Bank, based on EPFR data as of April 29, 2015
Flows as a % of total assets(All including ETF)
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015YTD
Total Equities 3% 3% 1% -3% 2% 2% -1% 1% 4% 2% 0.4%
Developed Markets 2% 2% -1% -3% -1% 0% 0% 0% 5% 3% 0.7%
Global 6% 7% 6% -4% 4% 1% 1% 1% 6% 5% 2.6%
US -1% -1% 0% 0% -4% 0% 0% -1% 4% 2% -1.9%
Europe -1% 7% -13% -12% 1% -3% -2% -2% 6% 2% 6.0%
J apan 44% 0% -27% -18% -19% -3% 5% 10% 28% 7% 6.0%
Emerging Markets 16% 11% 12% -7% 27% 16% -5% 7% -2% -3% -2.2%
GEMs 3% 4% 10% -4% 32% 23% -1% 12% 0% -3% -0.9%
EMEA 40% -6% -2% -8% 11% 20% -11% -4% -13% -10% -0.1%
LatAm 81% 27% 46% -12% 48% 4% -12% -1% -18% -17% -11.3%
Asia 22% 27% 14% -9% 21% 10% -7% 3% -1% -2% -3.2%
26
For example, international investors cautiously returning to Brazil
Source: Santander, Bovespa
-1,000
-800
-600
-400
-200
0
200
400
600
800
1,000
Mar-15 Mar-15 Apr-15 Apr-15 May-15
Bovespa Net FlowsCurrent Week (USD Millons)
Individuals Local Institutional Foreign Investor
Corporate Financial Institutions Others
27
US valuations look rich
Source: BCA (Global Investment Strategy). Bloomberg
4
8
12
16
20
24
28
32
May-59 May-73 May-87 May-01 May-15
S&P 500: PE (x)Average since, +/- 1 y 2 DS
28
Europe: Conditions support market uptrend
Source: GaveKal
>Economic momentum
>Liquidity
>Attractive valuations
Utilidad por Acción 2015Consenso de mercado
dic 14 feb 15 mar 15 may 15
EEUU 10% 4% 2% 1%Reino Unido 4% -4% -7% -11%Zona Euro 16% 16% 15% 16%J apón 12% 12% 9% 8%
Earnings Per Share 2015Market Consensus
USUKEuro ZoneJapan
Dec 14 Feb 15 Mar 15 May 15
29
Abenomics work for the equity market
>Yen devaluation
>Most attractive valuations within developed markets
>Liquidity conditions very favorable
Source: GaveKal
30
LatAm valuations not easy to read
Source: MSCI. Data as of April 30, 2015
31
The search for yield prevails
>US High Yield market “clean” after energy sector crisis
>More visibility in emerging markets debt after Petrobras release of audited financial statements
Saource: BofA ML, JPMorgan
455
0
550
1,100
1,650
2,200
mar 97 mar 00 mar 03 mar 06 mar 09 mar 12 mar 15
US High Yield: Spread (pbs)Option Adjusted Spread
+/- 1 Desv. St
Promedio 1997
267 290
358
0
100
200
300
400
500
600
700
800
900
1,000
May-09 May-10 May-11 May-12 May-13 May-14 May-15
CEMBI Broad Diversified LatAmSpread (bps)
+/-1 St. Dev.
Average since 1997Average since 1997
32
Latam fixed income: Attractive yields
Source: Bloomberg, Compass Group
>More patient Fed and Petrobras releasing audited financials have relieved bonds
>Supply-demand technicals have improved
>Attractive risk premia
>Low refinancing risks
3.9
5.2
5.76
6.4
7.1 7.1
8.5
3
4
5
6
7
8
9
US IG BBB US HY BB EM Corp Bonds
EM Bonds Latam Corp Bonds
Latam Sov Bonds
US HY BB Latam Corp HY Bonds
Corporate bondsindex yield across the worldYield to maturity (%)
100
200
300
400
500
600
700
800
Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15
Spread differentialSpread LatAm HY - Spread US HY | Bps.
