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PERU CAPITAL MARKETS DAY - BRADESCO - 2013
The document discusses opportunities in Latin American and emerging markets. It notes that recent adjustments in currencies and stock prices are healthy and help avoid distortions. While markets have adjusted, Latin America's economic fundamentals remain strong, with young populations, low inflation, moderate growth, and manageable debt levels. The diversity of industries in Latin America like commodities, manufacturing and services provides opportunities for investment.
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PERU CAPITAL MARKETS DAY - BRADESCO - 2013
- 1. LATAM and EMERGINGMARKETS, opportunities in changing times JOAQUIM LEVY Lima - September, 2013
- 2. 2 Chile Colômbia Áfricado Sul México Brasil Turquia Índia Indonésia -20.00% -15.00% -10.00% -5.00% 0.00% 5.00% 10.00% 0 12 3 4 5 6 7 VariaçãodasBolsas Moedas e Bolsas dos países emergentes (base 31/dez/12 =100) Peso Chileno Peso Colombia Zar Africa do Sul Peso México Real Brasil LiraTurquia Rupia IndiaRupia Indonesia 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 0 1 2 3 4 5 6 7 DesvalorizaçãodasMoedas Déficit em Conta Corrente (% PIB) Currencies and Equity Indexes* – Jan-Sept 2013 Current Account Deficit (% GDP) * Equity indexes in local currency soles Peru Latam x Other Emerging: currency more stable more adjustment in equities C u r r e n c y d e p r e c I a T i o n E q u e i t i e s A d j u s t m e n t 201 3: a year of transition, with impact on emerging markets
- 3. 3 So… should webe very worried about Latam or Brazil?
- 4. 4 Fund Forum Latam November2012 The Global Crisis and Latin America Outperformance or Short-Lived Decoupling? Economic Outlook:How Is Latin American Region Facing In the Global Context and How Much Has the Euro and US Crisis Impacted the Regional Outlook? Fernando Honorato Barbosa Chief Economist Executive General Manager Not so much… if we anticipate and understand the markets BRAM presentation and cover of a major business newspaper in Brazil… a year ago! Swings in prices are natural in public markets and in funds with daily NAV – it may be the cost of transparency
- 5. 5 Realignment affected allasset prices AUS INDTRK
- 6. 6 Market performance ofLATAM provides cushions for the economy Stock Exchange Market Cap 30/08/13 (USD Mn) Dec-07 Jan-03 Dec-07 Jan-03 Dec-07 Jan-03 Brazil 920.625 -41,6% 235,2% -25,4% 20,2% -34,2% 370,3% Mexico 474.960 9,3% 304,6% -18,5% -17,7% 19,2% 260,5% Chile 272.244 24,7% 196,5% -2,4% 22,7% 30,8% 235,2% Colombia 222.947 69,3% 1018,3% 4,4% 49,0% 146,1% 2337,9% Peru 78.716 1,5% 877,1% 6,7% 23,6% -2,0% 382,9% Russia 541.740 -46,9% 161,8% -26,1% -10,1% -64,2% 145,6% South Africa 441.435 -2,5% 190,6% -33,2% -32,9% -3,2% 195,0% Turkey 232.490 -30,9% 208,4% -42,6% -27,2% -17,5% 322,5% Poland 178.984 -33,5% 195,4% -23,9% 25,0% -14,1% 430,1% Bulgaria 5.611 -77,3% 11,3% -9,6% 13,3% -70,1% 495,9% Hong Kong 3.229.861 -21,4% 78,6% 0,6% 0,1% -9,1% 260,0% China 3.159.983 -52,5% 110,6% 19,3% 35,2% -17,9% 686,4% Australia 1.264.070 -18,6% 95,5% 1,7% 25,6% -10,6% 154,6% India 905.279 -45,7% 157,9% -40,0% -31,0% -50,1% 313,6% Taiwan 846.714 2,1% 50,6% 8,4% 13,5% 20,8% 108,6% Indonesia 361.652 27,1% 403,8% -16,0% -24,0% 76,6% 654,4% Philippines 203.601 55,5% 439,9% -7,5% 24,3% 99,7% 810,1% (*) (-) depreciation / (+) appreciation Source: Bloomberg Asia Equity Index (in USD) Market CapCurrency Value (in USD)* Change in Latam CEEMEA Recent adjustments are healthy and help avoid the building up of distortions
- 7. 7 Indonésia Peru Philipines “Frontier” markets rosemore than more mature ones in the wake of QE1&2 Stock Exchange indexes 2000-2013
- 8. 8 Source: Bloomberg, JPMorgan When bonds adjust, those with higher yields may recover quicker CEMBI investment grade yields by region (%)USD performance against major currencies(ytd) CEMBI EMBI Corporate Sovereign South Africa 45,52% 48,94% Latin America 44,51% 51,16% Asia 57,60% 48,73% EMEurope 61,38% 50,22% Treasury (7-10y) 54,00% Bonds’ Performance 2007-2013 Latam
- 9. 9 Source: JP MorganCEMBI, as of 30th August, 2013 Latam USD Bonds have deep markets and comprise strong companies USD bn Market Cap 20% 15% 11% 8% 6% 5% 5% 3% 3% 3% 21% 4.6 4.2 5.2 3.8 6.4 5.9 5.5 6.6 6.1 7.3 6.5 $17 $18 $23 $33 $33 $42 $54 $76 $100 $136 0 20 40 60 80 100 120 140 160 Others Singapore Qatar UAE Korea India Mexico Hong Kong China Russia Brazil Top 10 Africa Asia Europe Latin America Middle East % TotalAvg Yield %
- 10. 1010 US recovery: theengine beneath the changes in market conditions 50.0 50.8 55.7 47.0 49.0 51.0 53.0 55.0 57.0 59.0 61.0 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 PMI: Desenvolvidos, Emergentes e EUA Emergentes Desenvolvidos ex EUA EUA 3.8% 3.3% 2.8% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 2000Q1 2001Q1 2002Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 % aa Simulações - Treasury 10 anos PIB = 3,0% PIB = 2,0% PIB = 1,0% Projeção 10y US Treasury Yields PMI US, Developed & Emerging 135.7 146.1 138.0 144.3 123 128 133 138 143 148 jan-01 jan-02 jan-03 jan-04 jan-05 jan-06 jan-07 jan-08 jan-09 jan-10 jan-11 jan-12 jan-13 Pessoal Ocupado (milhões - dessazonalizado) Fonte: Bloomberg 3500 4500 5500 6500 7500 8500 9500 10500 11500 mar-94 set-94 mar-95 set-95 mar-96 set-96 mar-97 set-97 mar-98 set-98 mar-99 set-99 mar-00 set-00 mar-01 set-01 mar-02 set-02 mar-03 set-03 mar-04 set-04 mar-05 set-05 mar-06 set-06 mar-07 set-07 mar-08 set-08 mar-09 set-09 mar-10 set-10 mar-11 set-11 mar-12 set-12 mar-13 EUA: Produção e Importação de Petróleo (Barris/Dia) Produção Importação Million of Jobs in the US Oil production and imports
- 11. 1111 How does LATAMfare against other emerging markets? Median Age Population (2010) Fiscal Deficit (% GDP) - 2012 Current Account (% GDP) - Latest Data GDP (%) - 2012 GDP (%) - 2013 CPI (%) - Latest Data Benchmark Interest Rates - Latest Data Government Expenditures (% GDP) - 2012 Brazil 29,8 -2,2 -3,2 0,9 2,3 6,1 9,0 38,6 Colombia 28,6 -1,9 -3,5 4,0 4,1 2,3 3,3 18,0 Chile 33,0 0,6 -4,0 5,6 4,4 2,2 5,0 21,4 Mexico 27,7 -2,4 -1,3 3,9 2,3 3,5 3,8 20,0 Peru 26,7 1,9 -3,5 6,3 5,5 3,3 4,3 19,7 China 36,3 -1,8 2,4 7,8 7,5 2,6 6,0 24,4 India 26,7 -7,2 -5,1 5,0 5,1 9,5 7,5 28,3 Indonesia 28,9 -1,8 -3,3 6,2 5,8 8,8 7,3 18,0 Poland 39,1 -3,9 -2,8 1,9 1,1 1,1 2,5 42,3 Russia 38,8 0,4 3,0 3,4 2,3 6,5 8,3 36,5 Turkey 29,2 -2,0 -6,6 2,2 3,6 8,2 4,5 39,2 South Africa 25,5 -4,9 -6,5 2,5 2,2 6,4 5,0 38,5 Sources: The Economist, Bloomberg, S&P * * * * LATAM stands out for: Young population Good Fiscal Low inflation Current Account in line Moderate Growth Small public sector
- 12. 1212 Debt in LATAMis as good as elsewhere (or better) * * * * * Colombia Mexico Brazil Peru Chile Turkey Russia S. Africa Poland Indonesia Índia China Rating (S&P) BBB BBB BBB BBB+ AA- BB+ BBB BBB A- BB+ BBB- AA- Public Sector Ext. Debt / GDP 12,6 10,7 5,0 13,2 9,4 13,1 13,5 18,7 30,3 14,4 6,1 - Public Sector Ext. Debt / Reserves 132,9 82,0 29,9 43,1 59,9 104,9 57,8 174,0 155,4 111,8 43,8 - External Debt (% Reserves) 225,2 227,1 121,7 95,7 279,8 342,8 133,5 333,9 363,0 222,7 148,1 22,3 External Debt (% GDP) 21,3 29,6 20,4 29,3 43,9 42,7 31,0 35,8 70,8 28,6 20,6 9,0 Short-Term Ext. Debt (% of total ext. debt) 14,2 21,0 7,4 14,6 19,4 29,3 13,0 20,3 19,2 17,8 23,5 73,4 Govt Debt (% GDP) 32,2 28,7 58,7 19,8 11,9 36,1 10,8 40,1 55,6 23,6 68,3 29,4 Sources: S&P and Moody's (2012) Latam CEEMEA Ásia 12
- 13. 13 Brasil 50-60% México 20%-24% Chile8-12% Peru 2-5% Panamá 0-2% Colômbia 2-6% Typical allocation of BRAM’s LATAM Equities Fund (underweight Brazil vis-a-vis MSCI) Latam: diversity in commodities, manufacturing and services sectors Pacific Alliance/MILA and BRAIN can help providing liquidity and a common platform, ATTRACTING TRADING TO THE REGION A “LATAM passport” would help balance market weights across the region Democracy and Commitment to the Market are transforming the Region Correlation of Stock Prices 2003-2013 0,70 0,80 0,90 1,00 MEX COL CHL BRZ Brazil Peru
- 14. 14 Conventional Perception Reality ACommodity-based Economy Service-based Economy Highly dependent on Exports to China Exports are 12.5% of GDP, and exports to China account for 18% of exports (< 2.5% of GDP) Fiscal fragility Primary surplus, total public debt < 60% of GDP (including subnational debt), international reserves of US$300+ billion Credit / Property Bubble Total bank credit/GDP of 52% x 100%+ in OECD countries NPLs at 7% for households and 4% for Corporates. Stock of mortgage loans < 5 % of GDP Banks’ external liabilities account for 6% of GDP Low-investment country Above-average investment in machinery & equipment, a gap in infra-structure and housing, being filled by the private sector through concessions and more corporate bonds (“12.431”) Lack of Savings First-rate Pension Plans and individual savings schemes (PGBL) Negative Sentiment towards Emerging Markets Overall improved sentiment towards global equities can offer attractive buy opportunities Brazil from the perspective of a USD 120+ billion AUM Asset Manager
- 15. 15 A sample ofBrazilian Pension Funds
- 16. 16 A broad universethat offers growth and defensive stock picking opportunities. P/E Growth EPS 2013 2014 2013 2014 BRAM Coverage universe 15.0 13.6 12% 14% Mid & Small Cap* 19.1 15.3 28% 21% Relevant Market Domestic Foreign Suzano Cellulose yes TIM Telco yes Anhanguera Education yes Gerdau Steel yes yes Cosan Energy yes yes Mills Engineering yes BB Seguridade Financials yes Hypermarcas Retail/Pharma yes Marcopolo Mechanical yes yes Embraer Aerospace yes yes Sector Brazil from the perspective of a Mid-Small equities portfolio Diversification Typical Holdings of Mid-Small Fund Potential gains from market consolidation Sector Rank Market Share % Brazil USA Healthcare Plans Top 10 33 56 Shopping Malls Top 3 22 56 Supermarkets Top 5 36 62 Commercial Properties Top 10 9 n/a Car Rental Top 4 30 94 Private Education Top 3 22 n/a Market share of top Brazil and US companies Potential upside from “technical” pressure
- 17. 17 1.8 1.6 1.5 1.9 1.7 1.4 2.6 2.0 1.3 1.2 0.0 0.5 1.0 1.5 2.0 2.5 3.0 2004 20052006 2007 2008 2009 2010 2011 2012 2013E Job Creation (Million) Brazil from the perspective of the streets 0 50 100 150 200 250 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 IBOV AEDU 30,000 20,428 14,000 6,500 3,840 3,529 2,556 2,479 2,245 2,149 445 China USA India Brazil Japan Turkey Germany UK France Poland Belgium Students in College (in 1000s) Anhanguera’s stock x Ibovespa (2011-13) Million new (formal) jobs
- 18. 18 Thank you ! ThankYou Gracias Bradesco é presença