BNP Paribas L1 Equity Turkey April 2012

Transcription

1 FOR PROFESSIONAL INVESTORS SEPTEMBER 2010 MONTHLY REPORT BNP Paribas L1 Equity Turkey April 2012 Performance overview Market review The MSCI Turkey index decreased by 2.77% (in USD terms). The central bank kept interest rates and bank s reserve requirements on hold but warned it may tighten market interest rates to contain inflation from higher oil prices. Turkey has reduced oil imports from Iran by 20% after the United States threatened economic sanctions on countries that do not curtail purchases of petroleum. The Industry Minister said that the Turkish economy may grow more than 5% this year and foreign direct investment is expected to exceed USD 15 bn. At the economic front, CPI rose 10.43% YoY in March, same as the rise of 10.43% YoY in the previous month. Industrial production NSA rose 4.4% YoY in February, as compared to the rise of 1.5% YoY in the previous month. The unemployment rate stood at 10.2% in January, as compared to the previous month s figure of 9.8%. 1

2 Fund performance In April, the fund outperformed its benchmark by 0.36%, rising 0.13% vs. a decline of 0.23% for the index. Stock picking in Financials added the most to performance, while allocation in Energy and Information Technology detracted the most from excess return. The two biggest contributors to excess returns were Koza Altın, the gold miner, and Migros, a food and staples retailer. Koza Altın outperformed the market on the back of strong Q1 expectations. Indeed, production in a new mine started in late 2011 and this will sharply increase the bottom line. Another positive for the stock has been the government s new investment scheme, which broadly favours the mining industry, among some others, to tackle Turkey s large current account deficit. Reserve prospects TBA in June is another major catalyst, which kept investors interest alive. A 29% outperformance year-to-date, on the other hand, exhausted upside potential and gave us the opportunity to take some profit and reduce our overweight position. Migros was one of our favourite stocks, which we have mentioned in the previous monthly market reports this year. In April, it outperformed the benchmark by 9% on favourable 2012 bottom-line expectations and M&A prospects. The fact that defensives have been preferred over cyclicals this month helped the performance as well. Tupras, the oil refiner, and Netas, the telecommunication systems supplier, were the two biggest detractors. Tupras has been enjoying favourable trade terms and relatively cheaper Iranian oil, until it became clear that it cannot be sustained under the threat of US sanctions. The initial market reaction was strong on the expectation that the replacement of Iranian oil will have negative impact on margins and, eventually, the bottom line. Tupras stated that purchases from Iran would be reduced by 20% only and refining margins would not contract as much as the market had expected. Therefore, we maintain the overweight in Tupras as the potential for the company is still in place. However, by not reinvesting the dividends (10% dividend yield at the date of payment), we have slightly reduced the overweight position regarding the aforementioned risks. Portfolio activity We argue that the unprecedented outperformance of Netas cannot be justified by the fundamentals. The belief that stock splits can bring additional demand to the stock has created its own legacy among domestic investors, despite the fact that it is nothing but a simple accounting transaction in the balance sheet. Netas was one of the few companies announcing a stock split that was followed by a share surge and it outperformed the market by an incredible 81%. Despite its minor weight in the benchmark, it made a sizable impact on the relative performance. We think that this performance is temporary and the price will adjust to fundamentals later this year. In exchange for the stocks we have reduced, we have added to our positions in Emlak GYO, the real estate investment company, and TAV Havalimanları, the airport operator. We think that Emlak GYO is the best exposure to benefit from the secular growth story of the Turkish real estate market thanks to the favourable demographics. Its low-risk business model is especially attractive as the company has been given the privilege of acquiring land with favourable terms and selling them to contractors on a revenue sharing scheme. After a lacklustre 2011, the share has underperformed and we think current price levels are attractive to increase our position. Contrary to 2011, unit sales are expected to grow by 15% in 2012 with the contribution of one blockbuster project, which is about to launch. Enjoying exceptional airline passenger growth (18% like-for-like YTD), yet literally immune to the adverse impact of the high fuel prices, TAV possesses both defensive and growth characteristics. Therefore, we have further added to our overweight position. The fact that French airline operator ADP decided to pay USD 874 mn for a non-controlling 38% share of the company (19% premium to the current market price) has been supportive of our decision. Finally, we have introduced Eregli Demir ve Celik Fabrikalari (Eregli), the flat-steel producer, to the portfolio and excluded Otokar, the vehicle manufacturer. We have tactically reduced the strong underweight position in Eregli, after the shares plunged 11% in relative terms in just three days due to the stake-sale decision of the second-largest shareholder, Arcelor-Mittal. It seems that the overhang from the stake sale will be around for a while as Arcelor-Mittal has sold only half of its Eregli holdings and its intention to liquidate the remainder is intact. From a valuation perspective, we still think Eregli is relatively expensive compared to its regional peers (2012E EV/EBITDA of 6.5 vs. Russian peers 5.7), considering that it is not even a fully integrated producer. The fact that additional domestic capacity supply is coming to the flat steel market in the next two years, makes the outlook negative for the company in terms of profitability. Otokar is excluded from the portfolio due to uninspiring prospects in the commercial vehicle market and declining share of the defence segment in the revenues. 2

3 Outlook & positioning It looks like the markets cheered too early in Q1 about the economic recovery in US, which proves not able to create sufficient jobs to sustain growth at a desired level. This leaves another round of quantitative easing as an option on the table and is positive for emerging markets in the first place. However, lacklustre growth in the US is bad news for Europe, which needs strong external demand for growth in order to preserve at least the current debt levels. The PMI figures in Europe, especially in the periphery, indicate a strong contraction in economic activity. Worries related to China (soft landing or hard landing), and recently India (S&P downgrade) reduce investor appetite for emerging markets as well. Indeed, the weak economic growth in developed economies coupled with political challenges increase the tail risks for Turkey, which accumulated large external imbalances in the past years. If the economic slowdown combines with a financial crisis, in other words, Europe cannot manage to muddle through, Turkey would be hit by both trade and portfolio investment channels. If the EU copes, then this is likely to mean a soft landing for Turkey. This is a more desirable outcome for us, if the alternative is strong growth in an unbalanced fashion. Separately, a slight slowdown in the global economy would relieve some pressure from commodity prices and that would serve Turkey well as a net importer of energy, commodities and intermediate goods. However, in times of a riskoff mood, investors do not take these factors into account until the worries start to subside. It was the same in April, and despite the fact that the current account continued its correction and oil prices dropped to low 110 s from high 120 s (USD/barrel), the Turkish stock market dropped by 3.7%, underperforming its peers. A recent downgrade l of Turkey s positive outlook by S&P to stable also confirms our view. On the other hand, we think that valuations converged to fair levels during the underperformance in April. The market consensus for the ISE-100 implies a level of 59,700, suggesting a mere 2% discount. The market trades at 9.3 times 2012 expected earnings, slightly below its five-year average of 9.8. Neither the valuations nor the sentiment is supportive for a further upside. However, the abundant liquidity provided by the US Fed, ECB, BoJ and BoE and expected further quantitative easing will be supportive for the markets, should there be a further drop in the index level. Trading at 7.6 times 2012 expected earnings and 1.1 times book value, bank valuations are again at attractive levels. On the other hand, the central bank of Turkey s tighter monetary stance and thus stubbornly high funding costs do not bode well for the banks bottom lines. We think that the tail risks are large enough to keep our cautious stance. Should there be a structural improvement in global sentiment or the probability of QE by the Fed or the ECB rises much, however, we would increase our weight in the cyclicals, especially financials. Thus, we continue with this year s favourite themes; quality and high dividend yield. On the other hand, anaemic growth in developed countries may structurally direct portfolio investments towards emerging countries, unless a crisis breaks out, and this may cause EM currencies to appreciate. In this context, our preference will for hard-currency leveraged companies. We will also keep our overweight positions in companies that do business in oil-rich regions including Russia, the Caspian region and MENA. 3

4 Additional Information TOP 10 POSITIONS SECTOR BREAKDOWN Position % of fund Country Portfolio weight (%) Benchmark weight (%) Turkiye Garanti Bankasi 9.39 Financials Turk Telekomunikasyon 7.77 Industrials Tupras (T Petr Raf) 6.14 Consumer Staples Turkiye Halk Banka 5.97 Telecoms Turkiye Is Bankasi 5.58 Energy Turkcell Ilestisim Hizmetle 4.83 Materials Tav Havalimanlari Holding 4.59 Consumer Discretionary Anadolu Efes Biracilik Ve 4.52 Utilities Emlak Konut Gayrimenkul 4.31 Health Care Akbank 4.13 Information Technology Top 10 holdings [Cash] As of 30/04/2012, 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 Turkey Compliant SICAV registered under Luxembourg law. The Fund referred to in this monthly report is part of a Fortis Investments 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