Suvo Sarkar General Manager Retail Banking and Wealth Management. Khatija Haque Head of MENA Research Global Markets & Treasury

Transcription

1 Welcome Remarks Speakers Suvo Sarkar General Manager Retail Banking and Wealth Management Khatija Haque Head of MENA Research Global Markets & Treasury Arjuna Mahindra Chief Investment Officer Wealth Management Anita Gupta Equity Strategist Wealth Management 1

2 GCC Outlook May 2014 Khatija Haque Head of MENA Research 2

3 Global context improving US regain momentum US non-farm payroll growth recovers US 10y bond yields 400 change in non-farm payrolls (000s, lhs) US 10y Tsy yields (%) 350 unemployment rate (%, rhs) Jan-12 Sep-12 May-13 Jan Jan-12 Sep-12 May-13 Jan-14 Bloomberg, Emirates NBD Research 3

4 Europe / Asia still some concerns Eurozone Inflation at multi-year lows China s PMI shows divergent trends 3.5 Eurozone CPI (% y/y) Jan-10 Jan-11 Jan-12 Jan-13 Jan May-13 Aug-13 Nov-13 Feb-14 Official HSBC / Markit Bloomberg, Emirates NBD Research 4

5 Global FX and rate forecasts FX Forecasts - Major Spot M 6M 12M EUR/USD USD/JPY USD/CHF GBP/USD AUD/USD USD/CAD US Treasury Forecasts Current 3M 6M 12M 10y s10s (bp) USD 3M LIBOR Forecast M EIBOR Forecast Policy Rate Forecasts Current% 3M 6M 12M FED ECB BoE BoJ SNB RBA Bloomberg, Emirates NBD Research 5

6 GCC has been one of the fastest growing regions Advanced economies Emerging and developing Europe Sub-Saharan Africa Emerging and developing Asia Latin America and the Caribbean GCC % y/y F 2015F Source: IMF WEO April 2014, Emirates NBD Research 6

7 GCC growth to be driven by non-oil sectors Purchasing Managers Indices Infrastructure spending - Qatar UAE Saudi Arabia QAR bn Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb f f Markit/ HSBC, IMF, Emirates NBD Research 7

8 GCC growth to be driven by non-oil sectors Bank loans and deposits growth Public and private sector borrowing 16 Bank loans Bank deposits Private sector Public sector enterprises % y/y % y/y Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 0 Jan-12 Jul-12 Jan-13 Jul-13 Haver Analytics, Emirates NBD Research 8

9 UAE: Liquidity conditions remain supportive 3M EIBOR and 3M LIBOR Spread is not at historical lows M EIBOR 3M LIBOR % Jan-13 May-13 Sep-13 Jan-14 May-14 % Sep-06 Sep-08 Sep-10 Sep-12 Bloomberg, Emirates NBD Research 9

10 UAE: Which sectors will drive growth? Growth rates % Total GDP (2012) 15 Hospitality Construction Manfctg Real estate 10 Trade Transport, Comms Hospitality 2% Transport, Comms 9% Construction 10% Manfctg 8% Oil 31% -10 Real estate 10% -15 Trade 12% Other 18% Haver Analytics, Emirates NBD Research 10

11 Dubai: Real Estate Real Estate Residential Real Estate - Commercial 80 Mid range villas 40 Prime commercial Mid range apartments Secondary commercial 60 Low end apartments High end villas % y/y 20 0 % y/y Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb Cluttons, Bloomberg, Emirates NBD Research 11

12 Global Markets Outlook May 2014 Arjuna Mahendran Chief Investment Officer 12

13 Which Risk Assets Climbed a Wall of Worry? Major Asset Classes Performance Silver* Gold* Aluminium* Platinum* Copper* MSCI EM ($) G7 Govt Bonds** EM Credit Global Commodities* USD v G6 Palladium* Brent Oil* US HY Index*** MSCI FM ($) MSCI Europe ($) BBG GCC200 ($) MSCI US ($) -40% -30% -20% -10% 0% 10% 20% 30% 40% * GSCI ** BBG/EFFAS ***Barclays Capital *GSCI **BBG/EFFAS *** Barclays Capital 13

14 Global Growth Driven by the US Credit Conditions Supporting US GDP Growth 7% 40% 20% 0% -20% 5% 3% 1% -40% -1% -60% -3% -80% Sep-92 Sep-96 Sep-00 Sep-04 Sep-08 Sep-12-5% Banks tightening Loans to Large Firms (inverted, LA) US GDP (YoY %, lagged 3 Quarters) Credit conditions lead economic growth Easy credit conducive to higher GDP growth further down the road Source: Bloomberg 14 4

15 Valuations Sustainable SP500 and MSCI EM Trailing P/E SP500 Trailing P/E MSCI EM Trailing P/E Valuations for the SP500 run at 17.3X trailing earnings. Considering data since 1940, this historically implies a 5.4% average upside potential EM valuations are 30% cheaper: but we currently think it is still a value trap Source: Bloomberg 15 4

16 Unless Bond Yields Rise Sharply Treasury Yield Movements explained by Economic Surprises US Economic Surprises US 10 Yr Yields (YoY) Economic surprises are expected to be positive, as US GDP improves US long-bond yields will rise accordingly Source: Bloomberg 16 4

17 Earnings Growth higher in DM vs. EM Consensus EPS Growth as Per May 2014 (annual, EPS positive 05/02/14) 2014f 2015f DM 11.65% 8.04% EM 4.29% 7.75% Consensus earnings growth seems quite realistic Expectations have come down especially for EM equities Source: Bloomberg 17 4

18 As China is still Struggling China Manufacturing PMI HSBC China Manufacturing PMI Manufacturing PMI below 50 for fourth consecutive month Expect yearly GDP growth to fall short of government 7.5% target Source: Bloomberg 18

19 Rise in Equity Volatility a Buy Opportunity US Yield Curve - 3Month minus 10Year (LA) VIX Index - Delayed by 24 Months The US Yield curve suggests equity volatility is set to rise by Summer Rise in volatility a buy opportunity, due to resilient macro backdrop Source: Bloomberg 19

20 SP Year Cycle Projects New Highs current In the SP year cycle years 7 or 8 tend to be down years The run-up from year 4 to year 7 or 8 portends equity bull markets Source: Bloomberg 20

21 Precious Metals & Oil - YTD Price Performance and Forecasts Metal / Oil 01/01/2014 USD 30/04/2014 USD YTD performance (%) Year End (F) USD Gold** 1, , ,200 Platinum** 1, , ,560 Palladium** WTI*** 94.63* Brent*** * (F) Forecast *Price as of 2/1/2014 **Price per troy ounce ***Price per barrel 21

22 Fixed Income Demand and scarcity of debt continues to compress yields Regional credit markets outperform peer EM counterparts YTD Geo political tensions / EM elections - elevated volatility supports GCC credit markets USD denominated debt to mitigate FX risks in their portfolios Global Investment grade debt issuances soars to $360 BN GCC total issuances under $9 BN Bonds we like ; We favor GCC in spite of fair value. CEE - Central Eastern Europe sovereigns ; continues to offer investors decent returns Russia, Turkey and Brazil offers decent spreads / yields for the risk adjusted basis for investors seeking higher returns. Bonds we dislike ; Local currency debt, Subordinated debt. High Yield ; Asian industrials / Real estate, inflation linked bonds, HY bonds beginning to look RICH 22

23 Regional Debt Issuances - YTD Issuer Security / Ticker Currency Maturity Coupon Moody's Fitch S&P Amount Issued Issue Price Kuwait Projects KWIPKK USD 02/05/ Baa3 N.A. BBB- 500 MM Dubai Investment Park DICUH USD 02/20/ N.A. N.A. BB 300 MM Abu Dhabi Commercial bank ADCBUH 3 19 USD 03/04/ N.A. A+ A 750 MM Islamic Development Bank ISDB USD 03/06/ Aaa AAA N.A. 1,500 MM Damac - Alpha Star Holding DAMACR USD 04/09/ NR NR BB 650 MM Saudi Electricity Co SECO 4 24 USD 04/08/ A1 AA- NR 1,500 MM Saudi Electricity Co SECO USD 04/08/ A1 AA- NR 1,000 MM DOF - Dubai Sovereign DUGB 5 29 USD 30/04/ N/R N/R NR 750 MM Mubadala MUBAUH USD 28/04/ Aa3 AA NR 750 MM Majid Al Futtaim MAFUAE USD 07/05/ NR BBB BBB- 500 MM TAQA - Abu Dhabi National Energy TAQAUH USD 06/05/ A3 NR A- 750 MM GCC matures USD 18 BN of debt in FY Supply constraints hold bond prices. 23

24 Preferred Names Emerging Markets C A U T I O U S M O D E R A T E A G G R E S S I V E ISSUER Security Currency Coupon Maturity Price G Spread YTM Moody's Fitch S&P Country Sector MALAYAN BANKING MAYMK 3 17 USD /10/ N.A. A- A- Malaysia Financial KOREA EXCHANGE BANK KEB USD /26/ A1 A- A- South Korea Financial SIME DARBY SIMEMK USD /29/ A3 A A Malaysia Diversified GOVT OF BERMUDA BERMUD USD /20/ Aa3 AA- AA- Bermuda Sovereign KOREA GAS CORP KORGAS USD /02/ A1 AA- A+ South Korea Oil & Gas MALAYSIA SOV MALAYS USD /06/ A3 N.A. A- Malaysia Sovereign SINGTEL GROUP T STSP USD /08/ Aa3 A+ A+ Singapore Telecom KOREA FINANCE CORP KOFCOR USD /16/ Aa3 AA- A+ South Korea Financial KOREA DEVELOPMENT BANK KDB USD /22/ Aa3 AA- N.A South Korea Financial GOVT OF BERMUDA BERMUD USD /06/ Aa3 AA- AA- Bermuda Sovereign Low volatile credits. Offers decent yields for their strong fundamentals for their strong ratings and duration ISSUER Security Currency Coupon Maturity Price G Spread YTM Moody's Fitch S&P Country Sector SLOVENIA SOV SLOVEN USD /18/ Ba1 BBB+ A- Slovenia Sovereign EXPORT IMPORT BANK MALAYSIA EIBMAL USD /19/ A3 A- N.A Malaysia Financial PETRONAS CAPITAL PETMK USD /12/ A1 A A- Malaysia Oil & Gas VALE OVERSEAS VALEBZ USD /15/ Baa2 BBB+ A- Brazil Commodities REPUBLIC OF LATVIA LATVIA USD /12/ Baa2 BBB+ BBB Latvia Sovereign NOBLE GROUP LTD NOBLSP USD /29/ Baa3 BBB- BBB Singapore Diversified REPUBLIC OF LITUANIA LITHUN USD /11/ Baa1 BBB+ BBB Lithuania Sovereign LI & FUNG LTD LIFUNG USD /13/ Baa1 N.A. BBB Hong Kong Diversified VALE OVERSEAS VALEBZ USD /11/ Baa2 BBB+ A- Brazil Commodities HUTCH WHAMPOA HUWHY USD /13/ A3 A- A- Hong Kong Diversified CNPC GENERAL CNPCCH USD /19/ A1 A+ A+ China Oil & Gas SIME DARBY SIMEMK USD /29/ A3 A A Malaysia Diversified CNOOC CNOOC USD /03/ Aa3 N.A. AA- China Oil & Gas SLOVENIA SOV SLOVEN USD /18/ Ba1 BBB+ A- Slovenia Sovereign Outliers in the EM space. They offer compelling spreads in the investment grade space and continue to perform ISSUER Security Currency Coupon Maturity Price G Spread YTM Moody's Fitch S&P Country Sector STATE OIL / AZERBAIJAN SOIAZ USD /09/ Ba1 BBB- BB+ Azerbaijan Oil & Gas RUSSIAN RAILWAY RURAIL USD /03/ Baa1 BBB BBB Russia Transport VTB BANK VTB 6 17 USD /12/ Baa2 WD N.A Russia Financial HDFC BANK LTD HDFCB 3 18 USD /06/ Baa2 N.A. BBB India Financial INDIAN RAILWAY INRCIN USD /26/ Baa3 BBB- BBB India Transport SBERBANK SBERRU USD /28/ Baa1 BBB N.A Russia Financial BANK OF BARODA/ LONDON BOBIN USD /23/ Baa3 BBB- N.A India Financial EXPORT-IMPORT BANK INDIA EXIMBK USD /02/ Baa3 N.A. BBB India Financial RUSSIAN RAILWAY RURAIL USD /05/ Baa1 BBB BBB Russia Transport Credits bordering investment grade which offers absolute value for those seeking higher returns. Recent geo political tensions and elections across EM states have had a nice price correction and we begin to see value in spread terms. 24

25 Preferred Names GCC C A U T I O U S M O D E R A T E A G G R E S S I V E ISSUER Security Currency Coupon Maturity Price G Spread YTM Moody's Fitch S&P Country Sector BSFR BSFR USD /22/ N.A. A A KSA Financial DUBAI ISLAMIC BANK DIBUH USD /30/ Baa1 A N.A UAE Financial EIB SUKUK EIBUH USD /11/ Baa1 A+ N.A UAE Financial ADCB ADCBUH USD /06/ A1u A+ A UAE Financial BANK MUSCAT BKMBOM USD /26/ A1 A- A- OMAN Financial SABIC INDUSTRIES SABIC USD /03/ A1 A+ A+ KSA Chemicals AL HILAL BANK ALHILA USD /08/ A1 A+ N.A UAE Financial RAK CAPITAL RAKS USD /21/ N.A. A A UAE Sovereign NATIONAL BK OF ABU DHABI NBADUH 3 19 USD /13/ Aa3 AA- AA- UAE Financial QATAR NATIONAL BANK QNBK USD /29/ Aa3 A+ N.A Qatar Financial MUBADALA MUBAUH USD /20/ Aa3 AA AA UAE Agency Sov DOLPHIN ENERGY DOLNRG USD /15/ A1 A+ N.A UAE Energy IPIC INTPET USD /01/ Aa3 AA AA UAE Oil & Gas SAUDI ELECTRICITY CO SECO USD /03/ A1 AA- AA- KSA Utilities Strong fundamentals, High grade issuers offering attractive spreads when compared to peer counterparts in the EM space ISSUER Security Currency Coupon Maturity Price G Spread YTM Moody's Fitch S&P Country Sector EMAAR PJSC EMAAR USD /03/ B1 N.A. BB+ UAE Real Estate MAJID AL FUTTAIM MAFUAE USD /07/ N.A. BBB BBB UAE Diversified EMIRATES NBD PJSC EBIUH USD /28/ Baa1 A+ N.A UAE Financial DP WORLD SUKUK DPWDU USD /02/ Baa3 BBB- NR UAE Transport DEWA DEWAAE 3 18 USD /05/ N.A. N.A. BBB UAE Utilities COMMERCIAL BANK OF DUBAI CBDUH USD /21/ Baa1 A- N.A UAE Financial FIRST GULF BANK FGBUH USD /14/ A2 A+ N.A UAE Financial MAJID AL FUTTAIM MAFUAE USD /05/ N.A. BBB BBB UAE Diversified KUWAIT PROJECTS KWIPKK USD /15/ Baa3 N.A. BBB Kuwait Diversified ABU DHABI NATIONAL ENERGY TAQAUH USD /12/ A3 N.A. A- UAE Energy MEDJOOL LTD EMIRAT USD /19/ N.A. N.A. N.A UAE Transport MAJID AL FUTTAIM MAFUAE USD /07/ N.A. BBB BBB UAE Diversified EMIRATES AIRLINES EMIRAT USD /06/ N.A. N.A. N.A UAE Transport Issuers to benefit from the strong growth rebound / outlook, these issuers offer decent yields and have strong fundamentals and credit metrics ISSUER Security Currency Coupon Maturity Price G Spread YTM Moody's Fitch S&P Country Sector ALDAR PJSC ALDAR USD /03/ Ba2 N.A. BB UAE Real Estate DUBAI INVESTMENT PARK DICUH USD /20/ N.A. N.A. BB UAE Real Estate ALPHA STAR HOLDINGS DAMACR USD /09/ N.A. N.A. BB UAE Real Estate These credits remain the only high yielding credits in the UAE space. Scarcity of High yield should support these credits 25

26 GCC Equity Markets Outlook May 2014 Anita Gupta Equity Strategist 26

27 GCC markets are correlated and are outperforming emerging markets

28 GCC and EM Valuations (Price/ Earnings) GCC equities have been trading at higher valuations than major benchmarks due to higher growth potential in the region

29 Why remain invested in GCC Equities Economic and business indicators are improving Earnings growth 1Q median UAE +24%, Saudi +4% Qatar +10% A sustainable earnings growth of over 10% will help valuations stay reasonable MSCI inclusion positive for Qatar and UAE Volumes, liquidity and Foreign Ownership Limits improving Expect increasing dividend payouts and bonus shares as companies generate more free-cash-flow IPO s to provide depth and breadth Risks Will market momentum be sustained post MSCI inclusion? Caps on labour immigration leading to higher wages and lower margins Will Qatar lose the FIFA?

30 Dividend play in the UAE, Qatar and Saudi. Historically companies in the GCC pay out dividends in the first half of the year. Qatar in the first quarter, UAE March to May and Saudi pays out quarterly and semi annual dividends Often the share price reverts in a few days to the price before the dividend pay out (unless market conditions are negative) Post both dividend payouts in 2013 Al Rajhi s price stayed stable or climbed

31 Where would we invest? Sector picks for 2015 Real estate/ construction: Supply/ demand dynamics favourable, yields, govt spend on infrastructure, increasing tourism attractive investment Banking: Improving asset quality, improving economic indicators, attractive dividend yield, brokerage businesses to benefit Chemicals: Cheap feedstock prices, increasing free cash flows, participation in the petrochemical wealth of the GCC Retail: High per capita income, Saudi govt budget focused on increased social spending Telecom: Data driven revenue growth, strong cash flows, high dividend yields (4.5%)

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