TIPS November. TISCO Investment Portfolio Strategy. Economic Strategy Unit ESU

Transcription

1 TIPS November 215 TISCO Investment Portfolio Strategy Economic Strategy Unit ESU

2 Italy FTSE MIB Japan Nikkei France CAC4 Germany DAX Portugal PSI2 Europe Stoxx6 Euro Stoxx5 Korea KOSPI S&P5 Spain IBEX35 MSCI REITS Philippines PCOMP Brazil Bovespa HK HSI UK FTSE 1 India Sensex J-REITs Thailand SET MSCI FarEast ex Japan Taiwan TWSE Indonesia JCI China HSCEI Dollar Index JPY GBP KRW INR THB AUD EUR Gold Brent WTI Europe and Japan outperformed other regions; D continued rally; commodities remained under pressures YTD (%) 1-month (%) Source: Bloomberg, TISCO Economic Strategy Unit (ESU) EU CN JP TH Market Outlook 2

3 Since GFC, central banks have always stepped in after a large stock market slump MSCI All Country World index quarterly return 2% 15% 1% 5% Aug 1 Bernanke hinted QE2 4Q11 1Q12 ECB announced LTRO I in Dec 14 LTRO II in Feb 12 Jul 12 Draghi s whatever it takes Sep 13 Fed s QE3 Will ECB or BoJ take action? % -5% -1% -15% Apr 1 Greece requested 1 st bailout 3Q11 Bond yields in Spain and Italy rose sharply May 12 Greek election gridlock 3Q15 China hardlanding concern -2% 3Q9 1Q1 3Q1 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 Source: Bloomberg, TISCO Economic Strategy Unit (ESU) EU CN JP TH Market Outlook 3

4 Apr-8 Oct-8 Apr-9 Oct-9 Apr-1 Oct-1 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Policy divergence will be key market determinant in 1H16 Central banks balance sheet: Fed ended QE in Oct 14; while BoJ and ECB continue to ease Unit: D, bn 5, 4,5 4, 3,5 3, 2,5 2, 1,5 1, Fed ECB BoJ Policy rates: Fed prepares to raise rate as soon as Dec; while ECB signaled lower interest rates Unit: % Fed ECB BoJ Policy Rate 1M 3M 6M 1Y 2Y 3Y Source: Bloomberg, TISCO Economic Strategy Unit (ESU) EU CN JP TH Market Outlook 4

5 Nov-9 Nov-1 Nov-11 Nov-12 Nov-13 Nov-14 Nov Sep 25-Sep 9-Oct 23-Oct 6-Nov Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Strong Oct job reports increase probability of Dec rate hike Strong job data sets stage for Dec rate hike Market-implied probability of Fed fund rate hike at Dec 15 meeting surged after strong Oct job reports Nonfarm Payrolls ' persons Actual Survey % 7% Oct nonfarm payrolls was the biggest this year, exceeding all estimates 68% % 5% Oct FOMC meeting (hold policy rate) Statement: In determining how long whether it will be appropriate to maintain this raise the target range at its next meeting, 4% 4% 5% 6% 7% 8% 9% 1% 11% Unemployment Avg hourly earning (RHS) Near Fed projection for Full Employment at 4.9% Marked the largest increase since 29 5.% 2.5% %YoY 2.7% 2.5% 2.3% 2.1% 1.9% 1.7% 1.5% 3% 2% 1% % Disappointing job report for September AS of: 9 Nov 15 Weak retail sales data Source: Board of governors of the Federal Reserve System, Deutsche Bank, Bloomberg, TISCO Economic Strategy Unit (ESU) EU CN JP TH Market Outlook 5

6 m 2m 4m 6m 8m 1m 12m 14m 16m 18m 2m 22m 24m 26m 215 rate hike will be very gradual as inflation remains subdue CPI inflation is now hovering around %, well below Fed inflation target of 2% 215 rate hike will be very slow and gradual Average = 2.6% CPI inflation (%) Feb-94 Jun-99 Jun-4 Now (from fed funds futures) m trailing P/E Average = 23.8x Feb-94 Jun-99 Jun-4 Now Source: Bloomberg, TISCO Economic Strategy Unit (ESU) EU CN JP TH Market Outlook 6

7 Policy divergence fueled dollar rally 2Y yield reached 4½ year high; Bund yield dipped below ECB s deposit rate threshold Widening yield spread fueled dollar rally Unit: % Unit: exchange rate; % 1..8 T 2Y German Bund 2Y FOMC meeting (28 Oct) Yield spread (2Y - Bund2Y) EUR/D (LHS; inverted) ECB meeting (22 Oct) Nov-14 Feb-15 May-15 Aug-15 Nov-15 Source: Bloomberg, TISCO Economic Strategy Unit (ESU) 1.3 Nov-14 Feb-15 May-15 Aug-15 Nov-15. EU CN JP TH Market Outlook 7

8 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15F Dec-15F Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16F Inflation excluding energy price could weaken as support from weak yen dwindles Kuroda often cites rising core-core inflation as evidence that QE is working Dwindling support from weak yen might pressure BoJ to ease further %YoY 4. D/JPY 13 %YoY %YoY % price target Core CPI (less fresh food) Core core CPI (less food and energy price) Source: Deutsche Bank, Bloomberg Ministry of Internal Affairs and Communications, TISCO Economic Strategy Unit (ESU) EU CN JP TH Market Outlook 8

9 Market continue to expect additional easing from the BoJ When do you next expect the BOJ to expand monetary stimulus? 5% 45% 44% 4% 35% 3% 29% 25% 2% 17% 15% 1% 5% % % 2% 5% Nov'15 Dec'15 Jan'16 Mar'16 Apr'16 Nov'16 No additional stimulus 2% Source: Bloomberg survey conducted during Nov 13-17, TISCO Economic Strategy Unit (ESU) EU CN JP TH Market Outlook 9

10 PART2

11 G3 economies are expected to improve in 216; European equities offer larger earning rebound potential G3 economies are expected to improve in 216 European equities offer larger earning rebound potential given higher growth environment F 216F S&P5 STOXX Japan Eurozone China Thailand -6 Jan- 7 Jan- 8 Jan- 9 Jan- 1 Jan- 11 Jan- 12 Jan- 13 Jan- 14 NIKKEI Jan- 15 Source: Deutsche Bank, Bloomberg Ministry of Internal Affairs and Communications, TISCO Economic Strategy Unit (ESU) EU CN JP TH Market Outlook 11

12 Current valuations are not too demanding compared to the previous peak in 27 Forward PE PBV Dividend Yield (%) Now 27 % from 27 Now 27 % from 27 Now 27 China H % % MSCI Asia x Japan % % India SENSEX % % Japan NIKKEI % % MSCI LATAM % % SET Index % % German DAX % % S&P % % Europe STOXX % % Source: Bloomberg, TISCO Economic Strategy Unit (ESU) EU CN JP TH Market Outlook 12

13 Strong dollar is positive for European and Japanese equities; negative for EM assets and commodities Correlations* to dollar index Germany DAX STOXX6 NIKKEI 225 SET S&P5 MSCI Asia x Japan -.37 MSCI EM WTI crude oil Gold spot Source: Bloomberg, TISCO Economic Strategy Unit (ESU); *weekly data from 9 Nov 14 to 9 Nov 15 EU CN JP TH Market Outlook 13

14 Fund flows show clear preference in Europe and Japan equities Bond funds faced outflow since mid-215 Europe and Japan equities continue to attract inflows Source: Deutsche Bank, Bloomberg Ministry of Internal Affairs and Communications, TISCO Economic Strategy Unit (ESU) EU CN JP TH Market Outlook 14

15 Japan corporate tax cut will continue to support earnings Shinzo Abe pledged to cut Japan corporate tax rate below 3% to boost investment and wage % % 2.37% 1.2% 2.51%.8% Target Source: TISCO Economic Strategy Unit (ESU) F 216F EU CN JP TH Market Outlook 15

16 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Housing market shows signs of continuing improvement; faster government spending to boost economy Housing market continues to recover with sales and prices of residential buildings showing improvement % YoY 2 The PBoC will cut the cut minimum the minimum down down payments for 1st home buyers from 3% to 25% in a bid to boost home sales. Housing market % YoY 6 Government spending has picked up strongly following accelerating infrastructure investment % YoY 8% 6% 4% 2% % -2% Government revenue and expenditure Expenditure Revenue 25.9% Housing prices: (LHS) Tier-1 (LHS) Sales of residential buildings Unit: % of GDP -.5% -1.% -1.5% -2.% -2.5% Source: National Bureau of Statistics of China, Deutsche Bank, Xinhua, TISCO Economic Strategy Unit (ESU) target -1.1% -1.5% Government Budget -2.1% -2.1% -2.3% On a YTD basis, fiscal surplus was RMB66bn, leaving plenty of room to increase the budget deficit to the 215 target of 2.3% of GDP. China could record a fiscal deficit of RMB1.8trn for the rest of the year. EU CN JP TH Market Outlook 16

17 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Margin financing in China stock market has fallen rapidly Margin financing as % of A-share free float market cap Margin Loan Outstanding (RMB, trn) Margin Loan as % of mkt cap (RHS) 6.% 5.5% 5.% 4.5% 4.% 3.5% 3.% 2.5% 2.% 1.5% 1.%.5%..% Source: Bloomberg, TISCO Economic Strategy Unit (ESU) EU CN JP TH Market Outlook 17

18 China pension fund reallocation plan could have larger impact than Japan s GPIF given the smaller free float in China Potential inflows to stock markets could be as much as 6.7% of free float market cap 7, 6, 5, 4, 3, 2, 1, 8% 7% 6% 5% 4% 3% 2% 1% % China 1, Fund size and market cap (D, bn) Japan ,366 4,357 3,288 2,483 AUM Potential inflows Total mkt cap FF mkt cap China 2.6% Japan 3.6% Potential inflows 6.7% 4.7% % of total mkt cap % of free float mkt cap D, bn China (as of 27 Aug 15) Japan (as of 3 Sep 14) Pension fund AUM 556 1,193 Investment policy change Allow funds to invest up to 3% of NAV in equity market Increase benchmark stock allocation from 12% to 25% (+3%) (+13%) Potential inflows Total market capitalisation 6,366 4,357 % Free float 4% 75% Free float market capitalisation Potential inflows as % of total mkt cap Potential inflows as % of free float mkt cap 2,483 3, % 3.6% 6.7% 4.7% Source: Bloomberg, TISCO Economic Strategy Unit (ESU) EU CN JP TH Market Outlook 18

19 Outflows from China abate amid recent FX stability and prospect of SDR inclusion CNY has stabilized and strengthened against D after devaluation fears in Aug China FX reserve increased in Oct for the first time in 6 months Unit: D, bn 4,25 12 MoM Change China FX reserve 9 4, 6 3 3,75-3 3, ,25-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Source: Bloomberg, Deutsche Bank, TISCO Economic Strategy Unit (ESU) EU CN JP TH Market Outlook 19

20 PART3

21 Key events in 216 Dec 2: Spain general election After the May regional elections the momentum have moved in favour of the tow traditional parties (PP and PSOE) at the expense of the anti-euro Podemos. Jan 16: Taiwan presidential election DPP's candidate leads incumbent KMT's by wide margin. DPP leaders have been more vocal about independence, while KMT aims to strengthen economic ties with Mainland. Q2-Q3: Brexit referendum The vote may occur as early as summer 216. Immigration is the main issue as UK wants more control over its borders to protect local jobs, limit public welfare for immigrants and strengthen national security. El Nino 216 will see one of the strongest El Nino in many decades, resulting in heavy rainfall or flooding in the east Pacific (Argentina, Chile) and drought-like conditions in the west (ANZ, South and Southeast Asia). Oil price spike Oil price fell rapidly in 4Q14 (from $9 to $5), it then stayed between $4-45 for most of 215. So the deflationary pressue from oil price will mostly dissipate in 215. If oil price spikes in 216, it could raise question on validity of ultra-loose monetary policy. Spanish election opinion polls Brexit poll Source: Deutsche Bank, TISCO Economic Strategy Unit (ESU) EU CN JP TH Market Outlook 21

22 Asset allocation: stay OW Europe, Japan and China Asset Class Domestic Bonds Equity Markets Thailand China North Asia India Japan Europe LATAM Alternative Investment Gold Oil REITs J-REITs Weighting Underweight Neutral Overweight Themes Thai bond yields could spike when Fed lifts rates Strong D and rising labor cost weigh on earnings Risk of further earnings d/g amid high NPLs and weak growth Reform progress should prompt LT re-rating Attractive valuations but weak earnings outlook High earnings growth and improved structural stability BoJ might have to ease further to boost inflation Europe enters re-leveraging cycle; QE extension to support PER Prolonged drag from low commodity prices Pending fed lift-off will cap upside for gold Strong D weigh on ST outlook; LT outlook positive Long term yields to remain low amid falling commodity prices Rising land price; J-REITs to O/P REITs amid rising yields Source: TISCO Economic Strategy Unit (ESU) EU CN JP TH Market Outlook 22

23 Contributors Kampon Adireksombat, Ph.D. Chief Economist (66) Charnon Boonnuch Economist (66) Komsorn Prakobphol, AFPT TM Senior Strategist (66) Pimonpun Pravangsuk Research Assistant (66) Warut Taechajinda Strategist (66) Tipparat Nuntapredawat Research Assistant (66) Papungkorn Kitcharoenkarnkul Reserch Assistant (66)

24 Disclaimer The information, statements, forecasts and projections contained herein, including any expression of opinion, are based upon sources believed to be reliable but their accuracy completeness or correctness are not guaranteed. Expressions of opinion herein were arrived at after due and careful consideration and they were based upon the best information then known to us, and in our opinion are fair and reasonable in the circumstances prevailing at the time. Expressions of opinion contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. TISCO and other companies in the TISCO Group and/or their officers, directors and employees may have positions and may affect transactions in securities of companies mentioned herein and may also perform or seek to perform investment banking services for these companies. No person is authorized to give any information or to make any representation not contained in this document and any information or representation not contained in this document must not be relied upon as having been authorized by or on behalf of TISCO. This document is for private circulation only and is not for publication in the press or elsewhere. TISCO accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or its content. The use of any information, statements forecasts and projections contained herein shall be at the sole discretion and risk of the user.