BNP Paribas L1 Equity Turkey June 2012

Transcription

1 FOR PROFESSIONAL INVESTORS SEPTEMBER 2010 MONTHLY REPORT BNP Paribas L1 Equity Turkey June 2012 Performance overview Market review In June, MSCI GEMs (+3.4%) rose for the first time in four months. Much of the rise occurred at the end of the month, as the EU summit delivered more than the market was expecting. Indeed, the markets welcomed the EU summit measures that addressed both short-term problems such as breaking the link between sovereigns and the banking industry, and the medium to long-term plans towards some sort of banking union. It was little surprise, then, that CEEMEA (+8.2%) was by far the best-performing region, given its proximity to Europe. The three top EMs in June were all from the region, where Turkey outperformed all its GEM peers with a remarkable performance of +17.8% helped by the sharp fall in oil prices, improving external balances and Moody s rating upgrade. Turkey s 12-month rolling non-energy current account deficit (CAD) fell from its peak of USD 32 bn in July 2011, to USD19 bn in April Year-to-date, the improvement in the non-energy segment was 37% vs. 10% in the overall figure. There were a number of drivers 1

2 behind the improved figures: the significant depreciation of the Turkish lira in 2011; the central bank s effective tight monetary policy to soft-land the economy; and the support derived from other government measures to boost longer-term savings and discourage excessive consumption. As to inflation, we expect to see a major fall in the annual inflation rate in Q We believe the central bank s forecast of 6.5% annual inflation for 2012 (consensus estimate 7.4%) to be well within reach given the favourable price movements in the commodity markets. Furthermore, the improved CAD should help the central bank contain inflation expectations as there will be less pressure on the currency. We believe this will lead to some softening in the monetary policy, providing room to lower banks funding costs, while remaining within the unorthodox policy framework. The Central Bank of the Republic of Turkey (CBRT) and the government s economists have enjoyed a major positive shift in their credibility since last year s market volatility and high inflation. A range of factors are boosting the confidence of the investment community, and likely bringing investment grade status ever closer: The CPI and CAD easing; the currency being stabilised amid meaningful growth expectations; and the government remaining uncompromising in its prudent approach to financial management, as well as introducing ground-breaking reforms. Indeed, Moody s recently upgraded Turkey to one notch below investment grade, bringing its rating level with that of Fitch, with a positive outlook. The main reasons for the upgrade were those issues we outline above in short, a strong budget performance and an improving external balance. We believe an upgrade to investment grade within the next six months is now a higher probability than ever before. Some Turkish banks and corporates already enjoy investment grade and we believe these are likely to increase in number. Fund performance In June, the fund outperformed its benchmark by 1.12%, increasing by 15.14% vs. an increase of 14.02% for the index. Allocation in Materials added the most to performance, while stock picking in Financials detracted the most from excess return. The biggest two contributors to the excess return were our underweight positions in Eregli Demir Celik, the steel producer, and Netas, the telecommunication systems supplier. The downward trend in flat steel products, recent domestic over-supply and an overhang risk related to the major shareholder give cause for concern over Eregli. The company additionally faces tough competition from Russian exports to the mutually surrounding region. As to the overhang risk, ArcelorMittal reduced its stake in Eregli from 25% to 18.7% in late March with the apparent eventual intention to exit despite the one-year lockup on the remaining stake. Two months ago, we argued that the unprecedented performance of Netas in April could not be justified by its fundamentals. We believed the performance would be short-lived and that the price would adjust to fundamentals this year. This has proved to be the case; the performance has reversed and given back what it detracted from the excess return in April. Bizim Toptan, the cash & carry company, and Yapi Kredi Bank were the biggest two detractors. Investor preference for cyclicals over defensives during the risk-on environment was the major reason behind the relative underperformance of Bizim, despite it showing secular growth. Bizim is still in the early stages of the growth cycle and so deserves some premium for the growth potential it offers. It currently trades at 24x 2012E earnings. However, this puts the management under the spotlight and there is pressure on them to deliver. Even slightest divergence is viewed with caution and puts pressure on the stock price. Vakifbank was trading at undemanding price multiples, however, we believe there are factors which justify our underweight position, namely i) weak capital structure, which would necessitate additional capital after the introduction of Basel III in July and ii) structurally low ROE (2012E 13% vs peers 17%) iii) the threat of losing the low cost deposits base due to regulation change. However, the decision of the Turkish banking watchdog to amend the risk weighted assets definition has lifted the pressure on the stock. On the other hand, the remaining two factors still prevail. Portfolio activity In June, we introduced two companies to the portfolio: Turkish Airlines and Koza Anadolu Metal. Our decision on Turkish airlines was based on i) falling oil prices (from USD 125 a barrel to below USD 90 in less than two months); ii) robust passenger traffic growth, up 19% YoY in the January-May period; and iii) our expectations of an improved load factor stemming from its heavy investments in 2010 and With a high discount to NAV (50%) and new project additions, we started to build our position in Koza Anadolu. Having established a 60:40 partnership with Canadian Teck Resources, Koza Anadolu started drilling a prospective copper mine. Pre-feasibility studies are expected during 2012 and the market has not yet included this in its valuation as the prospects are not certain. A positive outcome would clearly add significant value. 2

3 Outlook & positioning Although the Turkish stock market has been outperforming EM since the end of May, we maintain our bullish view on equities in the mid-term, with increased selectiveness following the recent rally. We expect the latest drop in interest rates to trigger some earnings and valuation upgrades in H2 2012, thanks to month-on-month gains and lower funding costs. Along with higher expected GDP growth, we foresee a better 2013 for equities. This is especially so for banks EPS, as they will benefit from an accounting change in fee income recognition. They will also most likely benefit from low operational cost growth thanks to falling inflation, and they should record maturity mismatch gains on yield-curve movements. In the short term, however, having recently performed exceptionally well, Tier-1 banks are vulnerable to profit-taking should negative news arise, and we are thus considering partial profit-taking in some names. We believe that the possibility of further quantitative easing by the major central banks, together with global collective stimulus efforts may prompt interest in materials, which remained laggards in the recent rally. We think the tail risks are weaker than in previous months in the EU as the Greek election mini-crisis is now behind us and EU policy-makers have taken important steps towards a banking union and breaking the link between banks and sovereigns by direct recapitalisation of the banks. Yet it remains possible that eurozone issues might continue to haunt the markets from time to time, so we maintain our position in some defensive names. We also take the view that dividend payers should see significant demand as fixed income yields continue their downtrend. 3

4 Additional Information TOP 10 POSITIONS SECTOR BREAKDOWN Position % of fund Country Portfolio weight (%) Benchmark weight (%) Turkiye Garanti Bankasi 9.47 Financials Turk Telekomunikasyon 6.80 Industrials Tupras (T Petr Raf) 6.14 Consumer Staples Akbank 5.98 Telecoms Turkiye Halk Banka 5.06 Energy Turkiye Is Bankasi 4.99 Materials Turkcell Ilestisim Hizmetle 4.71 Consumer Discretionary Koc Holding A.S Utilities Anadolu Efes Biracilik Ve 4.31 Health Care Emlak Konut Gayrimenkul 4.09 Information Technology Top 10 holdings [Cash] As of 29/06/2012, source: BNPP IP For more information, please contact: Marc Frippiat Investment Specialist - Emerging Markets Equities Marc.frippiat@bnpparibas.com Phone number +33 (0) ISIN Codes: Cap: LU Dis: LU Instit: LU N-class: LU P-class: LU Total AUM as of end of reporting date: EUR mn 4

5 Performance details 5

6 DISCLAIMER On 1 September 2010, Fortis L Fund Turkey was renamed BNP Paribas L1 Turkey BNP Paribas L1 Equity Turkey is a compartment of the BNP Paribas L1 UCITS IV Compliant SICAV registered under Luxembourg law. The Fund referred to in this monthly report is part of a BNP PAM GIPS ( ) compliant composite whose full performance is available on request. The investments in BNP Paribas L1 Turkey are subject to market fluctuations and the risks inherent in investments in securities. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. This material is issued and has been prepared by BNP Paribas Asset Management S.A.S. (BNPP AM)* a member of BNP Paribas Investment Partners (BNPP IP)**. This material is produced for information purposes only and does not constitute: 1. an offer to buy nor a solicitation to sell, nor shall it form the basis of or be relied upon in connection with any contract or commitment whatsoever or 2. any investment advice. This material makes reference to certain financial instruments (the Financial Instrument(s) ) authorised and regulated in its/their jurisdiction(s) of incorporation. No action has been taken which would permit the public offering of the Financial Instrument(s) in any other jurisdiction, except as indicated in the most recent prospectus, offering document or any other information material, as applicable, of the relevant Financial Instrument(s) where such action would be required, in particular, in the United States, to US persons (as such term is defined in Regulation S of the United States Securities Act of 1933). Prior to any subscription in a country in which such Financial Instrument(s) is/are registered, investors should verify any legal constraints or restrictions there may be in connection with the subscription, purchase, possession or sale of the Financial Instrument(s). Investors considering subscribing for the Financial Instrument(s) should read carefully the most recent prospectus, offering document or other information material and consult the Financial Instrument(s) most recent financial reports. The prospectus, offering document or other information of the Financial Instrument(s) are available from your local BNPP IP correspondents, if any, or from the entities marketing the Financial Instrument(s). Opinions included in this material constitute the judgment of BNPP AM at the time specified and may be subject to change without notice. BNPP AM is not obliged to update or alter the information or opinions contained within this material. Investors should consult their own legal and tax advisors in respect of legal, accounting, domicile and tax advice prior to investing in the Financial Instrument(s) in order to make an independent determination of the suitability and consequences of an investment therein, if permitted. Please note that different types of investments, if contained within this material, involve varying degrees of risk and there can be no assurance that any specific investment may either be suitable, appropriate or profitable for a client or prospective client s investment portfolio. Given the economic and market risks, there can be no assurance that the Financial Instrument(s) will achieve its/their investment objectives. Returns may be affected by, amongst other things, investment strategies or objectives of the Financial Instrument(s) and material market and economic conditions, including interest rates, market terms and general market conditions. The different strategies applied to the Financial Instruments may have a significant effect on the results portrayed in this material. Past performance is not a guide to future performance and the value of the investments in Financial Instrument(s) may go down as well as up. Investors may not get back the amount they originally invested. The performance data, as applicable, reflected in this material, do not take into account the commissions, costs incurred on the issue and redemption and taxes. * BNPP AM is an investment manager registered with the Autorité des marchés financiers in France under number 96-02, a simplified joint stock company with a capital of 64,931,168 euros with its registered office at 1, boulevard Haussmann Paris, France, RCS Paris ** BNP Paribas Investment Partners is the global brand name of the BNP Paribas group s asset management services. The individual asset management entities within BNP Paribas Investment Partners if specified herein, are specified for information only and do not necessarily carry on business in your jurisdiction. For further information, please contact your locally licensed Investment Partner. 6