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Presentación Junio Dexia AM
 

Presentación Junio Dexia AM

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    Presentación Junio Dexia AM Presentación Junio Dexia AM Presentation Transcript

    • Asset Allocation Review & OutlookJune 2012Koen Maes, Head of Asset Allocation Strategy & FundsNadège Dufosse, Asset Allocation Strategist
    • H1 2012: Strategy Review Surprise on the upside in Q1 and support of the liquidity effect… Supportive macroeconomic momentum and earnings revision Peripheral stress eased with the two LTRO Liquidity effect was the main performance driver Central bank balance sheets continue to expand3 Source : Bloomberg – Dexia Asset Management
    • Table of contents I. H1 2012: Strategy Review Surprise on the upside in Q1 and support of the liquidity effect … weakening global context since April… … while central banks balance sheets stopped expanding Model score had deteriorated in Q2 Active management II. Outlook Somewhere between the best and the worst case Deepening crisis in Europe Risk has not become systemic yet Historically high level of pessimism Rapid and credible answer needed Investors between hope and despair Tail risk occurrence still possible Can we believe in decoupling? Longer term structural call for the US Cyclical call for China Compelling valuation for equities Attractive long term entry points Too much risk discounted on margins Does the risk-free rate still exist? III. Which strategy for H2 2012? Growing dividend Convertible bonds IV. Conclusion2
    • H1 2012: Strategy Review … weakening global context since April... Economic surprise indicator illustrates the turnaround in macroeconomic indicators, all the regions disappointed: Europe in harder recession as a consequence of austerity policies Weak employment data in the US should weigh on consumption Drop in Chinese macroeconomic indicator revived the fears of hard landing4 Source : Bloomberg – Dexia Asset Management
    • H1 2012: Strategy Review …while central banks balance sheets stopped expanding After the second LTRO, ECB balance sheet stopped increasing Lack of liquidity injection was concomitant with weaker fundamentals Risk-off mode started with Emerging markets, then Europe5 Source : ECB, Fed , Bloomberg – Dexia Asset Management
    • H1 2012: Strategy Review Our model’s score has deteriorated in Q2, but is not yet at an alarming level Our shorter term factors are negative (-0.6) 2.00 1400 1.50 1300 1.00 1200 0.50 1100 * - 1000 -0.50 900 -1.00 800 sum of market action + risk appetite + -1.50 earnings factors 700 MSCI world -2.00 600 01/09/08 01/03/09 01/09/09 01/03/10 01/09/10 01/03/11 01/09/11 01/03/126 Source : Bloomberg – Dexia Asset Management
    • H1 2012: Strategy Review Global Score Card Macro: negative stance Fundamental Block Valuation: valuation remains attractive and is positive, considering long term expected return Earnings Power: the Earnings Revision Ratio remains stable at 0.5 Dynamics Market Action: fall due to the correction, and remains negative Block Risk Appetite: stable over the past weeks, has not reached a worrying level yet compared to last summer’s level Reversal Reversal Risk: no reversal risk identified today (based on several indicators and technical Block analysis to identify a risk of trend reversal as technical divergences, excess momentum, put/ call ratio, breath, sentiment,…) Research Block Factor/Model Score Previous Macro -1.50 -1.50 FUNDAMENTAL Valuation 1.50 1.50 Earnings Power 0.50 0.50 DYNAMIX Market Action -1.5 -2.00 Risk Appetite/Flows -0.50 -0.50 REVERSAL Reversal Risk 0.00 0.00 Global Score -0.3 -0.407
    • H1 2012: Strategy Review Active Management: we have adapted our exposure to the risk-on / risk-off mode Neutral exposure equity/bonds in the first part of the rally Overweight equity from the end of January until the end of March (consolidation of the positive momentum) Then decrease of our equity exposure (economic momentum has turned more negative) Negative stance on equities at the end of April (deterioration of the macroeconomic context and aggravation of the crisis in the Euro-zone) Recently: reduction of our underweight exposure to euro- zone equities. Our core scenario remains that a compromise will be found in European discussions8 Source : Bloomberg – Dexia Asset Management
    • Table of contents I. H1 2012: Strategy Review Surprise on the upside in Q1 and support of the liquidity effect … weakening global context since April… … while central banks balance sheets stopped expanding Model score had deteriorated in Q2 Active management II. Outlook Somewhere between the best and the worst case Deepening crisis in Europe Risk has not become systemic yet Historically high level of pessimism Rapid and credible answer needed Investors between hope and despair Tail risk occurrence still possible Can we believe in decoupling? Longer term structural call for the US Cyclical call for China Compelling valuation for equities Attractive long term entry points Too much risk discounted on margins Does the risk-free rate still exist? III. Which strategy for H2 2012? Growing dividend Convertible bonds IV. Conclusion9
    • Outlook: somewhere between the best and the worst case Deepening crisis in Europe European crisis has reached a non return point following Greek elections “Grexit” not a taboo anymore, consequences not measurable Contagion to Spain not manageable and will worsen if not rapidly stopped10 Source : Bloomberg – Dexia Asset Management
    • Outlook: somewhere between the best and worst case Risk has not become systemic yet, worst case not priced in Lack of “panic” surprising, market drop progressive and well ordered in Europe High differentiation between safer and riskiest assets in the first correction move Our market indicators have not pointed out an excessively bearish behavior (risk appetite, volatility)11 Source : Bloomberg – Dexia Asset Management
    • Outlook: somewhere between the best and worst case Despite a historically high level of pessimism Surveys on the contrary show a historically high level of pessimism Sell side indicator has reached its lowest level since 1998 Level of cash in the last Fund manager survey close to last year’s highest level (september 2011) Those are good contrarian indicators12 Source : BoA Merrill Lynch
    • Outlook: rapid and credible answer needed Investors between hope and despair, how long will their patience last? QE expectations are integrated in investors’ assumptions In the absence of improving fundamentals, market remains “liquidity addict” Easing has started in China, favored by lower CPI data and last macroeconomic indicators weakness13 Source : Bloomberg – Dexia Asset Management
    • Outlook: rapid and credible answer needed Investors between hope and despair, how long will their patience last? QE3 expectations have increased in the US Fiscal cliff and an anemic job market could be the trigger for further easing, maybe in September14 Source : Exane BNP Paribas – Dexia Asset Management
    • Outlook: rapid and credible answer needed Investors between hope and despair, how long will their patience last? In Europe, more easing could be necessary to support growth, but ECB answer will come in last resort and will not be sufficient alone A credible answer is now needed in Europe given the depth of the crisis Potential game changer could come from discussions around ERF: credible because proposed by German people efficient because could reduce the cost of debt and dependency from markets. A first step towards Eurobonds15 Source : Exane BNP Paribas – Dexia Asset Management
    • Outlook: rapid and credible answer needed Investors between hope and despair, how long will their patience last? Spanish banks bailout plan not sufficient to save Spain or the European banking system. A more ambitious plan for banks will be necessary in Europe Limit contagion between government and bank debt (on the contrary to was has been done until now) Deposit insurance scheme Spanish central government funding EFSF, EFSM and IFM to the rescue 400 350 252 18 23 used for Ireland 67 300 250 80 145 48 used for Greece 67 EUR bn 200 80 87 150 26 26 26 used for Portugal 100 87 0 available if Spain drops of 118 223 117 12 50 list of guarantors 80 38 0 0 50 100 150 200 250 300 350 400 Total funding needs* Bank recap, assumption Cumulative funding needs EUR bn rest of 2012 2013 2014 2015 EFSF EFSM IMF16 Source : Exane BNP Paribas – Dexia Asset Management
    • Outlook: rapid and credible answer needed Tail risk occurrence still possible Last couple of weeks in June will be critical as investors’ patience and hope won’t last forever Disappointment on European announcement, further deterioration of economy in the US or emerging markets could lead to a more negative outcome17 Source : IMF
    • Outlook: can we believe in decoupling? Longer term structural call for the US Decoupling was one of 2012 assumption. Despite some disappointment, this remains our baseline scenario The US have built a sounder basis for future growth over a longer term perspective18 Source : IMF - Bloomberg – Dexia Asset Management
    • Outlook: can we believe in decoupling? Longer term structural call for the US Deleveraging process well engaged Real estate market bottoming out19 Source : McKinsey Global Institute – Dexia Asset Management
    • Outlook: can we believe in decoupling? Longer term structural call for the US Increasing cost competitiveness Energy costs dropped Flexible labor market, labor costs have been reduced Decrease of the USD20 Source : Exane BNP Paribas - Bloomberg – Dexia Asset Management
    • Outlook: can we believe in decoupling? Longer term structural call for the US Fiscal cliff shorter term issue Results of the elections will be critical in this respect QE3 could help limiting the impact on the economy21 Source : Congresionnal Budget Office - Bloomberg – Dexia Asset Management
    • Outlook: can we believe in decoupling? Cyclical call for China, more sceptical on longer term issues China is a more cyclical call for us The economy should trough somewhere in Q2 (encouraging last indicators in May) Authorities have the means to support the economy, have learnt from past errors Fiscal and monetary easing have started22 Source : Morgan Stanley Research - Bloomberg – Dexia Asset Management
    • Outlook: can we believe in decoupling? Cyclical call for China, more sceptical on longer term issues The transition towards a more consumption oriented growth is a longer term issue End of the 1st demographic dividend, will China get older before getting rich? Trend growth will decrease,7- 8% is the intermediate target for the years to come23 Source : UBS - Bloomberg – Dexia Asset Management
    • Outlook: compelling valuation of equities Attractive entry points to equities over a longer term perspective US equities at a historically highly attractive level compared to bonds. Increasing Equities risk premium covers the risk of earnings downgrades (disappointment on margins, revisions on top line) the highly uncertain context in Europe that could impact all the regions24 Source : Société Générale - Datastream – Dexia Asset Management
    • Outlook: compelling valuation of equities Too much risk discounted on margins Margins have already started to decrease in Europe and in the US If our baseline macroeconomic scenario holds, the earnings downwards revisions risk in Europe is not so high and more than discounted by current indices prices25 Source : Goldman Sachs - Bloomberg – Dexia Asset Management
    • Outlook: safer assets not safe from a valuation perspective Do the risk-free rate still exist? German bund has benefited from a flight to quality Current price is historically high. It partly anticipates ECB quantitative easing but does it reflect the country’s risks? Bundesbank’s Target2 claim on the ECB shows that de facto a kind of debt mutualisation exists in Europe Extreme gap between sovereign bonds and equities valuation is a risk for bonds in many scenarios26 Source : Bloomberg – Dexia Asset Management
    • Table of contents I. H1 2012: Strategy Review Surprise on the upside in Q1 and support of the liquidity effect … weakening global context since April… … while central banks balance sheets stopped expanding Model score had deteriorated in Q2 Active management II. Outlook Somewhere between the best and the worst case Deepening crisis in Europe Risk has not become systemic yet Historically high level of pessimism Rapid and credible answer needed Investors between hope and despair Tail risk occurrence still possible Can we believe in decoupling? Longer term structural call for the US Cyclical call for China Compelling valuation for equities Attractive long term entry points Too much risk discounted on margins Does the risk-free rate still exist? III. Which strategy for H2 2012? Growing dividend Convertible bonds IV. Conclusion27
    • Which strategy for 2012? Our preferred equity investment themes: growing dividends An attractive dividend yield, with a globally low pay-out ratio, with a high level of free cash flow yield and healthy balance sheets. High dividend yield should enhance portfolio returns… but remain selective!28 Source : UBS – Morgan Stanley - Bloomberg – Dexia Asset Management
    • Which strategy for 2012? Our preferred fixed income asset class: convertible bonds Convertible bonds offer carry, which helps to optimise Convertibles are attractively valued convexity Delta and Running Yield of the index UBS Convertible Europe Implied Volatility CB - Implied Volatility 18M DJ Euro Stoxx 50 20 15 Delta Running Yield PREMIUM 80 4.5% 10 70 4.0% 5 60 3.5% DISCOUNT 50 0 3.0% 40 -07 -08 -08 -09 -0 9 -10 -10 -11 -1 1 -12 No v -5 May No v May No v May No v May No v May 2.5% 30 20 2.0% -10 10 1.5% -15 Source : Deutsche Bank 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 Convertible Research -20 The current context would imply a resurgence in the primary market Including convertible bonds in a diversified portfolio can boost performance and reduce risk € bn European CB primary market 7 60 84 90 78 78 Amounts Numbers 80 100% Convertible 50 6 Performance annualized (%) 64 62 64 64 70 57 40 54 53 53 60 5 48 43 50 30 40 53 40 4 44 26 20 30 30 33 16 3 23 26 26 23 11 20 10 50% Equity 13 16 16 13 10 9 12 10 50% Bonds 8 5 2 0 0 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 Volatility (%) 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 2029 Source : Dexia Asset Management
    • Table of contents I. H1 2012: Strategy Review Surprise on the upside in Q1 and support of the liquidity effect … weakening global context since April… … while central banks balance sheets stopped expanding Model score had deteriorated in Q2 Active management II. Outlook Somewhere between the best and the worst case Deepening crisis in Europe Risk has not become systemic yet Historically high level of pessimism Rapid and credible answer needed Investors between hope and despair Tail risk occurrence still possible Can we believe in decoupling? Longer term structural call for the US Cyclical call for China Compelling valuation for equities Attractive long term entry points Too much risk discounted on margins Does the risk-free rate still exist? III. Which strategy for H2 2012? Growing dividend Convertible bonds IV. Conclusion30
    • Conclusion Asset Allocation 2012 Asset Allocation Equities Fixed Income Constructive towards equities Overweight US Corporate bonds more attractive for the second half of the year Carry in a low interest rate environment once some credible answers are Low medium-term refinancing needs found in Europe Constructive towards EM Coordinated QE could support the economy in Q3 Overweight convertible bonds Quality growth stocks and Equity risk premium could benefit from the reduction in stress in dividend plays Emerging Debt Europe, end of June decisions critical Short duration Commodities Alternative Assets Currencies Long-short market neutral strategies Gold and oil as hedge against USD & Scandies as fat tail risk Assymetric long volatility diversification currencies strategies Opportunistic currency arbitrage31
    • Conclusion Our scenario Quantitative easing will be once again an answer to current crisis. It is already partly discounted by investors at least in Europe, in the US and China. Given the non return point we have reached in Europe, it will not be sufficient alone to feed a longer lasting rally. Our baseline scenario is that a compromise is found in Europe with discussions around the European Redemption Fund as the most credible game changer. Relaxing the pressure of austerity policies will also be necessary to give more oxygen to peripheral countries. The next couple of weeks will be critical in that respect. A binary outcome still possible, since stress and psychological pressure remain the engine in European negotiations. Equities: Following recent market drop, valuation of equities relative to bonds is historically attractive. Investors’ sentiment and positioning has reached extreme pessimism level which is positive from a contrarian perspective. Current phase of stress could be followed by a more risk-on move if our scenario is valid. We would not move too aggressively positive until we get some credible answers in Europe. Safest assets valuation is now a risk for investors. Best rated countries government bonds have benefited from a move of flight to quality. Their valuation is now relatively expensive at risk in many scenarios: developed markets government fundamentals are not safe given the necessity to deleverage, it also already largely anticipates a possible coordinated QE. Our favorite themes remain thus rather defensive and growth oriented. We still favor high dividend yield stocks, attractive given the move on the real yields. We remain also still positive on convertible bonds which offer carry, an exposure to equities if market rebounds and are attractively valued.32 Source : MS, Goldman Sachs, Credit Suisse
    • Disclaimer This document is published purely for the purposes of information, it contains no offer for the purchase or sale of financial instruments does not comprise investment advice and it is not confirmation of any transaction unless expressly agreed otherwise. The information contained in this document was obtained from a number of different sources. Dexia Asset Management exercises the greatest care when choosing its sources of information and passing on this information. Nevertheless errors or omissions in those sources or processes cannot be excluded a priori. Dexia AM cannot be held liable for any direct or indirect damage or loss resulting from the use of this document. The contents of this document may be reproduced only with the prior written agreement of Dexia AM. The intellectual property rights of Dexia AM must be respected at all times. Warning : If this document mentions the past performances of a financial instrument or index or an investment service, refers to simulations of such past performances or contains data relating to future performances, the client is aware that those performances and/or forecasts are not a reliable indicator of future performances. Moreover, Dexia AM specifies that: • in the case where performances are gross, the performance may be affected by commissions, fees and other charges; • in the case where the performance is expressed in another currency than that of the investor’s country of residence, the returns mentioned may increase or decrease as a result of currency fluctuations. If this document makes reference to a particular tax treatment, the investor is aware that such information depends on the individual circumstances of each investor and that it may be subject to change in the future. This document does not comprise any investment research as defined in article 24, §1 of Directive 2006/73/CE dated 10 August 2006 implementing Directive 2004/39/CE of the European Parliament and Council. If this information is a marketing communication, Dexia AM wants to clarify that it was not designed according to the legal requirements to promote the independence of investment research, and it is not subject to any prohibition on dealing prior to the dissemination of the investment research. Dexia AM invites the investors to always consult the fund prospectus before investing in a fund. The prospectus and other information relating to the fund are available on our site at www.dexia-am.com. Money does not perform. People do.33 September 2010