Macroeconomic Prospects for Coffee Exporters                                                                              ...
World Economic EnvironmentSTILL GOOD FOR COFFEE                             Page 2
Source: OECD, Bloomberg, Macquarie Capital (USA), September 2011                                             Page 3
The macro environment supports Ag investing                                                    Low interest               ...
Agri commodities outperformed in 2010Source: Bloomberg, Macquarie Research, June 2011    Page 5
As fertiliser & energy prices rise again,                              cost pressures should start creeping up tooSource: ...
Longer-term supply trends remain supportive too                   Global harvested area                                   ...
La Niña is fading away now – which means weather should finally                                   “normalise”Source: IRI, ...
... But losses in production have caused stocks to fall relative to global                                  consumption   ...
CoffeePage 10
Coffee futures hit 34-year highs due to extremely tight inventories               NY arabica reached historical           ...
Cash prices have risen even more than futures - signalling tight physical                                 availability    ...
Relative scarcity of quality coffee has led to sharp drawdowns in stocks                                       globally   ...
Brazil’s rising internal demand, appreciating currency and the 2011/12 “off                                year” = bullish...
The robusta market also tight on rising demand & low Vietnam/Indonesian                      supplies, but EU stocks are h...
Coffee demand remains highly inelastic: if anything we see growth in                             emerging markets         ...
Coffee fundamentals and price outlookSource: ICO, NKG Stats, Macquarie Research, July 2011                                ...
Brazil: The Present Has ArrivedBUT WHAT ABOUT THE FUTURE?                         Page 18
Brazil’s Future is bright no matter what mix of policies of the next administration  resident Dilma will follow a mix fro...
BRAZIL: REAL GDP GROWTH VERSUS REAL INTEREST RATESSource: Banco Central do Brasil, IBGE, Macquarie Capital (USA), Septembe...
Economic Growth Recovers Rapidly BUT DEMAND GROWTH IS OUTSTRIPPING SUPPLY BY A WIDE MARGINSource: Banco Central do Brasil,...
To grow above 4%, Brazil needs investment rates greater than 20%. Source: Banco Central do Brasil, IBGE, Macquarie Capital...
Economic Growth Recovers Rapidly               BUT DEMAND GROWTH IS OUTSTRIPPING SUPPLY BY A WIDE               MARGINSour...
BRAZIL: COMBINED IPCA/IPCA-15 AND CORE INFLATION (% YoY)Source: Banco Central do Brasil, IBGE, Macquarie Capital (USA), Se...
THE SELIC TARGET RATE IS STILL TOO LOW EVEN UNDER OPTIMISTIC TAYLOR RULES,BCB STILLNEEDS TO TIGHTENSource: Banco Central d...
HIGH MONEY GROWTH IN LOCKSTEP WITH CREDIT GROWTHSource: Banco Central do Brasil, IBGE, Macquarie Capital (USA), September ...
THE AVERAGE BASE RATE IS TOO LOW: THE BCB OR THE BNDES NEED TO RAISERATESSource: Banco Central do Brasil, IBGE, Macquarie ...
FISCAL POLICY HAS EASED…HIGHER PRIMARY SURPLUSES, LOWER REAL INTERESTRATESSource: Banco Central do Brasil, IBGE, Macquarie...
Economic Growth Recovers Rapidly           AND PERHAPS OVERVALUEDSource: Banco Central do Brasil, IBGE, Macquarie Capital ...
BRAZIL’S TERMS OF TRADE HAS SHOT UPWARD MASSIVELYSource: Banco Central do Brasil, IBGE, Macquarie Capital (USA), September...
PUSHING THE REAL EXCHANGE RATE STRONGERSource: Banco Central do Brasil, IBGE, Macquarie Capital (USA), September 2011     ...
WE EXPECT A SLOW RISE IN USD/BRLSource: Banco Central do Brasil, IBGE, Macquarie Capital (USA), September 2011            ...
BRAZIL’S POLICYMAKERS FACE SIGNIFICANT CHALLENGES:   eal appreciation with further monetization by the United States and ...
Colombia: Good Start for SantosWhy doesn’t Colombia grow more?                                  Page 34
Colombia: President Santos’ Good Start  resident Juan Manuel Santos’ first year was very productive despite sending a bar...
Colombia: Economy ReboundsSource: Bloomberg, Macquarie Capital (USA), September 2011                                      ...
Colombia: Economy Rebounds       BUT DEMAND GROWTH IS FASTER THAN SUPPLYSource: Bloomberg, Macquarie Capital (USA), Septem...
INFLATION IS ALSO REBOUNDING BUT AT A MODERATE PACESource: Bloomberg, Macquarie Capital (USA), September 2011             ...
Colombia: Numbers and Forecasts Source: INDEC, Bloomberg, Macquarie Capital (USA), September 2011                         ...
Colombia: Numbers and Forecasts con’t Source: INDEC, Bloomberg, Macquarie Capital (USA), September 2011                   ...
Mexico: Coming Out of the MalaiseWorries from the northern neighbor                             Page 41
Mexico: Beat Up But Better  he Mexican economy was hit very hard by the US into recession falling 6.5% in 2009. T  he re...
Mexican industry is recovering with the USSource: INEGI, Bloomberg, Macquarie Capital (USA), September 2011               ...
And Mexican GDP has now a corresponding common cycle with US GDP Source: INEGI, Raul Feliz, Bloomberg, Macquarie Capital (...
We expect reasonable and steady economic growth for MexicoSource: INEGI, Macquarie Capital (USA), September 2011          ...
The Real MXN has recovered but still above the levels of before the financial crisis. Source: Banxico, Bloomberg, Macquari...
The output gap is closing but more slowly in the last few months   Source: Raul Feliz, Banxico, Bloomberg, Macquarie Capit...
A Taylor rule has Banxico raising the fondeo rate now but expect only in 2012Source: Raul Feliz, Banxico, Bloomberg, Macqu...
Inflation remains well behaved and monetary policy on hold until 2012 Source: Raul Feliz, Banxico, Bloomberg, Macquarie Ca...
Mexico: Getting Better  exico grew more than 5% in 2010 and will slow down to a reasonable 3.8% in 2011. M  nflation is ...
Mexico Numbers and Forecasts Source: Banxico, INEGI, Bloomberg, Macquarie Capital (USA), September 2011                   ...
Mexico Numbers and Forecasts, con’t Source: Banxico, INEGI, Bloomberg, Macquarie Capital (USA), September 2011            ...
Central America: Growing But VulnerableInflation in Costa Rica, Elections in El Salvador, and Guatemala                   ...
Costa Rica: Vulnerable Stability With Central American growth at 4%, Costa Rica is set to grow at 4.2% in 2011 and 4.1% i...
Costa Rica Numbers and ForecastsSource: Global Source, Banco Central de Costa Rica, Bloomberg, Macquarie Capital (USA), Se...
Costa Rica Numbers and Forecasts, con’tSource: Global Source, Banco Central de Costa Rica, Bloomberg, Macquarie Capital (U...
El Salvador: Overdone Negativity  ost Wall Street analysts continue with a negative outlook for El Salvador. We are not q...
Guatemala: Elections and good export performance  residential elections on 11 September 2011 and retired general Otto Pér...
Indonesia and Vietnam:Strong Growth and Inflation                              Page 59
Vietnam: in a tight spot between inflation and growth nflation remains strongly elevated, at over 23% YoY, with much of t...
Indonesia: robust growth, and inflation concerns are manageable for now  obust domestic consumption and ongoing fixed  R ...
The numbers                        Indonesia                                                                    Vietnam   ...
COFFEE EXPORTERS PERFORMING SIMILARLY   rice increase in primary commodities, especially coffee, continues to power   P  ...
Important disclosures: Recommendation definitions                                          Volatility index definition*   ...
Company Specific Disclosures:Important disclosure information regarding the subject companies covered in this report is av...
Capital Markets Canada Ltd is to allow all clients that are entitled to have equal access to our research. United Kingdom:...
Contact Macquarie Capital (USA) Inc. SALES                                                            Australia/NZ        ...
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John welch - Macroeconomic Prospects for Coffee Exporters

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John welch - Macroeconomic Prospects for Coffee Exporters

  1. 1. Macroeconomic Prospects for Coffee Exporters John H. Welch john.welch@macquarie.com +1 212 2312 0059 Macquarie Capital (USA) Ltd 125 W. 55th Street, New York, NY 10019 USA September 2011Macquarie Research is a division of Macquarie Group Limited, an affiliate and parent company of Macquarie Capital (USA) Inc., a registered broker - dealer and member of The Financial IndustryRegulatory Authority (“FINRA”). All transactions by U.S. investors involving securities discussed in this report must be effected through Macquarie Capital (USA) Inc., which assumes responsibilityin the U.S. for the contents of this report.This research report has been prepared in whole or part by foreign research analysts. These research analysts are not registered/qualified as a research analyst with FINRA, but instead havesatisfied the registration/qualification requirements or other research-related standards of a foreign jurisdiction that have been recognized for these purposes by FINRA.Please read Disclaimer on Pages 64-66.
  2. 2. World Economic EnvironmentSTILL GOOD FOR COFFEE Page 2
  3. 3. Source: OECD, Bloomberg, Macquarie Capital (USA), September 2011 Page 3
  4. 4. The macro environment supports Ag investing Low interest rates Commodity + equities boom Weaker US dollar Hedge against inflationSource: Bloomberg, Macquarie Research, July 2011 Page 4
  5. 5. Agri commodities outperformed in 2010Source: Bloomberg, Macquarie Research, June 2011 Page 5
  6. 6. As fertiliser & energy prices rise again, cost pressures should start creeping up tooSource: USDA, Bloomberg, Macquarie Research, July 2011 Page 6
  7. 7. Longer-term supply trends remain supportive too Global harvested area World water shortage Limited expansion in global arable land Increased productivity would be best way forwardSource: USDA, UNEP, WRI, Macquarie Research, June 2011 Page 7
  8. 8. La Niña is fading away now – which means weather should finally “normalise”Source: IRI, Macquarie Research, June 2011 Page 8
  9. 9. ... But losses in production have caused stocks to fall relative to global consumption Stocks-to-use ratio % for the main commoditiesSource: USDA, Macquarie Research, June 2011 Page 9
  10. 10. CoffeePage 10
  11. 11. Coffee futures hit 34-year highs due to extremely tight inventories NY arabica reached historical Global arabica in defict this season highsSource: Bloomberg, Macquarie Research, June 2011 Page 11
  12. 12. Cash prices have risen even more than futures - signalling tight physical availability Premium of mild arabica coffee is up Physical cash prices have been soaring The major producers of quality arabica are struggling to expand supplySource: ICO, Macquarie Research, July 2011 Page 12
  13. 13. Relative scarcity of quality coffee has led to sharp drawdowns in stocks globally Main coffee producers: there is a lack of premium World origin and consumer stocks arabicas Certified Arabica stocks also downSource: ICE, ICO, Macquarie Research, April 2011 Page 13
  14. 14. Brazil’s rising internal demand, appreciating currency and the 2011/12 “off year” = bullish A huge Brazilian crop due, but next Strengthening BRL currency means year is an “off” year higher coffee price requiredSource: ICO, trade data, Macquarie Research, July 2011 Page 14
  15. 15. The robusta market also tight on rising demand & low Vietnam/Indonesian supplies, but EU stocks are high Robustas are still at a significant discount to arabicas Global demand for robusta growing rapidly Potential for robusta to tighten next seasonSource: Trade sources, ICO, Macquarie Research, March 2011 Page 15
  16. 16. Coffee demand remains highly inelastic: if anything we see growth in emerging markets Stable coffee demand growth Per capita consumption of coffeeSource: ICO, Macquarie Research, July 2011 Page 16
  17. 17. Coffee fundamentals and price outlookSource: ICO, NKG Stats, Macquarie Research, July 2011 Page 17
  18. 18. Brazil: The Present Has ArrivedBUT WHAT ABOUT THE FUTURE? Page 18
  19. 19. Brazil’s Future is bright no matter what mix of policies of the next administration  resident Dilma will follow a mix from two sets of policies. P  he difference is degree of one set over the other. T  he Brazilian polity and the political elite have shown good judgment and T prudence when making policy choices. f monetary policy does most of the work, expect continued nominal and real I appreciation of the BRL, higher interest rates and slower growth. f fiscal policy does more of the work, expect a less strong real, lower interest I rates, and higher growth. Page 19
  20. 20. BRAZIL: REAL GDP GROWTH VERSUS REAL INTEREST RATESSource: Banco Central do Brasil, IBGE, Macquarie Capital (USA), September 2011 Page 20
  21. 21. Economic Growth Recovers Rapidly BUT DEMAND GROWTH IS OUTSTRIPPING SUPPLY BY A WIDE MARGINSource: Banco Central do Brasil, IBGE, Macquarie Capital (USA), September 2011 Page 21
  22. 22. To grow above 4%, Brazil needs investment rates greater than 20%. Source: Banco Central do Brasil, IBGE, Macquarie Capital (USA), September 2011 Page 22
  23. 23. Economic Growth Recovers Rapidly BUT DEMAND GROWTH IS OUTSTRIPPING SUPPLY BY A WIDE MARGINSource: Banco Central do Brasil, IBGE, Macquarie Capital (USA), September 2011 Page 23
  24. 24. BRAZIL: COMBINED IPCA/IPCA-15 AND CORE INFLATION (% YoY)Source: Banco Central do Brasil, IBGE, Macquarie Capital (USA), September 2011 Page 24
  25. 25. THE SELIC TARGET RATE IS STILL TOO LOW EVEN UNDER OPTIMISTIC TAYLOR RULES,BCB STILLNEEDS TO TIGHTENSource: Banco Central do Brasil, IBGE, Macquarie Capital (USA), September 2011 Page 25
  26. 26. HIGH MONEY GROWTH IN LOCKSTEP WITH CREDIT GROWTHSource: Banco Central do Brasil, IBGE, Macquarie Capital (USA), September 2011 Page 26
  27. 27. THE AVERAGE BASE RATE IS TOO LOW: THE BCB OR THE BNDES NEED TO RAISERATESSource: Banco Central do Brasil, IBGE, Macquarie Capital (USA), September 2011 Page 27
  28. 28. FISCAL POLICY HAS EASED…HIGHER PRIMARY SURPLUSES, LOWER REAL INTERESTRATESSource: Banco Central do Brasil, IBGE, Macquarie Capital (USA), September 2011 Page 28
  29. 29. Economic Growth Recovers Rapidly AND PERHAPS OVERVALUEDSource: Banco Central do Brasil, IBGE, Macquarie Capital (USA), September 2011 Page 29
  30. 30. BRAZIL’S TERMS OF TRADE HAS SHOT UPWARD MASSIVELYSource: Banco Central do Brasil, IBGE, Macquarie Capital (USA), September 2011 Page 30
  31. 31. PUSHING THE REAL EXCHANGE RATE STRONGERSource: Banco Central do Brasil, IBGE, Macquarie Capital (USA), September 2011 Page 31
  32. 32. WE EXPECT A SLOW RISE IN USD/BRLSource: Banco Central do Brasil, IBGE, Macquarie Capital (USA), September 2011 Page 32
  33. 33. BRAZIL’S POLICYMAKERS FACE SIGNIFICANT CHALLENGES:   eal appreciation with further monetization by the United States and Japan and perhaps R Europe.   xpanding current account deficits. E   iscal numbers weaker despite creative accounting and one-off revenue flows. F   mproved but still poor social security and other indicators. I   ow savings rates. L   ow although increasing private investment rates. L   ow public investment rates. L Page 33
  34. 34. Colombia: Good Start for SantosWhy doesn’t Colombia grow more? Page 34
  35. 35. Colombia: President Santos’ Good Start  resident Juan Manuel Santos’ first year was very productive despite sending a barrage of P reform initiatives to congress.  ongress is on its way to passing constitutional amendments on royalties and fiscal C sustainability.  he Colombian economy is rebounding strongly with growth ending 2010 at 4.5% and T forecast to accelerate to above 5% in 2011.  nflation has rebounded along with this growth reaching 3.24% YoY in June 2011and should I peak at 3.6% in 4Q 2011.  ANREP has tightened monetary policy but has now paused the intervention rate at 4.5%. B We expect the rate to end 2011 at 5%.  he US Congress finally looks like it will ratify the free trade agreement with Colombia. T  rospects for Colombias future look good. P Page 35
  36. 36. Colombia: Economy ReboundsSource: Bloomberg, Macquarie Capital (USA), September 2011 Page 36
  37. 37. Colombia: Economy Rebounds BUT DEMAND GROWTH IS FASTER THAN SUPPLYSource: Bloomberg, Macquarie Capital (USA), September 2011 Page 37
  38. 38. INFLATION IS ALSO REBOUNDING BUT AT A MODERATE PACESource: Bloomberg, Macquarie Capital (USA), September 2011 Page 38
  39. 39. Colombia: Numbers and Forecasts Source: INDEC, Bloomberg, Macquarie Capital (USA), September 2011 Page 39
  40. 40. Colombia: Numbers and Forecasts con’t Source: INDEC, Bloomberg, Macquarie Capital (USA), September 2011 Page 40
  41. 41. Mexico: Coming Out of the MalaiseWorries from the northern neighbor Page 41
  42. 42. Mexico: Beat Up But Better  he Mexican economy was hit very hard by the US into recession falling 6.5% in 2009. T  he recovery is slowly moving from one based upon manufacturing and exports to services T and internal demand.  exican GDP is recovering and we expect growth for 2011at 4.9% and 4.5% in 2012. M  he well capitalized banking system helped Mexico weather the massive negative shock of T the US financial collapse.  he government allowed the fiscal deficit to widen but should have it back under 1% of T GDP by 2012.  anxico should keep monetary policy on hold until 4Q 2011 and will start despite the US B Fed keeping interest rates near 0%. Page 42
  43. 43. Mexican industry is recovering with the USSource: INEGI, Bloomberg, Macquarie Capital (USA), September 2011 Page 43
  44. 44. And Mexican GDP has now a corresponding common cycle with US GDP Source: INEGI, Raul Feliz, Bloomberg, Macquarie Capital (USA), September 2011 Page 44
  45. 45. We expect reasonable and steady economic growth for MexicoSource: INEGI, Macquarie Capital (USA), September 2011 Page 45
  46. 46. The Real MXN has recovered but still above the levels of before the financial crisis. Source: Banxico, Bloomberg, Macquarie Capital (USA), September 2011 Page 46
  47. 47. The output gap is closing but more slowly in the last few months Source: Raul Feliz, Banxico, Bloomberg, Macquarie Capital (USA), September 2011 Page 47
  48. 48. A Taylor rule has Banxico raising the fondeo rate now but expect only in 2012Source: Raul Feliz, Banxico, Bloomberg, Macquarie Capital (USA), September 2011 Page 48
  49. 49. Inflation remains well behaved and monetary policy on hold until 2012 Source: Raul Feliz, Banxico, Bloomberg, Macquarie Capital (USA), September 2011 Page 49
  50. 50. Mexico: Getting Better  exico grew more than 5% in 2010 and will slow down to a reasonable 3.8% in 2011. M  nflation is well behaved but a closing output gap and maize price shocks will lead Banxico I to start raising the fondeo rate in 1Q 2012.  he recovery along with continued loose US monetary will put continuous downward T pressure on USD/MXN.  iscal policy is slowly tightening from a mild expansion. F  olitical jockeying around the 2012 presidential election has already started, with the P possibility of strange coalitions forming over the next 12 months. Page 50
  51. 51. Mexico Numbers and Forecasts Source: Banxico, INEGI, Bloomberg, Macquarie Capital (USA), September 2011 Page 51
  52. 52. Mexico Numbers and Forecasts, con’t Source: Banxico, INEGI, Bloomberg, Macquarie Capital (USA), September 2011 Page 52
  53. 53. Central America: Growing But VulnerableInflation in Costa Rica, Elections in El Salvador, and Guatemala Page 53
  54. 54. Costa Rica: Vulnerable Stability With Central American growth at 4%, Costa Rica is set to grow at 4.2% in 2011 and 4.1% in 2012. Inflation remains relatively high at just above 6% annualized. We expect the current monetary tightening to continue through 2012, which should continue to exert downward pressure on the USD/CDC, at least in real terms. The government’s fiscal stance continues loose and the government faces significant opposition implementing a fiscal reform any time soon. The current account deficit is set to expand with the expansion of the economy and the strengthening of the currency. Tourism has recovered and traditional exports (e.g. coffee) are currently growing at 11%, mostly because of the continued rise in prices with coffee the most important. The twin deficits represent the main sources of vulnerability to the Costa Rican economy. Page 54
  55. 55. Costa Rica Numbers and ForecastsSource: Global Source, Banco Central de Costa Rica, Bloomberg, Macquarie Capital (USA), September 2011 Page 55
  56. 56. Costa Rica Numbers and Forecasts, con’tSource: Global Source, Banco Central de Costa Rica, Bloomberg, Macquarie Capital (USA), September 2011 Page 56
  57. 57. El Salvador: Overdone Negativity  ost Wall Street analysts continue with a negative outlook for El Salvador. We are not quite so M negative. Some of this negativity comes from El Salvadors slow growth rate.  ith Central American growth at 4%, El Salvador will once again underperform the region with W growth at 1.7%.  nflation is running above 6% annualized and should end the year close to 7% as electricity prices I are poised to increase.  he government is currently pushing to bring down the fiscal deficit under the auspices of an IMF T program. So far the government has outperformed its IMF targets and has not yet drawn on the SBA credit line and intends to keep it as precautionary.  xports have rebounded sharply, running at a rate of 25% (May). The current account deficit is E expanding, mainly financed by remittances. Page 57
  58. 58. Guatemala: Elections and good export performance  residential elections on 11 September 2011 and retired general Otto Pérez Molina looks to win. P  ith Central American growth at 4%, Guatemala is currently growing at just above 3% annualized W and should end 2011 just below that.  xports are currently the main source of growth, increasing 27% YoY in May. E  he current account deficit is expanding, mainly financed by remittances. T  he government’s fiscal stance is improving based mainly on 19% growth in revenues. The fiscal T deficit should end 2011 at 3% of GDP. The government completed an agreement with the IMF and might renew it after the election.  nflation is currently running at 6.4%, above the 4%-6% target range of the Banco Central de I Guatemala (Banguat). Page 58
  59. 59. Indonesia and Vietnam:Strong Growth and Inflation Page 59
  60. 60. Vietnam: in a tight spot between inflation and growth nflation remains strongly elevated, at over 23% YoY, with much of this supply- I driven. This trend should continue for the remainder of 2011 with key hard and soft commodity prices remaining elevated.  he slowdown in global trade (particularly manufacturing) will also adversely impact T the Vietnamese economy. We expect ~6% growth in 2011, compared to 6.8% in 2010.  he combination of higher interest rates in 1H11 and higher inflation will likely weigh T on private consumption and investment.  ut policymakers remain focused on growth, with the State Bank of Vietnam B announcing a surprise 100bp repo rate cut in July following aggressive rate hikes in 1H11. Page 60
  61. 61. Indonesia: robust growth, and inflation concerns are manageable for now  obust domestic consumption and ongoing fixed R investment should remain the key drivers of Inflation above-trend (~6.5%) growth in 2011.  eadline inflation has dipped below 5% due to H food and fuel subsidies, and tolerance of a significant appreciation in the rupiah. However, core inflation remains elevated.  ank Indonesia has lagged global peers in B tightening monetary policy, but will likely leave rates on hold until year-end. n a nod to ongoing investor support, Indonesian I asset markets continue to perform strongly. While the key stock index fell ~8% in August following global jitters, it is still averaging 22% higher than 2010.  tructural economic reform remains a long-term S challenge Source: Datastream, Macquarie Research, September 2011 Page 61
  62. 62. The numbers Indonesia Vietnam 2009 2010 2011F 2012F 2009 2010 2011F 2012FGDP 4.6 6.1 6.4 6.4 GDP 5.3 6.8 6.1 6.5Household consumption 4.9 4.6 5.1 5.3 Household 3.7 7.0 2.8 5.4 consumptionGross fixed investment 3.3 8.5 9.3 10.4 Gross fixed investment 8.7 8.5 5.1 7.2Industrial production 2.2 4.5 4.9 4.8 Industrial production 7.6 14.0 14.0 15.5CPI 4.8 5.1 5.7 5.9 CPI 7.0 8.9 17.4 10.1Policy rate (yr end) 6.50 6.50 6.75 7.25 USD/VND (yr end) 17941 19498 21043 21586USD/IDR (yr avg) 10357 9101 8600 8400Source: Datastream, Macquarie Capital (USA), September 2011 Page 62
  63. 63. COFFEE EXPORTERS PERFORMING SIMILARLY   rice increase in primary commodities, especially coffee, continues to power P terms of trade improvement, higher economic growth, and strong capital inflows.   tronger currencies and expanding current account deficits have S accompanied this growth.   apital flows to these countries. C   olicy makers are struggling to tighten fiscal and monetary policies to soften P the appreciation and the inflation impact of these favorable winds. Improved but still poor social security and other indicators. Page 63
  64. 64. Important disclosures: Recommendation definitions Volatility index definition* Financial definitions Macquarie - Australia/New Zealand All "Adjusted" data items have had the following This is calculated from the volatility of historic price adjustments made: Outperform – return > 3% in excess of benchmark return movements. Neutral – return within 3% of benchmark return Added back: goodwill amortisation, provision for Underperform – return > 3% below benchmark return catastrophe reserves, IFRS derivatives & hedging, IFRS Very high–highest risk – Stock should be expected to impairments & IFRS interest expense move up or down 60-100% in a year – investors should Excluded: non recurring items, asset revals, property Benchmark return is determined by long term nominal GDP growth be aware this stock is highly speculative. revals, appraisal value uplift, preference dividends & plus 12 month forward market dividend yield Macquarie – Asia/Europe High – stock should be expected to move up or down minority interests at least 40-60% in a year – investors should be aware Outperform – expected return >+10% EPS = adjusted net profit /efpowa* this stock could be speculative. Neutral – expected return from -10% to +10% ROA = adjusted ebit / average total assets Underperform – expected <-10% Medium – stock should be expected to move up or ROA Banks/Insurance = adjusted net profit /average total down at least 30-40% in a year. assets Macquarie First South - South Africa ROE = adjusted net profit / average shareholders funds Low–medium – stock should be expected to move up Outperform – return > 10% in excess of benchmark return or down at least 25-30% in a year. Gross cashflow = adjusted net profit + depreciation Neutral – return within 10% of benchmark return *equivalent fully paid ordinary weighted average number of Low – stock should be expected to move up or down shares Underperform – return > 10% below benchmark return at least 15-25% in a year. Macquarie - Canada All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Outperform – return > 5% in excess of benchmark return • Applicable to Australian/NZ stocks only Reporting Standards). Neutral – return within 5% of benchmark return Underperform – return > 5% below benchmark return Recommendation – 12 months Macquarie - USA Note: Quant recommendations may differ from Outperform – return > 5% in excess of benchmark return Fundamental Analyst recommendations Neutral – return within 5% of benchmark return Underperform – return > 5% below benchmark return Recommendation proportions – For quarter ending 30 June 2011 AU/NZ Asia RSA USA CA EUR Outperform 50.37% 64.60% 64.62% 45.63% 67.74% 48.02% (for US coverage by MCUSA, 12.44% of stocks covered are investment banking clients) Neutral 36.86% 21.22% 29.23% 51.30% 28.50% 38.42% (for US coverage by MCUSA, 12.95% of stocks covered are investment banking clients) Underperform 12.77% 14.18% 6.15% 3.07% 3.76% 13.56% (for US coverage by MCUSA, 0.00% of stocks covered are investment banking clients) Page 64
  65. 65. Company Specific Disclosures:Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures.Analyst Certification:The views expressed in this research accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of theanalyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. 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