International Fund Management / Zagreb Stock Exchange Conference - PowerPoint PPT Presentation

International Fund Management / Zagreb Stock Exchange Conference EU Equity Outlook Christian Hinterwallner, CEFA Raiffeisen RESEARCH Rovinj, 22nd October 2015 Please note the risk notifications and explanations at the end of this document

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DEVELOPED EQUITY INDICES - 2015 has been a rollercoaster ride so far 400 350 300 250 200 150 100 2009 2010 2011 2012 2013 2014 2015 S&P 500* Euro STOXX 50 FTSE 100* SMI* * in EUR, all indices rebased to 100 Source: Bloomberg, RBI/Raiffeisen RESEARCH Please note the risk notifications and explanations at the end of this document 3

CHINA: BETTER GET USED TO SLOWING GDP growth Source: Penn World Tables, IWF, RBI/Raiffeisen RESEARCH Please note the risk notifications and explanations at the end of this document 4

RISKS FROM CHINA seem manageable 35% 30% 25% 20% 15% 10% 5% 0% Luxury goods German DAX companies S&P 500 industry automotive companies industry estimated sales exposure to China* estimated eps exposure to China* * Rough estimates for 2015e Source: Company data, RBI/Raiffeisen RESEARCH Please note the risk notifications and explanations at the end of this document 5

FINANCIAL EXPOSURE TO CHINA is low* 6% 5% 4% 3% 2% 1% 0% EA DE FR IT JP US GB * Claims on Chinese counterparties of banks in quoted countries, in % of total foreign claims, 1Q 2015 Source: BIS, RBI/Raiffeisen RESEARCH Please note the risk notifications and explanations at the end of this document 6

TAILWINDS FROM LOWER COMMODITY PRICES - upside risks to growth underestimated? 5% -65% WTI in % yoy (inverted, advanced by 18m, r.h.s) 4% -35% 3% -5% 2% 25% 1% 55% 0% 85% -1% 115% G7 real GDP growth -2% 145% 1991 1994 1997 2000 2003 2006 2009 2012 2015 Source: Bloomberg, RBI/Raiffeisen RESEARCH Please note the risk notifications and explanations at the end of this document 7

FED: LOW RATES for an extraordinary length of time 200 20% Fed Labour Market Conditions Index (points, 0 = 150 18% average) 100 16% 50 14% 0 12% -50 10% -100 8% 7.50% 5,25% -150 6% 4.25% 7.31% -200 4% -250 2% Fed Funds Target Rate (r.h.s.) 0.00% - 0,25% -300 0% 1976 1980 1983 1987 1990 1994 1998 2001 2005 2008 2012 Source: Thomson Reuters, RBI/Raiffeisen RESEARCH Please note the risk notifications and explanations at the end of this document 8

DEFLATIONARY PRESSURE should force the ECB to extend QE 3.500 5.700 3.000 5.000 Euro STOXX 50 (r.h.s.) 2.500 4.300 2.000 3.600 1.500 2.900 1.000 2.200 ECB – All Assets* 0.500 1.500 2000 2002 2004 2006 2008 2010 2012 2014 * in bn EUR Source: Bloomberg, ECB, RBI/Raiffeisen RESEARCH Please note the risk notifications and explanations at the end of this document 9

EMU STOCKS - MARGINS & ROEs lagging international peers 12% 10% 8% 6% 4% 2% 0% -2% 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 DS US stock index net profit margin DS EMU stock index net profit margin DS Japanese stock index net profit margin Net profit margin = net profit / sales Source: Thomson Reuters, RBI/Raiffeisen RESEARCH Please note the risk notifications and explanations at the end of this document 10

EMU STOCKS - MARGINS & ROEs should be able to catch up in 2016 8% 60% EA: CPI minus PPI (advanced by 16m)* 6% 45% 4% 30% 2% 15% 0% 0% -2% -15% -4% -30% MSCI EMU, operating margin (in % yoy, r.h.s.) -6% -45% 1999 2001 2003 2005 2007 2009 2011 2013 2015 * Euroarea Consumer Prices minus Producer Prices, advanced by 16 months Source: Bloomberg, Eurostat, RBI/Raiffeisen RESEARCH Please note the risk notifications and explanations at the end of this document 11

EARNINGS GROWTH IN EUROZONE gathering momentum 50% MSCI EMU (price index), change in %* 40% 30% 20% 10% 0% -10% -20% -30% 2011 2012 2013 2014 2015 MSCI EMU, forward price/earnings ratio, contribution to ppt change* MSCI EMU, forward eps, contribution to ppt change* * yoy Source: Thomson Reuters, RBI/Raiffeisen RESEARCH Please note the risk notifications and explanations at the end of this document 12

DEVELOPED STOCK INDICES Key figures based on consensus estimates Div. Index level* PER Earnings growth yield 12.10.2015 2015e 2016f 2015e 2016f curr. Euro Stoxx 50 3,247 14.2 13.1 6.3% 8.2% 3.8% DAX 10,120 13.0 12.1 10.0% 7.5% 3.1% FTSE 100 6,371 15.8 14.9 -13.1% 6.4% 4.0% SMI 8,706 16.9 15.8 -4.8% 7.0% 3.3% ATX 2,358 14.3 11.5 78.4% 24.4% 4.0% S&P 500 2,017 17.3 15.8 0.5% 9.5% 2.1% Nasdaq 100 4,383 18.6 16.5 11.9% 12.9% 0.9% Nikkei 225 18,439 14.3 13.0 15.8% 10.2% 2.1% MSCI World 1,269 16.7 15.3 1.8% 9.4% 2.6% * Price of the respective bourse (in local currency) Source: Thomson Reuters, Bloomberg, RBI/Raiffeisen RESEARCH Please note the risk notifications and explanations at the end of this document 13

LONG-TERM EQUITY RETURNS OFTEN DEPEND on starting valuations 20% 0 15% 10 CAGR over 10 years* 10% 20 5% 30 0% 40 MSCI World, CAPE, inverted (r.h.s.)** -5% 50 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 * Average nominal yoy total return (before taxes), advanced by 10 years ** Cyclically adjusted price/earnings ratio (based on trailing 10 year earnings) Source: Thomson Reuters, RBI/Raiffeisen RESEARCH Please note the risk notifications and explanations at the end of this document 14

EUROPEAN STOCK MARKET offers better “value” 55 60% 50 50% CAPE MSCI USA* Valuation gap 45 40% (r.h.s.) 40 30% 35 20% 30 10% 25 0% 20 -10% 15 -20% 10 -30% CAPE MSCI Europe* 5 -40% 0 -50% 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 * Cyclically adjusted price/earnings ratio (based on trailing 10 year earnings Source: Thomson Reuters, RBI/Raiffeisen RESEARCH Please note the risk notifications and explanations at the end of this document 15

RELATIVE VALUATION Dividend yield vs. bonds yields 12 % EUR High-Yield High 25% Corporate 10 % Bond Yield High 18% 8 % 6 % 4 % 2 % EUR Investmentgrade Euro STOXX 50 Div. Yield Corporate Bond Yield 0 % 2000 2002 2005 2007 2010 2013 2015 Source: Bloomberg, RBI/Raiffeisen RESEARCH Please note the risk notifications and explanations at the end of this document 16

DAX DEEPLY OVERSOLD Bottom should be here 100% 13.000 DAX Stocks > 200 day SMA 80% 11.400 60% 9.800 40% 8.200 ? 20% 6.600 DAX (r.h.s.) 0% 5.000 10 11 12 13 14 15 * Stocks above their 200 day SMA, in % Source: Bloomberg, RBI/Raiffeisen RESEARCH Please note the risk notifications and explanations at the end of this document 17

EUROZONE STOCKS should rise with falling volatility 5.500 100 5.000 85 4.500 Euro STOXX 50 VSTOXX (r.h.s.) 4.000 70 3.500 3.000 55 2.500 40 2.000 1.500 25 1.000 0.500 10 2000 2002 2004 2006 2008 2010 2012 2014 Source: Thomson Reuters, RBI/Raiffeisen RESEARCH Please note the risk notifications and explanations at the end of this document 18

HALLOWEEN INDICATOR – MARKET ANOMALY winter months on average much stronger 110 108 S&P 500 106 104 102 DAX 100 98 May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr Seasonality illustrated by the avg. weekly performance of the years 1950-2012 (S&P 500) resp. 1960-2012 (DAX), rebased to 100 Source: Bloomberg, RBI/Raiffeisen RESEARCH Please note the risk notifications and explanations at the end of this document 19

KEY MESSAGES risk/reward for Q4/Q1 for EU equities attractive � Chinese growth fears overdone as looser monetary policy results in economic stabilisation � Established economies should grow moderately thanks to sound consumption due to low commodity prices � Federal Reserve eventually starts interest rate hiking cycle � BoJ and ECB should extend their QE programs � Expected further weakening EUR/USD supportive for EMU companies � Broad Eurozone equity market: Margins, RoE & EPS should improve � Valuations no longer cheap but reasonable given the alternatives � Sentiment indicators signal stock markets may have found a bottom Please note the risk notifications and explanations at the end of this document 20