PERU CAPITAL MARKETS DAY - BRADESCO - 2013
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LATAM and EMERGING MARKETS, opportunities in changing times
JOAQUIM LEVY Lima - September, 2013
2
Chile
Colômbia
África do Sul
México
Brasil
Turquia
ÍndiaIndonésia
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
0 1 2 3 4 5 6 7
Var
iaçã
o da
s Bo
lsas
Moedas e Bolsas dos países emergentes (base 31/dez/12 =100)
Peso Chileno
Peso Colombia
Zar Africa do Sul
Peso México
Real Brasil
Lira Turquia
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
Des
valo
riza
ção
das
Moe
das
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
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201 3: a year of transition, with impact on emerging markets
3
So… should we be very worried about Latam or Brazil?
4
Fund Forum Latam
November 2012
The Global Crisis and Latin AmericaOutperformance 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 BarbosaChief EconomistExecutive 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
Realignment affected all asset prices
AUS IND TRK
6
Market performance of LATAM 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
Indonésia
Peru
Philipines
“Frontier” markets rose more than more mature ones in the wake of QE1&2
Stock Exchange indexes 2000-2013
8 Source: Bloomberg, JP Morgan
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%
EM Europe 61,38% 50,22%
Treasury (7-10 y) 54,00%
Bonds’ Performance 2007-2013
Latam
9 Source: JP Morgan CEMBI, 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
% Total Avg Yield %
10 10
US recovery: the engine beneath the changes in market conditions
50.050.8
55.7
47.0
49.0
51.0
53.0
55.0
57.0
59.0
61.0
Feb-1
1
Apr-
11
Jun-1
1
Aug-1
1
Oct
-11
Dec-
11
Feb-1
2
Apr-
12
Jun-1
2
Aug-1
2
Oct
-12
Dec-
12
Feb-1
3
Apr-
13
Jun-1
3
Aug-1
3
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%
2000
Q1
2001
Q1
2002
Q1
2003
Q1
2004
Q1
2005
Q1
2006
Q1
2007
Q1
2008
Q1
2009
Q1
2010
Q1
2011
Q1
2012
Q1
2013
Q1
2014
Q1
2015
Q1
% aaSimulações - 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-0
1
jan-0
2
jan-0
3
jan-0
4
jan-0
5
jan-0
6
jan-0
7
jan-0
8
jan-0
9
jan-1
0
jan-1
1
jan-1
2
jan-1
3
Pessoal Ocupado(milhões - dessazonalizado)
Fonte: Bloomberg3500
4500
5500
6500
7500
8500
9500
10500
11500
mar-
94
set-
94
mar-
95
set-
95
mar-
96
set-
96
mar-
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set-
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mar-
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set-
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mar-
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set-
99
mar-
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set-
00
mar-
01
set-
01
mar-
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set-
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mar-
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set-
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mar-
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set-
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mar-
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set-
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mar-
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set-
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mar-
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mar-
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set-
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mar-
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set-
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mar-
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set-
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mar-
13
EUA: Produção e Importação de Petróleo(Barris/Dia)
Produção Importação
Million of Jobs in the US Oil production and imports
11 11
How does LATAM fare 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 12
Debt in LATAM is 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 / GDP12,6 10,7 5,0 13,2 9,4 13,1 13,5 18,7 30,3 14,4 6,1 -
Public Sector
Ext. Debt /
Reserves132,9 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
Brasil 50-60%
México 20%-24%
Chile 8-12%
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
Conventional Perception Reality
A Commodity-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
A sample of Brazilian Pension Funds
16
A broad universe that 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
1.8
1.6 1.5
1.9
1.7
1.4
2.6
2.0
1.31.2
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2004 2005 2006 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
Au
g-1
2
Sep
-12
Oct
-12
No
v-1
2
Dec
-12
Jan
-13
Feb
-13
Mar
-13
Apr
-13
May
-13
Jun
-13
Jul-
13
Au
g-1
3
IBOV
AEDU
30,000
20,428
14,000
6,500 3,840 3,529 2,556 2,479 2,245 2,149
445
Ch
ina
USA
Ind
ia
Bra
zil
Jap
an
Turk
ey
Ger
man
y
UK
Fran
ce
Po
lan
d
Be
lgiu
m
Students in College (in 1000s) Anhanguera’s stock x Ibovespa (2011-13)
Million new (formal) jobs
18
Thank you !
Thank You
Gracias
Bradesco é presença
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