Final market: Towards A New Hierarchy Of Risks ?
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Final market: Towards A New Hierarchy Of Risks ?

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Presentation by Jean-François Bay, Managing Director, Morningstar France on the 3rd of July 2012 at Paris Europlace.

Presentation by Jean-François Bay, Managing Director, Morningstar France on the 3rd of July 2012 at Paris Europlace.

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  • 1. Financial Markets :Towards a New Hierarchy of Risks?× Paris Europlace× Jean-François Bay, Managing Director, Morningstar France× Tuesday July 3, 2012© 2012 Morningstar, Inc. All rights reserved.<#>
  • 2. Long-term Shift : From Developed Countries to Emerging CountriesImportant, Fast & Furious Change Since 2000 POPULATION & GDP % 90 80 70 60 50 40 30 20 10 POP. Dev. Countries GDP. Dev. Countries POP. Emg. Countries GDP. Emg. Countries 0 1960 1970 1980 1990 2000 2012 Source : FMI / Morningstar2
  • 3. Long-term Shift : From Developed Countries to Emerging CountriesLeveraging and Doping in order to Stay in the Race LEVEL OF DEBT / GDP IN 2012 % Debt / GDP Source : FMI / Banque de France / Fed / Eurostat / Morningstar3
  • 4. Medium-term Shift : Deleveraging of the World is UnderwayLow Demographic Growth, Low Economic Growth, Low Returns STOCKMARKETS Dow Jones Ind. Index since 1900 Source : Morningstar
  • 5. Medium-term Shift : More Black Swans More oftenParadox : Lower Returns, Higher Risks STANDARD DEVIATION 1950 1960 1970 1980 1990 2000 2010 Standard Deviation of Dow Jones Ind. Index since 1950 / Source : Morningstar
  • 6. Medium-term Shift : An Inter-penetrated WorldIncreasing Correlation = Decreasing Diversification LEVEL OF CORRELATION 0.7 0.6 0.5 0.4 0.3 0.2 0.1 Etats-Unis - France US / France US / UK Etats-Unis - Royaume-Uni 0 1990 2000 2010 Correlation of Indexes since 1990 (rolling period of 1 year) Source : Morningstar
  • 7. Short-term Shift : After Convergence, DivergenceEurobonds Already Existed (Between 1998 and 2008) Taux dintérêts longs en %IN EUROZONE 10 YEAR INTEREST RATES En % 16 Spain Espagne 14 12 Italy Italie 10 France France 8 Germany Allemagne 6 4 2 0 1993 1996 1999 2002 2005 2008 2012 Source : Morningstar7
  • 8. Short-term Shift : The Flight to Liquidity, Security, Quality…Bund as the Riskless Asset 10 YEAR GERMAN INTEREST RATES & INFLATION 20 German Bond OBLIG ZONE EURO Inflation INFLATION 18 16 14 12 10 8 6 4 2 0 1982 1985 1990 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 German Interest Rate and German Inflation Rate since 1982 - Source : Morningstar
  • 9. Short-term Shift : The Japanese ScenarioDeflation, Recession, Ageing of the Population … En % 10 YEAR INTEREST RATES IN GERMANY & JAPAN 10 9 Japon Japan 8 7 Germany Allemagne 6 5 4 3 2 1 0 févr.-85 août-88 févr.-92 août-95 févr.-99 août-02 févr.-06 août-09 oct.-82 oct.-89 oct.-96 oct.-03 oct.-10 avr.-86 avr.-93 avr.-00 avr.-07 déc.-83 déc.-90 déc.-97 déc.-04 déc.-11 juin-87 juin-94 juin-01 juin-08 Source : Morningstar9
  • 10. Consequence : 2012 = 2008/2009Cash is King ! FUND FLOWS IN EUROPE Monthly Fund Flows in Europe – OE Funds - Source : Morningstar
  • 11. Consequence : From Asset Management to Yield ManagementNothing but the Yield ! Everything but the Euro !×Structurally : Solvency II, Basel III…×Conjuncturally : × Cash × EBE : Everything But the Euro! CATEGORIE APRIL 2012 YTD 2012 High Yield Debt USD 1 010 5 038 Corporate Debt GBP 713 2 611 Globales Bond 620 143 Emerging Debt Glob. 616 4 168 Emerging Debt Local Currency 491 2 702 High Yield Bond Hedge 483 4 375 Corporate Debt USD 476 1 934 Flexible Bond GBP 441 773 Flexible Bond USD 417 2 325 Bond CHF 395 1 475 Top 10 5 662 25 544 Others 62 Bond Categories 291 16 795Catégories avec la collecte nette la plus importante en avril 2012 (millions deuros) / Source : collecte nette Morningstar Direct.
  • 12. Consequence : A New Hierachy of RisksCorporate Bonds, Banks and Sovereign Debt • Grece / 47.82% 40% 30% 20% 10% • Portugal / 13.78% • Bank Tier 1 / 12.23% 8% • Bank Tier 2 / 7.09% • Alcatel (B) / 7.51% • Ireland / 5.17% 6% • Espagne / 4.80% • Renault (BB) / 4.57% • Italie / 4.33% • Telefonica / 4.40% 4% • BNP Paribas / 4.11% • ENI / 2.74% 2% • Bouygues / 2.20% • Brésil / 2.01% • Auchan / 1.96% 1% • France / 1.70% • Air Liquide (A) / 1.77% • USA / 1.01% • Allemagne / 0.70% 0% Etats Banques Entreprises Exemple de taux actuariels – 5ans échéance 2017 en mars 2012 / Source : Morningstar
  • 13. Consequence : Mainly a Crisis of ConfidenceThe Cash Run (in France) and the Bank Run (Spain, Greece…) CASH DEPOSITS IN FRANCE Other Savings Livret A Accounts CEL Cash Deposits Total (bn€) Diff 2007 140 258 38 246 682 2008 164 351 36 243 794 16% 2009 183 280 36 262 761 -4% 2010 186 281 36 269 772 1% 2011 197 294 36 275 802 4% 2012 214 309 36 285 844 5% march-12 222 317 36 279 854 1% 900 800 700 600 500 400 300 200 100 0 2007 2008 2009 2010 2011 2012 march-12 Evolution des dépôts à vue et livrets réglementés chez les ménages français / Source : Banque de France
  • 14. Consequence : High Returns for Safe Haven AssetsGold, Swiss Franc, Govies… TOP & BOTTOM CATEGORIES : SHORT, MEDIUM & LONG-TERM Category / Risk Return (ann,) YTD (%) 3M (%) 1Y(%) 3Y%) 5Y(%) SD 3ANS 1 Gold 1,96 -5,48 5,37 16,17 15,69 23,42 2 Global Bond CHF 3,26 -2,53 1,57 18,02 13,27 10,72 3 Global Bond Hedge 4,84 -0,84 10,08 17,67 11,60 10,28 4 Bond AUD 1,77 -1,05 15,44 18,57 10,90 7,61 5 Global Bond Aggregate CHF 3,54 0,59 6,81 13,40 10,14 9,84 6 Bond CHF 5,28 1,45 5,57 14,10 9,75 10,43 7 Money Market AUD 0,36 -2,29 10,23 14,59 8,95 7,95 8 Global Bond 5,58 3,99 15,82 10,78 7,87 8,52 9 Aggregate Bond USD 7,28 7,30 23,24 12,40 7,71 12,36 10 Money Market CHF 1,20 0,46 1,57 8,38 7,51 9,86 11 Corporate Bond USD 8,49 6,52 21,96 13,78 7,28 11,35 223 Equity Small & Mid Caps France -5,10 -20,80 -37,57 4,81 -8,63 17,38 224 Equity Small Caps Europe 3,68 -10,19 -16,64 9,67 -8,87 17,14 225 Equity Large Cap "Value" Europe -2,55 -10,97 -13,77 3,63 -9,35 15,86 226 Equity Large Cap Euro -3,12 -13,50 -20,22 0,77 -10,05 18,07 227 Equity Large Cap France -2,10 -12,09 -21,39 -0,50 -11,09 18,02 228 Equity Spain -14,12 -17,08 -27,40 -4,22 -11,61 21,07 229 Equity Belgium 2,46 -7,58 -16,04 6,13 -11,84 14,42 230 Equity Polish -1,71 -16,04 -32,49 3,29 -13,42 26,15 231 Equity All Caps Euro -0,14 -11,56 -21,87 -1,44 -13,96 18,29 232 Equity Italy -4,56 -16,19 -28,78 -7,08 -16,86 19,82 233 Equity Greece -24,13 -29,58 -53,20 -31,35 -32,86 29,25 Performances sur 1 an, 3 ans et 5 ans des catégories Morningstar de fonds. Source : Morningstar / June 2012
  • 15. Consequence : New Regulation at the Worst Possible Time !Solvency II, Basel III, UCITS IV … THE DECREASING OF THE EXPOSURE TO STOCKS : NOT ONLY A MARKET EFFECT ! 30,00% 25,00% 20,00% 15,00% 10,00% 5,00% 0,00% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 ___ : % of Equity in the Asset Allocation by French Institutional Investors (base 100 in 1999) Source : AF2i / Morningstar ___ : CAC40 Index (base 100 in 1999)
  • 16. Conclusion : A New Hierarchy of Opportunities ?Opportunities for Experts in their Respective Fields× Specialists in Emerging Markets× Specialists in Credit× Specialists in Sovereign Debt× Specialists in Risk Management, Volatility× Specialists in Correlation/Decorrelation×… …
  • 17. Conclusion : A New Hierarchy of Opportunities ?Opportunities in Stock Markets ? YIELD OF MAIN ASSET CLASSES 6% 2012 Average 10Y 5% 4% 3% 2% 1% 0% European Equities Bund 10Y Govies US 10Y Corporate Bonds (A) Euribor 3M Source : Morningstar / End of June 2012
  • 18. Morningstar ×We’re a leading provider of independentMorningstar BangkokGlobal Operations Hong Kong investment data and research. Seoul ×We serve clients globally through our ShenzhenChicago Singapore presence in North America, South America,Toronto Taipei Europe, Asia, and Australia. Tokyo ×Our 3,500+ employees work in Amsterdam offices worldwide, offering local market Copenhagen Frankfurt expertise.Mexico City LondonSantiago Luxembourg ×Since 1984, we’ve been recognized forSao Paulo Madrid pioneering contributions to the investment Milan industry. Munich Oslo Auckland ×Our globaldatabase includes Paris Sydney approximately 380,000 funds. Stockholm Zurich
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