LSR十月全球投资机会：欧美分化加剧、中国出现积极的周期性动能-2012-10-18.pdf

Global Investment Opportunities October 2012 Follow the money in DM bonds and EM equities? An upturn in some global cyclical indicators reflects better US data but, even there, the fiscal cliff casts a shadow Rapidly falling car sales suggest the rot in the Euro Area is spreading to the core Although Chinas longer-term potential growth rate is shifting markedly lower, the near-term outlook is for stronger Chinese real GDP growth in Q4 and, particularly, H1 13 compared with the middle quarters of 2012. Key Investment recommendations Multi-Asset Against theory, the positive impact of QE in DM is clearer for bonds than equities in current environment In EM, money growth retains a clearer link with equity returns More value in credit than equities in US; sell CDX NA IG protection while selling S still short GBP/NOK Equities Macro factor models point to much greater downside risk in Euro Area markets than in the US Combination in China of improving liquidity and a trough in PMIs leads us to recommend a long FTSE China A50 futures position versus a short in a CAC/DAX basket Commodities Buy Soybean oil while selling Malaysian palm oil futures Taking profit on long Platinum / short Palladium and long Heating oil / short Gasoline Aluminium market continues to offer opportunities for put option buyers as excess capacity in China pressures prices Quant Strategies We show a snapshot of returns and positions for 12 rules-based strategies Best returns in 2012 from VIX directional, EM equity country selection and Government bond futures If youre interested in receiving more information, please contact your account representative Global Investment Opportunities www.lombardstreetresearch.com/gio October 12 th 2012 Macro drivers 1 An upturn in some global indicators reflects better US data but, even there, the fiscal cliff casts a shadow Rapidly falling car sales suggest the rot in the EA has spread to the core Although Chinas longer-term potential growth rate is shifting markedly lower, the near-term picture is for stronger Chinese GDP growth in Q4 and H1 2013. Multi-Asset 3 Fixed Income 11 Currencies 17 Equities 23 Commodities 29 Quant Strategies 35 Global Investment Opportunities www.lombardstreetresearch.com/gio This publication has been prepared by Andrea Cicione, Eugenio Montersino, Chris Turner and Colin Waugh. Copies of this briefing in pdf format are available to our clients from our website www.lombardstreetresearch.com/gio, where you will also find a fully searchable archive of all of our publications. A full set of the sources used is available on request from Lombard Street Research. Global Investment Opportunities provides concise investment analysis and actionable trade ideas that we expect to create returns over a tactical time horizon (e.g., 3 months). GIO covers interest rate and bond markets, currencies, equities and commodities. In all cases, we adopt a top-down approach, using LSRs traditional focus on monetary aggregates, leading indicators, output gaps and sector balances as key inputs in the investment framework. The first section Macro drivers discusses the latest trends in these factors and highlights areas where LSRs views differ from consensus. The main conclusions on these cyclical “triggers” are carried forward to the sections dealing with the main asset classes in turn. There, they are applied, together with longer-term valuation measures and shorter-term indicators, to produce concrete investment ideas based on our highest-conviction views. Our trade ideas may be directional or have a strong relative value component. Our aim is to find efficient ways of expressing LSRs macro views and/or of hedging risks, with strong risk/reward characteristics. We track all our recommendations, publishing entry and exit dates and levels. These individual ideas often fit into broader themes that prevail for much longer periods. GIO Monthly Report: October 2012 Macro Drivers 1 Macro drivers Fiscal cliff continues to cast shadow over otherwise-good US outlook Cyclical momentum troughing in China US/EA divergence reappears, China bottoming? In the September GIO, we suggested that markets trading as if the global economy stood in the “Goldilocks” phase of the economic cycle a negative, but shrinking, output gap looked premature. Since then, the bulls have had some key data on their side, notably the JPMorgan Global PMI index rising to a 6-month high in September (whilst remaining below its long-term average). However, whether one looks at PMIs, LSR leading indicators, earnings revision ratios (see Equities) or economic surprise indices, the recent improvement has very much been concentrated in the US. Cyclical momentum in other major regions has remained poor. So, key questions this month are: a), can the improvement in the US last and spread out?; and b), are there are any other good reasons to expect an improvement in cyclical momentum elsewhere? Economic Surprise Indices (Citigroup) Auto sales (millions, annualized rate) -125 -100 -75 -50 -25 0 25 50 75 100 Oct-10Apr-11Oct-11Apr-12Oct-12 G10 aggregateEM aggregateUS 7 8 9 10 11 12 13 14 15 16 17 Sep-06Sep-07Sep-08Sep-09Sep-10Sep-11Sep-12 US Auto SalesEA Car Registrations The bull case for the US is that the de-leveraging of the household and financial sectors is significantly more advanced than elsewhere. For instance, the household debt ratio, helped by defaults and income growth more than actual net repayment, is down below 110% of disposable income. With lower interest rates helping, the debt service ratio of home-owners is down to 14.0% of personal disposable income, the bottom end of the sustainable, 14%-15.5% range of the 1980s and 1990s. Resulting from this is the buoyancy of housing and a better tone to auto sales, two key components of LSR leading indicators for most countries. Meanwhile, growth in monetary and credit aggregates remains meaningfully higher than in the Euro Area, UK and Japan. as US household finances are much improved Some better data, very much concentrated in US Macro Drivers 2 Global Investment Opportunities Of course, the recent strength of the US leading indicator fails to capture potential fiscal adjustments. Our central scenario is still that the “fiscal cliff” results in at least a 2% drag on US real GDP next year, which restrains our bullishness on the US for the time being. Whilst the US leading indicator rose again in August, the Euro Area indicator deteriorated for the fifth straight month, with Germany now joining in (down for a second month). EA monetary and credit data remain depressed. M3 growth slipped back to 2.9% y-y in August from 3.6% in July. Private-sector credit growth looks even worse, now contracting on an annual basis. This is a worrying development, reflecting both weaker demand/a reluctance to borrow plus continued strains in the financial sector that inhibit lending; EA banks remain under significant stress and are still deleveraging. The ECBs planned bond buying scheme lifted market sentiment and reduced the threat of countries losing market access. But unless growth returns, the euro crisis will not end. The EAs great hope has been Germany. In the face of declining activity across much of the region, the German economy had until recently been resilient. Real consumer spending grew at an annual average rate of 1½% in the eight quarters to Q2, buoyed by a healthy labour market and rising real wages. Fixed investment held firm, as exporters looked to add capacity. But now the German economy is stalling. A GDP-weighted PMI index is consistent with a contraction in real GDP, although this looks more of a risk for Q4 than Q3 based on other data. Car sales data for September make clear just how weak the EA economy is. In the big four economies, new car registrations are at their lowest point since 1986. This is not solely because of slumping sales in Italy and Spain. Germany too is suffering; sales in the latest month were at a two-year low. Meanwhile, France, a country previously driven by domestic demand, finally appears to have succumbed to recession judging by Septembers very weak PMI data (42.7 for manufacturing, 45.0 for services), which supports the trend highlighted last month for French government bonds to gradually drift towards the periphery. Q2 gross public sector debt reached 91% of nominal GDP, up from around 65% four years ago. The Budget for 2013 confirmed that there will be 20bn of tax increases on companies and wealthy individuals and 10bn of cuts in public spending. These measures are intended to reduce the budget deficit to 3% of GDP next year, from an estimated 4½% this year. But this fall in the deficit is premised on continued modest economic growth the budget assumes 0.8% real GDP growth next year. With the economy seemingly contracting, a 3% budget deficit will not happen under current fiscal plans. The big test for M. Hollande will arrive when it becomes clear that supplementary austerity measures will be necessary to hit the 3% deficit target agreed with the European Commission. By contrast to the EA, we are beginning to look on the slightly brighter side for Chinas cyclical momentum. Chinas vicious profit squeeze and soaring real interest rates mean real GDP growth, a 1½% annualized rate in Q2 on LSR estimates, has probably been repeated in Q3. But, going forward, some recovery seems likely on the back of fiscal stimulus and some monetary policy relaxation; our “guesstimates” are 3%-5% in Q4 and 6%-7% in 2013 Q1 and Q2, followed by a relapse as the impact of stimulus measures fades. Although we still believe commodity-related assets globally have not fully taken on board a meaningful shift down in the Chinese economys medium-term potential growth rate, the worst has probably been seen for some time in the monthly PMI readings. Chris Turner Rapidly falling car sales suggest the economic rot is now spreading to the core of the Euro Area China: looking on the brighter side but “cliff” looms EA data remains poor GIO Monthly Report: October 2012 Multi-Asset 3 Multi-Asset Equity vs. credit: more value in the latter, especially in the US Follow the money in developed market bonds and EM equities? Back in the days when G4 central banks used to set monetary policy primarily through interest rates, they were relying on the banking system to help expand/contract (in the case of rate cuts/hikes) the money supply. The price of credit was the main determinant of its demand and hence quantity. Nowadays, with interest rates zero-bound in most major developed economies, quantitative easing is the name of the game, and central banks directly affect money supply via asset purchases. Either way, monetary forces impact prices of goods, services and assets alike. The theory is that when there is an excess of deposits in the banking system, households, investors or banks themselves feel the urge to rid of the unwanted liquidity. Excess deposits get either spent on goods and services, or invested in productive activities, assets or securities. Higher consumption and investment tend to increase the amount of economic activity and are therefore stimulative for the economy. Prices for goods and services, as well as tradable assets, tend to increase, as do inflation expectations. All this has a double positive impact on equity prices and more generally on risky assets. Not only do they benefit from being directly bid up by investors, they also receive an extra kicker from the improving economy. At the same time, inflation is not a major factor affecting equity prices in a negative way at least up until the point where central banks are forced to tighten monetary policy to keep inflation expectations under control. S Even where balance sheets are in good health the corporate sector cash balances are being kept at historically high levels due to a combination of uncertainty about 2013 prospects (reflecting the fiscal cliff issue) and still-fresh memories of the Great Recession; QE3 could conceivably make a compromise over the US fiscal cliff less likely if politicians believe the economy and markets are underpinned by the Feds munificence; By concentrating on MBS purchases, the Fed is targeting one area of the economy housing that has already enjoyed clearly better momentum in recent quarters. Partly as a result, lenders say they are significantly backlogged in terms of origination volumes; The experience of the past few years is that each new burst in US narrow money growth has been accompanied by a progressively lower peak in the S (2) divergence between credit spreads and implied vol; and (3) adjustment of credit spreads to changes in balance sheet leverage. Of these factors, all three point towards credit being better value than equities in the US, whereas only two tell the same story for Europe. Credit valuations are more expensive in the US (CDX NA IG at 97bp vs. iTraxx Europe at 127bp, despite iTraxxs slightly better rating profile), but so are those for equities (S bp/notional EUR 5-year swap spread tighteners 16-Nov-11 12-Jan-12 98bp 88bp 10bp (Hedging the Euro crisis binary risk) OAT 5/10y flattener 20-Oct-11 20-Jan-12 83bp 116bp -33bp (Carry-neutral bias to periphery sprd wideners) Sell Sep-16 Gilts, buy OBL 161 14-Oct-11 09-Nov-11 5bp 23bp 18bp 3-month carry is 4bp negative USD/EUR spread wideners in 5y5y swaps 12-Oct-11 21-Mar-12 2bp 36bp 34bp Sell Apr-15 Bonos, buy OBL 157 07-Oct-11 18-Oct-11 270bp 315bp 44bp 3-month carry is 14bp negative AUD/USD spread wideners in 5y5y swaps 03-Oct-11 23-Dec-11 228bp 198bp 30bp Sell Oct-21 OAT hedged with Dec-11 Bund futures 29-Sep-11 18-Oct-11 72bp 112bp 39bp 1bp negative carry per month Emerging markets Pay Turkey 2y swap, receive Russia 2y 26-Sep-12 OPEN -46bp -19bp 27bp (Turkish rates unlikely to stay below Russian) MXN TIIE Jan-13/Jul-13 steepeners 23-Apr-12 OPEN 10bp 5bp -5bp Brazil Jan'13-Jan'15 DI curve steepener 01-Feb-12 15-Mar-12 94bp 125bp 31bp MXN TIIE May-12/Oct-12 steepeners 23-Dec-11 23-Apr-12 16bp -1bp -17bp Pay Russia 1y swap 06-Jul-11 07-Sep-11 4.80% 5.33% 53bp (Money growth b) the governments failure to hit budget deficit targets, meaning the UKs post-2007 percentage point increase in its net debt to GDP ratio is the worst among the G7 on IMF projections out to 2014 (see right- hand chart below); c) a very accommodative monetary policy stance, with the Bank of England at the head of the pack in terms of post-Lehman growth in asset holdings. In essence, Sterlings “safe-haven premium” looks excessive and should narrow as the Chancellors Autumn Statement (to be delivered in early December) comes into view. As Brian Reading wrote recently in a Special Report (“The Blunt Axe”, September 20th), “the OBR (which produces the forecasts that accompany the pre-budget budget) can no longer maintain the fiction that the Government remains on track to