The European business cycle momentum is still robust despite uncertainties in Greece

Transcription

1 CONVICTIONS Conclusions of Natixis Asset Management monthly investment committee July 2015 MACROECONOMIC ANALYSIS The European business cycle momentum is still robust despite uncertainties in Greece Analysis of the markets environment & core scenario GLOBAL MULTI-ASSET ALLOCATION We cut our equity overweight to neutral given mounting risks (Fed, Greece, China) Strategic and tactical analysis and allocation Focus on FIXED INCOME The Greek deal has temporarily reduced risks. German bund yields remain elevated owing in part to expected Fed tightening from September. Sovereign and credit spreads have narrowed but market flows are quite limited. EUROPEAN EQUITIES We remain positive on the European equities due to the improvment of the macro economic environment. Following the pending uncertainties concerning the reforms approval by the European parliaments including Greece, we are cautious for the short term and are waiting for trading opportunities. GLOBAL EMERGING BONDS Emerging markets relatively immune to Greece and the decline of China equities.

2 MACROECONOMIC ANALYSIS Economic research Throughout the month of June until mid-july, investors have been conditioned by the standoff between Greece, the IMF, the EU and the ECB. Everyone was attentive to any slippage which would have been detrimental to the entire area. The agreement reached satisfies no one completely but it allows to find solutions in a, a priori, stable institutional framework. So far these fears have not had a clear effect on the macroeconomy particularly in the Eurozone, where the recovery continues. Core macro scenario World Economy PMI/Markit and ISM Surveys The American Economy US growth has resumed a moderate pace after a slightly negative first quarter. Households are a significant support for this improvement. Meanwhile home sales have accelerated and this should result in an increase in residential investment. In contrast, business investment remains fragile. The capital goods orders is still consistent with a weak capital expenditure profile. The economy converges to the trend observed since the recovery in Q2 2009, an increase of 2.2% annual rate The Chinese Economy Economic growth was stable in the first and second quarter of this year at 7% (on a year) on each of two quarters. It is worth noting however the strong contribution of financial activities during spring, a period in which the bubble seen on the stock market was growing. During summer the growth profile, after the bubble burst, will be mainly supported by the usual components (consumption and investment), the profile reflects a sluggish economy despite interventions by the authorities. Surveys of entrepreneur show a moderate increase in global activity. It remains driven by the developed countries. In the US, the ISM index improves significantly for the second consecutive month. In the Euro area, the recovery continues. The activity tends to moderate in the UK and stabilize in Japan. It continues to contract in the BRIC. Emerging Countries' surveys Euro Area economy Figures of the Euro zone have not been disturbed beyond measure by the drama that was played in Athens. Surveys of business leaders are still robust and the trajectory of corporate loans now reflects positive growth and this is expected to continue in view of the investigation of the ECB to commercial banks. Behind these figures, the investment dynamics will start and should improve in the coming months is an essential step in accelerating the cycle of the Eurozone. Indices of activity in emerging countries and BRIC remain below 50, signaling a contraction in the manufacturing sector. In the BRIC, only India sees an increase in activity, at a more moderate pace in June. In China, Russia and in a more pronounced way in Brazil, the activity continues to deteriorate which is weighing on the dynamic of the global economy.

3 Indicators Growth and inflation Avergage growth Average Inflation USA Japan Euro Area U.Kingdom China France Key interest rates Source : Economic research / Natixis AM Year end Monetary Policy Long Term Interest Rates (10 year) USA Japan Euro Area U.Kingdom Source : Economic research / Natixis AM Focus Monetary policies Inflation still does not accelerate and the decline of oil prices expected after the agreement with Iran would lead to a slightly downward trend. The figures for underlying inflation are moderate throughout not encouraging central banks to get tough very quickly. Note also that the inflation rate in Japan is now close to % (total and core) and is far from the target of 2% set by the Japanese central bank. The abenomics seeking a second wind. In the Eurozone, the ECB will not alter the framework of low interest rates it had set in June 2014 and its asset purchases, now expanded to a larger spectrum of government agencies, will be maintained until at least September The Fed, through the voice of Janet Yellen, has once again reiterated its willingness to raise its interest rates in This movement, that does not really justify the dynamics of the business and the high dollar, will be limited in 2015 and will not take an excessive extent in However, she wishes to have an hand on monetary policy and the long time it takes to announce its change reflects the desire not to have a too strong impact on investors and households' expectations. The Fed will have thereafter to adapt its communication. As the starting point in these conditions: it will be September or December 2015, but is not very important.

4 GLOBAL MULTI-ASSET ALLOCATION Investment and client solutions investment division Because of rising risks (Fed, Greece, China), we reduce our overall equity exposure to neutral, while maintaining an overweight in equities of developed countries versus emerging equities. Theoretical model portfolio The views used as input for the model portfolio are consistent with specialist s ones but may lead to different relative weighting versus benchmark compared to single asset class model portfolios.

5 Core scenario for global allocation Fixed income In the euro zone, after we had long hoped for a hard-won agreement between Greece and its creditors, the surprise of the referendum s announcement in the middle of last-ditch negotiations to avoid Greek default, paralyzes markets. This announcement caused a relatively moderate widening of peripheral sovereign spreads threatened by a possible contagion. The Bund evolution is unpredictable: usually positively considered as a safe haven investment in case of crisis for euro zone investors, its rise remains limited. Investors outside the euro zone are sellers preferring the safety of T- notes and US dollar; flows seem to balance. Unlike political tensions in the euro area, activity is picking up gradually in the United States. The Fed s press release on June 18th reported improvements in household consumption and labor market. The consensus is growing for a first rate hike in September. Finally, credit markets are undergoing difficult liquidity conditions particularly during correction phases. 40% 35% 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% Global cycle Emerging markets* imports of capital goods Source: Bloomberg, Datastream The slump in emerging market investment weighs on global GDP growth. Equities If the stress in negotiations between Greece and its creditors becomes more acute since the referendum s announcement, the euro zone equities display performance in line with the other markets over the month of June and maintain a big lead from the beginning of the year. We nevertheless preferred caution, reallocating our euro investment to US and Japanese equities since early May. We remain underweight in Asian equities excluding Japan and in emerging markets versus developed markets. Currencies The /$ parity is still moving around $1.10 and volatility is still there with the Greek situation. We always believe that the euro can bounce back in the medium term, especially with a low outlook of monetary tightening in the US by 2016, but we maintain a neutral tactical view. Commodities Financial markets Equity market: index price in localy currency S&P 500 EuroStoxx Source: Bloomberg 80 01/13 04/13 07/13 10/13 01/14 04/14 07/14 10/14 01/15 04/15 07/15 Greek uncertainties fuel volatility in European equity markets. The crude returned in the red in June with concerns about oversupply and the impact on European growth of a possible Grexit. Industrial metals have borne the brunt of the fall in Chinese demand. Conversely, agricultural commodities have soared (+ 15.5%). Heavy rains in the US and insufficient rains in Europe have strongly impacted yields on both sides of the Atlantic.

6 FIXED INCOME Fixed income investment division The Greek deal has temporarily reduced risks. German bund yields remain elevated owing in part to expected Fed tightening from September. Sovereign and credit spreads have narrowed but market flows are quite limited. Market analyses & outlook The deal on Greece has lowered the risk of Grexit. Details of the third bailout plan offers little certainty as regards potential growth recovery in Greece. Market reaction has been muted. Peripheral sovereign spreads have erased earlier widening dipping back to the 120bp area in Italy and Spain 10-year space. The lack of investment flows is testimony of an agreement that solves nothing. Rate markets actually trade sideways. The yield on 10-year Bunds offers a discount to our fair value estimate (0.76%) of about 10bps. Curve steepening in 5s10s spreads (72bps) since mid-april is however intact. Fed communication hints at a September rate liftoff. Long-end yields in the euro area should price in a premium reflecting upcoming US monetary tightening. In terms of market strategies, our exposures to peripheral bonds is unchanged. Select maturities in core markets (in the Netherlands and France) offer value relative to German Bunds. Conversely, a slowdown in covered bond purchases by the ECB warrants a less positive stance on this asset class. We hold a neutral position on both covered bonds and agency bonds. Credit is still under pressure. Maturity lengthening and limited capacity of market-makers to provide liquidity results in wider spreads especially at the long end. Our positions MEDIUM AND LONG TERM INTEREST RATES In the sovereign funds, we tactically managed the recent moves: our overexposure on Germany was a hedge on the risk of contagion from Greece to the peripheral debts, our overexposure on Spain was reduced in June. This summer, the lack of flows (buyers or sellers) could favor, like in April and usually at this period, more volatility and technical levels. The Portuguese and Spanish elections, in the months to come, could fuel new political fears but bond markets currently grant the ECB great trust in case of any turmoil. MONEY MARKET RATES At its June 3d meeting, the ECB left its director rates unchanged again: "refi" rate at 0.05%, marginal lending facility rate at 0.30% and deposit facility rate at -0.20%. During its press conference, Mr. Draghi reaffirmed that the measures (QE) put in place by the institution will be brought to term according to the original schedule up to September Furthermore the ECB has added state-owned infrastructure companies to the list of organisations whose assets it can buy under its quantitative easing programme, fuelling speculation it is moving closer to outright purchases of corporate bonds. But euro-zone's Bond and Stock Markets continued to record a very high volatility. As a matter of fact, 10 years Bund return moved up again from its historical low of 0.073% of mid-april til 0.485% in late May and 0.76% at the end of June after having had a higher at 0.92%. In the meantime money markets spreads and returns decreased again. So Eonia average for June fixed at bps compared to bps in May. In this context, our fixed rate allocation target for "tactical" funds is still at [80%;100%]. Portfolio diversification in corporates securities is still a major topic.

7 Sovereign portfolio OVERVIEW 06/ /2015 Duration - Euro: -- Long - Euro: -- neutral Yield curve - flattening - flattening Indexed bonds Country selection - Real euro interest rates: Neutral - Real euro interest rates: Neutral The selectivity remains essential with a large difference between Germany, other Core countries and peripherals. core Overweight Overweight semi-core Overweight Overweight peripherals Overweight Overweight CREDIT We maintain a positive view on the credit market. Lately spreads have been highly volatile and have widened in the context of Grexit risk. However, we think that current credit valuations are attractive. In the worst case scenario of a Grexit, we expect the ECB to support the market in order to limit the contagion to peripheral countries. Liquidity remains poor in the secondary market. The average spread over Libor of the Barclays Euro Aggregate Corp index widened by 19bp over the month to 85bp; its monthly performance is negative at -1.97%. Two month credit view View 06/ 2015* 08/ 2015* Sector view (IG) 06/ 2015 * 08/ 2015 * Covered** = + Cyclicals = = ABS + + Defensives = = Corporate High Yield Corporate Investment Grade + + Financials =/+ Banking (Subordinated ) Banking (Senior) Convertibles +/+ +/+ Insurance + + Convertibles: Our positive view remains positive in a medium-term vision. In the short term we do not exclude the volatility given a context of high uncertainty. The implied volatility of the CB has slightly decreased and is on an historically fair value. The primary market argues for strong valuations. We retain a higher delta exposure than the benchmark around 10bp. High Yield: We are still positive on high yield market as it is exogenous risks that are impacting market volatility and it is not due to any deterioration on credit quality. We are positive on fundamentals, outflows are still limited and primary market is waiting for a stabilization before opening again. Valuation represents an entry point today for an investor that believe in a coming settlement for the greek issue. * Applicable until

8 GLOBAL EMERGING Emerging markets relatively immune to Greece and the decline of China equities. TAUX EMERGENTS Market analyses & Outlook Greece failure to repay IMF at the end of June was the main event of the month, even if it did not come as a surprise. The other big event of the month was the fall of the Chinese stock market. Late June, the PBOC announced easing measures to help stabilize the stock market under severe pressure, having already lost 20% over the last 2 weeks June. Most Asian equities joined the sell-off putting downward pressure on Asian currencies. EM sovereign fixed income was relatively immune to the Greek issue even if spreads have widened somewhat over the month. EM debt has not followed the rise in US treasuries in the risk-off move but EM bond prices have remained relatively stable. The carry is offering some protection in terms of total return and there is no issue in the pipeline so the technical support is quite strong. EMBI global diversified under performed by 1.56%, the Investment Grade index underperforming by 1.85% and the High yield universe by 1.14%. Even if no specific event did hurt local markets, local debt was negatively impacted by the risk-off move, underperforming by 1.22%. Higher interest rates and increased uncertainty did support the US Dollar which gained ground versus the whole EM FX universe. Over June, the JPMEMFX index declined by 0.85%. Cumulative DM and EM fund flows since Second half 2015 : a top for DM inflows? - EM flows : now stable after the large outflows in 2013 and 2014? Our positions CORE SCENARIO We continue to believe that US interest rates should remain capped. We are still underweight duration and favor high yielders even if we reckon that some IG starts to offer some value. We are totally absent from local markets and EMFX when its comes to diversifying our sovereign credit exposure Globally we believe that EM sovereign credit remains attractive. Main related risks The main risk has shifted from the Fed interest rates rise impact and a China slowdown to a global meltdown in Europe associated to a Grexit.

9 EUROPEAN EQUITIES European equities investment division We remain positive on the European equities due to the improvment of the macro economic environment. Following the pending uncertainties concerning the reforms approval by the European parliaments including Greece, we are cautious for the short term and are waiting for trading opportunities. Market analyses & outlook MSCI Europe Small Caps DNR / MSCI Europe DNR EURO STOXX 50 / S&P 500 implicit volatility Our positions Source: Bloomberg Source: Bloomberg CORE SCENARIO Given a positive macro environment in Europe, we remain positive on the European equities despite uncertainties on the economic, social and political situation in Greece. In terms of sector allocation we overweight the Discretionary consumption (Automative industry, Media) but neutral on Luxury goods penalized by the currency rate evolution. We remain positive on Healthcare, Banks, Telecommunications (because of the dividend yield and the sector consolidation), Software and IT Services. We are neutral on Energy, Materials, Consumer staples, Insurance and Real Estate. We underweight Capital Goods and Utilities. We do not adopt a geographical nor market capitalization bias. Main related risks Greek Reform s approval by the European Parliaments Political, social and economic difficulties in Greece Evolution of the Euro zone Economic situation outside Europe Monetary policies in the US Euro / USD currency rate Oil Price evolution

10 NATIXIS ASSET MANAGEMENT In brief With assets under management of billion and 648 employees (1), Natixis Asset Management ranks among the leading European asset managers. Natixis Asset Management offers its clients (institutional investors, companies, private banks, retail banks and other distribution networks) tailored, innovative and efficient solutions organised into 6 expertises: Fixed income covers the entire European bond universe: money market, sovereign debt, credit, inflation, aggregate, convertible, etc; European equities delivers active fundamental management and value approach in European large, mid and small cap stocks; Investment and client solutions offers tailored products and services for global allocation, especially for institutional clients, large companies, banks and life insurance companies. Global emerging, developed by Emerise (2) provides active, fundamental and bottomup management in equity emerging markets. Structured and volatility, developed by Seeyond (3), offers innovative solutions that conciliate performance and risk reduction research through structured management, flexible asset allocation, active volatility management, model-driven and active protected equity management. Responsible investing, (developed by Mirova (4) ) offers a global responsible investing approach: equities, bonds, infrastructure, Impact investing (5), voting and engagement. Natixis Asset Management s offer is distributed through the global distribution platform of Natixis Global Asset Management, which offers access to the expertise of more than twenty management companies in the United States, Asia and Europe. (1) Source: Natixis Asset Management 31/03/2015. (2) Emerise is a brand of Natixis Asset Management and Natixis Asset Management Asia Limited, based in Paris and Singapore. (3) Seeyond is a brand of Natixis Asset Management. (4) Mirova is a subsidiary of Natixis Asset Management. (5) Impact investing: investments with a strong social and environmental impact.

11 CONTRIBUTORS Michael AFLALO Head of Institutional and network solutions - Investment and client solutions investment division Philippe BERTHELOT Head of Credit Fixed income investment division Axel BOTTE - fixed income strategist Fixed income investment division Emmanuel BOURDEIX - co-cio of Natixis AM - Head of volatility and structured investment division (Seeyond) Olivier DE LAROUZIERE Head of Fixed income Fixed income investment division Laurence FRETILLE - Product specialist European equities investment division Raphaël GALLARDO - Strategist Investment and client solutions investment division Ibrahima KOBAR - co-cio of Natixis AM Head of Fixed income investment division Brigitte LE BRIS - Head of International fixed income and currencies Fixed income investment division Yves MAILLOT Head of European equities - European equities investment division Franck NICOLAS Head of Investment and client solutions Investment and client solutions investment division Alain RICHIER Head of Money markets Fixed income investment division Philippe WAECHTER Chief economist - Economic research Coordination: Investment and Client Solutions investment division of Natixis Asset Management Natixis Asset Management s Communications Department Source: Strategic Investment Committee Natixis Asset Management Limited liability company - Share capital 50,434, Regulated by AMF under no. GP RCS Paris n Registered Office: 21 quai d Austerlitz Paris Cedex 13 - Tel This document is intended for professional clients only. It may not be used for any purpose other than that for which it was intended and may not be reproduced, disseminated or disclosed to third parties, whether in part or in whole, without prior written consent from Natixis Asset Management. No information contained in this document may be interpreted as being contractual in any way. This document has been produced purely for informational purposes. It consists of a presentation created and prepared by Natixis Asset Management based on sources it considers to be reliable. Natixis Asset Management reserves the right to modify the information presented in this document at any time without notice, and in particular anything relating to the description of the investment process, which under no circumstances constitutes a commitment from Natixis Asset Management. Natixis Asset Management will not be held liable for any decision taken or not taken on the basis of the information in this document, nor for any use that a third party might make of the information. Figures mentioned refer to previous years. Past performance does not guarantee future results.

12 The analyses and opinions referenced herein represent the subjective views of the author(s) as referenced, are as of the date shown and are subject to change. There can be no assurance that developments will transpire as may be forecasted in this material. This material is provided only to investment service providers or other Professional Clients or Qualified Investors and, when required by local regulation, only at their written request. In the EU (ex UK) Distributed by NGAM S.A., a Luxembourg management company authorized by the CSSF, or one of its branch offices. NGAM S.A., 2, rue Jean Monnet, L-2180 Luxembourg, Grand Duchy of Luxembourg. In the UK Provided and approved for use by NGAM UK Limited, which is authorized and regulated by the Financial Conduct Authority. In Switzerland Provided by NGAM, Switzerland Sàrl. In and from the DIFC Distributed in and from the DIFC financial district to Professional Clients only by NGAM Middle East, a branch of NGAM UK Limited, which is regulated by the DFSA. Office 603 Level 6, Currency House Tower 2, P.O. Box , DIFC, Dubai, United Arab Emirates. In Singapore Provided by NGAM Singapore (name registration no FD), a division of Natixis Asset Management Asia Limited, formerly known as Absolute Asia Asset Management Limited, to Institutional Investors and Accredited Investors for information only. Natixis Asset Management Asia Limited is authorized by the Monetary Authority of Singapore (Company registration No D) and holds a Capital Markets Services License to provide investment management services in Singapore. Address of NGAM Singapore: 10 Collyer Quay, #14-07/08 Ocean Financial Centre. Singapore In Hong Kong Issued by NGAM Hong Kong Limited. Please note that the content of the mentioned website has not been reviewed or approved by the HK SFC. It may contain information about funds that are not authorized by the SFC. In Taiwan This material is provided by NGAM Securities Investment Consulting Co., Ltd., a Securities Investment Consulting Enterprise regulated by the Financial Supervisory Commission of the R.O.C and a business development unit of Natixis Global Asset Management. Registered address: 16F-1, No. 76, Section 2, Tun Hwa South Road, Taipei, Taiwan, Da-An District, 106 (Ruentex Financial Building I), R.O.C., license number 2012 FSC SICE No. 039, Tel In Japan Provided by Natixis Asset Management Japan Co., Registration No.: Director-General of the Kanto Local Financial Bureau (kinsho) No Content of Business: The Company conducts discretionary asset management business and investment advisory and agency business as a Financial Instruments Business Operator. Registered address: Uchisaiwaicho, Chiyoda-ku, Tokyo. In Australia This document is issued by NGAM Australia Limited ( NGAM AUST ) (ABN ) (AFSL No ) and is intended for the general information of financial advisers and wholesale clients only and does not constitute any offer or solicitation to buy or sell securities and no investment advice or recommendation. Investment involves risks. It may not be reproduced, distributed or published, in whole or in part, without the prior approval of NGAM AUST. This document has been issued by Information herein is based on sources NGAM AUST believe to be accurate and reliable as at the date it was made. NGAM AUST reserve the right to revise any information herein at any time without notice. In Latin America (outside Mexico and Uruguay) This material is provided by NGAM S.A. In Mexico This material is provided by NGAM Mexico, S. de R.L. de C.V., which is not a regulated financial entity or an investment advisor and is not regulated by the Comisión Nacional Bancaria y de Valores or any other Mexican authority. This material should not be considered investment advice of any type and does not represent the performance of any regulated financial activities. Any products, services or investments referred to herein are rendered or offered in a jurisdiction other than Mexico. In order to request the products or services mentioned in these materials it will be necessary to contact Natixis Global Asset Management outside Mexican territory. In Uruguay This material is provided by NGAM Uruguay S.A. NGAM Uruguay S.A. is a duly registered investment advisor, authorised and supervised by the Central Bank of Uruguay ( CBU ). Please find the registration communication issued by the CBU at Registered office: WTC Luis Alberto de Herrera 1248, Torre 3, Piso 4, Oficina 474, Montevideo, Uruguay, CP The above referenced entities are business development units of Natixis Global Asset Management, the holding company of a diverse line-up of specialised investment management and distribution entities worldwide. Although Natixis Global Asset Management believes the information provided in this material to be reliable, it does not guarantee the accuracy, adequacy or completeness of such information.