Balazs Magyar


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TBLI CONFERENCE™ EUROPE 2012 - Zurich - Switzerland

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Balazs Magyar

  1. 1. Sustainability and Performance of Sovereign BondsBalazs Magyar, Bank SarasinTBLI Conference™ EuropeNovember 2012Sustainable Swiss Private Banking since 1841.
  2. 2. Agenda Sustainable investment at Bank Sarasin Sustainability rating of sovereign bonds Effects of sustainability on performance 2
  3. 3. Our Bank – Facts at a glance  Leading Swiss private bank – founded in 1841.  Investment advice and asset management for private and institutional clients as our core business.  Active asset management with a sustainable investment philosophy based on more than 20 years of experience and an integrated approach based on the analysis of financial, social and ecological opportunities and risks.  Represented world wide at more than 20 locations in Switzerland, Europe, the Middle East and Asia. 3
  4. 4. Sustainable Investment at Bank Sarasin – Significant Resources & Experience Sustainability research since 1989 Continuous build-up of staff Very low fluctuation Responsible for CHF 12,7 billion / EUR 10,5 billion assetsNumber of employees working in sustainable investment The team:  74 employees  30 portfolio manager  10 sustainability analysts On average:  40 years of age  15 years of work experienceSource: Bank Sarasin, as at 30.06.2012 4
  5. 5. Agenda Sustainable investment at Bank Sarasin Sustainability rating of sovereign bonds Effects of sustainability on performance 5
  6. 6. Sovereign BondsDebt repayment requires sustainable tax revenues one-off payment government spending today Economic Investor Government Activities interest and principal payments tax revenue in the future 6
  7. 7. Economic ActivitiesSustainable tax revenues require sustainable economic activities Transformation efficiency (Limited) Economic Quality Resources system of life Process efficiency 7
  8. 8. Sustainability Rating of Sovereign BondsAssessment of emerging and developed countries on the basis of the same indicators: Sarasin Sustainability-Matrix® Over 150 countries About 50 indicators in the fields of: Resource efficiency – Environment Investment – Economy universe – Social Focus of analysis: – Availability of resources • mainly natural resources • but also human and financial res. Availability of resources – Efficiency • in transforming resources into quality of life • of the economic, political and social processes 8
  9. 9. Availability of Resources – Horizontal AxisEnvironment high Biocapacity (absolute and relative to Resource efficiency the Ecological Footprint of production) Nuclear power not covered directly by Water scarcity the Ecological Footprint Biodiversity low Climate change risks low high (extreme weather events, agriculture, sea level rise) Availability of resourcesSociety & economy Demography Wealth (tangible and intangible capital) Public debt Net foreign assets 9
  10. 10. Availability of Resources – Global BiocapacityNatural resources are being overused Ecological deficitSource: Global Footprint Network, WWF 10
  11. 11. Availability of Resources – National BiocapacityMost of the developed countries have an ecological deficit* Reserve 59.5 15 Global hectares per person 10 Switzerland Germany Greece Ireland Poland 5 Japan Spain China Qatar USA UK 0 Guyana Australia Brazil Russia -5 -10 -15 2005 2007 DeficitSource: Global Footprint Network, Sarasin * Biocapacity minus Ecological Footprint 11
  12. 12. Availability of Resources – Demographic ChangeHuman resources might also become scarce 110 2050 100 90 Germany Age (5-year groups) Japan 80 70 China 60 50 40 South Africa solid lines: 30 WPP 2010 edition 20 dashed lines: 10 WPP 2008 edition USA Optimum 0 0% 2% 4% 6% 8% 10%Source: United Nations, Sarasin Share of population 12
  13. 13. Availability of Resources – Demographic Change (PIIGS)Human resources might also become scarce 110 2050 100 90 Age (5-year groups) 80 70 60 50 40 30 Portugal 20 Ireland solid lines: 10 WPP 2010 edition Italy Greece Optimum 0 Spain 0% 2% 4% 6% 8% 10%Source: United Nations, Sarasin Share of population 13
  14. 14. Availability of Resources – Debt LevelsDebt levels are rising in many countries 250 Public debt (gross, % of GDP) 200 Japan 150 Greece Jamaica Italy 100 USA Portugal Germany UK Ireland 50 NL Brazil Spain Switzerland Norway Sweden Qatar China Australia 0 Russia -150 -100 -50 0 50 100 150 Foreign debt (net, % of GDP) Empty dots represent 2008 levels,Source: IMF, OECD, CIA, Sarasin filled dots represent 2011 levels. 14
  15. 15. Resource Efficiency – Vertical AxisTransformation efficiency Resource efficiency high Quality of life – Material well-being (GDP) – Education deviation from the norm – Health Resource consumption – Ecological Footprint of consumption low – Nuclear power low high Availability of resources – Water consumptionProcess efficiency Economic structure (industrial heterogeneity, inflation, adj. savings, etc.) Governance (political stability, corruption, etc.) Social conditions (income equality, gender empowerment, etc.) 15
  16. 16. Resource Efficiency – Transformation Efficiency 100% Norway Switzerland Ireland USA Japan Germany Australia 80% UK Spain Italy Greece Cyprus Quality of life 60% Poland Portugal Peru Brazil Russia 40% China South Africa 20% Sudan Congo (Dem.) Niger 0% 0% 20% 40% 60% 80% 100%Source: Sarasin Resource consumption Empty dots represent 2006 levels, filled dots represent 2008 levels. 16
  17. 17. Resource Efficiency – Process Efficiency 100% Social In % of the highest rating Governmental 80% Economic 60% 40% 20% 0% Italy Japan Australia Norway Switzerland Ireland China Russia Zimbabwe Greece USA South Africa Germany UK Poland Brazil Empty bars represent 2008 levels,Source: Sarasin filled bars represent 2011 levels. 17
  18. 18. Final Sustainability Ratings in Comparison to Credit Ratings high Netherlands Sweden Japan Germany Switzerland Credit rating*: Resource efficiency UK Peru Australia AAA Poland Brazil AA China A Spain BBB Greece BB and lower South Africa USA risk of credit downgrades Russia in the low long run low high Availability of resources* Lowest assessment of the rating agencies Moody’s, Standard & Poors and Fitch for long-term foreign-currency bonds as of March 18, 2010. 18
  19. 19. Agenda Sustainable investment at Bank Sarasin Sustainability rating of sovereign bonds Effects of sustainability on performance 19
  20. 20. Sustainability Ratings as an Indication for Changes to Credit Ratings?Source: Moody’s, Standard & Poor’s, Fitch, Sarasin Period: 31.12.2009 - 30.06.2011 20
  21. 21. Sustainability Ratings as an Indication for Changes to Credit Ratings?Source: Moody’s, Standard & Poor’s, Fitch, Sarasin Period: 31.12.2009 - 31.10.2012 21
  22. 22. Sustainability and Performance – Developed and Emerging Markets Citigroup World Government Bond Index JPMorgan Government Bond Index-EM 15 sustainable and 10 non-sustainable countries* 9 sustainable and 11 non-sustainable countries* 180 240 220Total return (indexed in USD) Total return (indexed in USD) 160 200 140 180 160 120 140 120 100 100 80 80 12/05 12/06 12/07 12/08 12/09 12/10 12/11 12/05 12/06 12/07 12/08 12/09 12/10 12/11 sustainable non-sustainable WGBI sustainable non-sustainable GBI-EM Source: Datastream, Sarasin * The actual constituents might change over time. 22
  23. 23. Sustainability Studies on Sovereign Bonds The world in a dilemma between Sustainable fulfilment of prosperity and resource protection sovereign obligationsBoth reports are available at: 23
  24. 24. Summary Update of Both Studies – Coming in January 2013 24
  25. 25. Important InformationThis publication has been prepared by Bank Sarasin & Co. Ltd, Switzerland, (hereafter “BSC”) forinformation purposes only. It contains selected information and does not purport to be complete. Thisdocument is based on publicly available information and data (“the Information”) believed to be correct,accurate and complete. BSC has not verified and is unable to guarantee the accuracy and completeness ofthe Information contained herein. Possible errors or incompleteness of the Information do not constitutelegal grounds (contractual or tacit) for liability, either with regard to direct, indirect or consequentialdamages. In particular, neither BSC nor its shareholders and employees shall be liable for the opinions,estimations and strategies contained in this document. The opinions expressed in this document, alongwith the quoted figures, data and forecasts, are subject to change without notice. A positive historicalperformance or simulation does not constitute any guarantee for a positive performance in the future.Discrepancies may emerge in respect of our own financial research or other publications of the SarasinGroup relating to the same financial instruments or issuers. It is impossible to rule out the possibility that abusiness connection may exist between a company which is the subject of research and a company withinthe Sarasin Group, from which a potential conflict of interest could result.This document does not constitute either a request or offer, solicitation or recommendation to buy or sellinvestments or other specific financial instruments, products or services. It should not be considered as asubstitute for individual advice and risk disclosure by a qualified financial, legal or tax advisor.This document is intended for persons working in countries where the Sarasin Group has a businesspresence. BSC does not accept any liability whatsoever for losses arising from the use of the Information(or parts thereof) contained in this document.© 2012 Copyright Bank Sarasin & Co. Ltd. All rights reserved. 25
  26. 26. For further information please contact usBalazs 61 277 7366Sustainable Swiss Private Banking since 1841.