Gauging the Devaluation Risk/ Reward of Latin Am erican Exporters & Multinationals

Transcription

1 Gauging the Devaluation Risk/ Reward of Latin Am erican Exporters & Multinationals Rebalancing s HTUSLAEX Custom Basket February Rebalance Pablo Cossaro, CFA Latin America pablo.cossaro@credit-suisse.com Richard Curry, PhD Investment Products & Analytics richard.curry@credit-suisse.com Luis Serrano Latin America luis.serrano@credit-suisse.com credit-suisse.com/holtmethodology Analysis

2 Summary Given generally weaker LATAM currencies since 3Q 2011, EM investors have been taking a close look at exporters & multinationals from the region. In December-2011 assessed the devaluation risk / reward trade-off exhibited by the largest exporters and multinationals from Brazil, Mexico & Chile in order to identify winners and losers if a permanent scenario of weaker Latin American currencies materialized. The custom basket including LATAM com panies exhibiting the m ost attractive devaluation risk / reward trade-off has outperform ed the MSCI Latin Am erica Index by 2,216 bps since inception. The basket is tradable through a swap offered by CS Delta One desk (ticker HTUSLAEX, see page #8). HTUSLAEX MSCI EM LATIN AMERICA Ex cess Return In this presentation we update our original analysis with recent financial data, examine the main changes and rebalance the HTUSLAEX custom basket. Annualized Return 23% 4% 19% Snnualized St Dev 17% 19% 8% Return / St Dev (IR) Source: Bloomberg, data date 2/8/2013 1

3 After a period of sustained appreciation following the credit crisis, LATAM currencies have weakened against major global currencies starting in 3Q yr median Exporters competitiveness often benefits during periods of weak local currencies, as a portion of their production costs remain in local currency. Multinationals also benefit from weak local currencies through more favorable translation of overseas earnings. 2

4 Foreign Currency Debt / FC-Denominated Revenues (in months) Taking a closer look at Latin American Exporters & Multinationals using The matrix on the right groups LATAM exporters and multinationals by their foreign currency debt as a percentage of their foreign currency-denominated revenues (y-axis), as well as by foreign currencyrevenues as a % of total revenues (x-axis). + Companies included in the lower (green) quadrants are deemed to have low devaluation risk, while those in the upper (red) quadrants are deemed riskier as they exhibit a weaker FC-Debt to FC-Revenues ratio. - Low FC-Denominated Revenues (%) High 3

5 Most LATAM Exporters & Multinationals exhibit manageable foreign currencydenominated debt given their foreign currency-denominated revenues (35 Mo) (54 Mo) (30 Mo) Quadrant #1 Quadrant #2 Problem zone? Still manageable Quadrant #4 Quadrant #3 4 Source: Credit Suisse, data date 2/8/2013. The black line separating the (potential) problem zone from those still manageable situations was drawn from 6 to 12 months on the Y-axis, and from 10% to 90% on the X-axis, under the hypothesis that riskier names based on the number of months of FC-denominated debts over their FC-denominated revenues may have a natural mitigant as the percentage of exports over total revenues rise.

6 Gauging the devaluation risk / reward trade-off (30) (35) (54) How to read this chart? For instance, CSN s foreign currency-denominated debt represents just over a year and a half of the company s foreign currency revenues Devaluation Risk / Reward Low Medium High 5 Source: Credit Suisse, data date 2/8/2013

7 LATAM companies that managed to improve their devaluation risk / reward profile over the last 6 months as well as those whose risk profile deteriorated the most Deteriorated risk profile Improved risk profile How to read this chart? For instance, IOCHPE s ratio of foreign currency debt to foreign currency revenues improved (i.e. declined) almost 9 months. However, as seen on the previous slide, IOCHPE still remains among the LATAM exporters with the greatest devaluation risk.. Decrease Increase Change in Foreign Currency Debt / FC-Denominated Revenues (in months) 6 Source: Credit Suisse, data date 2/8/2013

8 Companies with low devaluation risk have superior exposure to factors There are significant differences between the factor exposures for low and high devaluation risk Latin American exporters, particularly in the Quality and Momentum factors. Source: Credit Suisse, data date 2/8/2013 Exposure to Scorecard Factors relative to the MSCI Latin America Index 7

9 Latin American Exporters & Multinationals Basket (HTUSLAEX) Credit Suisse has created a stock basket of 18 large and liquid Latin American companies that exhibit an attractive devaluation risk / reward trade-off. The basket is tradable through a Custom Swap offered by the Credit Suisse Delta One desk under the ticker HTUSLAEX. The basket is constructed to maintain a minimum tracking risk to the MSCI EM Latin American Index. As of February 8, the rebalance date of the basket, each stock in the index is constrained to be between 2% and 10% of the basket and will require trading at most 25% of ADV for a notional $20mn basket. The basket contains a representative sample of stocks across industries and countries 8 Source: Credit Suisse, Bloomberg, data date 2/8/2013

10 Basket constituents Ti cker Wei ght Name Price 12M Prob of Default AMBV % Ambev - Companhia De Bebidas Das Americas 0% Consumer Staples COP 10.00% Empresas Copec S.A. 0% Energy GMEXICOB 7.38% Grupo Mexico S.A.B De C.V. 0% Materials POMO4 6.13% Marcopolo Sa 0% Industrials PENOLES 5.94% Industrias Penoles S.A.B. De Cv 0% Materials SQM_pb 5.63% Sociedad Quimica Y Minera De Chile S.A. 0% Materials WEGE3 5.48% Weg S.A. 1% Industrials ALPA4 5.34% Alpargatas Sa 0% Consumer Discretionary EMBR3 5.24% Embraer-Empresa Brasileira De Aeronautica S.A. 4% Industrials BIMBOA 5.14% Grupo Bimbo S.A.B. De C.V. 0% Consumer Staples FMSAUBD 4.96% Femsa - Fomento Economico Mexicano S.A.B. D 0% Consumer Staples CZLT % Cosan Limited 1% Energy JBSS3 3.81% Jbs Sa 20% Consumer Staples CEN 3.45% Cencosud Sa 0% Consumer Staples MEXCHEM 3.39% Mexichem Sab De Cv 0% Materials CHDRAUIB 3.24% Grupo Comercial Chedraui S.A. De C.V. 0% Consumer Staples ALFAA 3.21% Alfa Sab De Cv 3% Industrials KOFL 3.04% Coca-Cola Femsa S.A.B. De C.V. 0% Consumer Staples FALAB 2.53% S.A.C.I. Falabella 0% Consumer Discretionary RIP 2.00% Ripley Corp Sa 0% Consumer Discretionary CFROI Upside High/ Best / Low CFROI 3m Change Sect or 9 Source: Credit Suisse, Bloomberg, data date 2/8/2013

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