1. December 2012
Monthly Perspectives
n
For important disclosures, refer to the Disclosure Section, located at the end of this report.
2. November’s Highlights
In Europe, the Eurogroup and the IMF finally on with the reforms.
agreed on a deal to allow the release of the next
tranche of Greece’s second bail‐out programme. The US fiscal negotiations will probably continue
The deal sends a signal as to the willingness of core to drive the market in December. The news flow
countries to support the periphery. Moreover, The is supportive of a compromise before year‐end,
Greece package has raised the issue of whether although the progress in the negotiations has so
concessions may also be made for other countries far been limited.
with a bailout programme, such as Portugal and
Ireland. This month, political decisions should be again at
the top of agenda. In the Eurozone, another
President Obama has won re‐election, with a status Eurogroup meeting starts today, followed by an
quo outcome in Congress. Congress has already EU finance ministers meeting tomorrow. In the
begun work toward a compromise to avoid the tax US, news on the fiscal front will be decisive for
increases and spending cuts scheduled to take effect markets. Markets appear to believe that much of
at the start of 2013. In the US and in China, the data the fiscal cliff will be avoided before year‐end. In
remains relatively resilient, while in Europe data Japan, elections will be held on December 16th.
suggest that the region is stuck in a recession.
In December, we will have an ECB rate‐setting
The Portuguese parliament approved the 2013 meeting in Europe, and a two‐day FOMC policy
budget. Despite some austerity fatigue, the meeting in the US.
Portuguese government seems determined to carry
3. Asset Performance Review – November 2012
• November saw the European equities markets in positive territory. Japanese indices were higher, led
by Yen weakness and markets focusing on post‐election monetary policy. In the US, the S&P 500 index
was almost unchanged, as investors watched developments in government budget negotiations;
• Portuguese and Spanish bonds advanced in November, reflecting the compromise on Greece, with
every party (the ECB, the IMF and the creditor countries) contributing;
• The Chinese equity index was one of the worst performing assets within our selection in November.
Source: Bloomberg
4. Asset Performance Review – YTD 2012
• Spanish and Chinese equities are two of the worst performing assets within our selection, since the
beginning of 2012;
• Euro and US financial stocks show a robust performance;
• Brazilian equities are barely positive YTD. The Real exchange rate has depreciated significantly in 2012
YTD;
• The long‐end of the Portuguese yield curve shows strong gains YTD. Nevertheless, the PSI 20
benchmark stock index is down 4.3% over the same period.
Source: Bloomberg
5. Portugal: Labor market deterioration is increasingly a concern
• The fiscal and growth Portuguese Expenditure
outlook remains (Jan to Oct 2012, y/y)
challenging. Despite
Interest payments
some austerity fatigue,
the Portuguese Current transfers
government seems
determined to carry on; Purchase of goods ans services
• The Portuguese Staff costs
parliament approved
the 2013 budget. The Source: Finance Ministry
‐15% ‐10% ‐5% 0% 5% 10% 15%
finance minister said Source: Eurostat
that the country could Portugal Deposits Flows Portugal Average Value of Housing Bank
(from households and non‐financial corporations, y/y)
get the same terms as 110
Appraisals
Sep 08= 100
Greece; 15%
105
• October’s 10%
unemployment rate 5% 100
rose to 16.3%; 0%
95
• Ongoing contraction in ‐5%
household and non‐ 90
‐10%
financial corporations ‐15% 85
Aug‐11 Oct‐11 Dec‐11 Feb‐12 Apr‐12 Jun‐12 Aug‐12 Oct‐12
deposits (see chart). 2008 2009 2010 2011 2012
Source: ECB Database Source: Statistical Office of Portugal
6. Spain: Government bond yields are still falling
• Under the restructuring Bankia Share Price (€)
Spain Deposits Flows
plans approved last week (from households and non‐financial corporations, y/y) 4.0
4%
by the EC, the four
2%
Spanish banks under state 0% 3.0
control will need ‐2%
additional capital ‐4% 2.0
‐6%
injections of €37bn. ‐8%
Subordinated bondholders ‐10%
1.0
0.717
will take losses; ‐12%
0.0
• The Spanish ‐14%
Aug‐11 Oct‐11 Dec‐11 Feb‐12 Apr‐12 Jun‐12 Aug‐12 Oct‐12 Jul‐11 Sep‐11 Nov‐11 Jan‐12 Mar‐12 May‐12 Jul‐12 Sep‐12 Nov‐12
unemployment increase Source: ECB database Source: Bloomberg
to 26.2% in October, 8% Spain 10‐year Government Bonds
Unemployment vs. Non‐Performing Loans
reaching an all‐time high 30% 12%
Yield
since the beginning of the Unemployment Rate (LHS)
10% 7%
25% NPL Ratio (RHS)
series in 1986 (see chart);
8%
• Fiscal execution data for 20%
6%
October YTD shows that 6%
15%
the budget deficit reached 4%
5%
4.1% of GDP, compared to 10%
2%
3.7% of GDP recorded in
5% 0% 4%
the same month of last 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Oct‐11 Jan‐12 Apr‐12 Jul‐12 Oct‐12
year. Source: Bank of Spain; Eurostat Source: Bloomberg
7. Greece: after PSI… now we’ve got OSI
125 12%
• After 3 meetings, Euro‐zone finance ministers finally Greek GDP and Economic Sentiment
agreed on a deal to allow the release of the next 8%
€31.5bn tranche of Greece’s second bail‐out 110
programme; 4%
• Interest rates paid by Greece to other Euro‐zone 95 0%
states on loans included in the first bail‐out will be
reduced and the maturities both of those loans and EC Economic Sentiment
‐4%
80
those provided in the second bailout will be Indicator (LHS)
GDP (% y/y, RHS) ‐8%
extended;
• The profits made by the ECB on its holdings of Greek 65 ‐12%
2001 2003 2005 2007 2009 2011 2013
bonds will be passed to Greece. Greece will be Source: European Commission, Eurostat
provided with funds (through an EFSF loan) to Greek Public Debt (% of GDP)
purchase a portion of its sovereign debt at discounted 200%
MoU forecast (Mar 2012)
200%
market prices; 180%
New Targets (Nov 2012)
180%
• These measures are expected to bring the ratio of 160% 160%
Greek debt to GDP down to 124% by 2020 (above 140% 140%
the 120% level targeted back in March) and a debt to 120% 120%
GDP ratio below 110% of GDP in 2022. This was 100% 100%
critical in order to keep the IMF on board;
80% 80%
• However, if the Greek economy continues to contract
60% 60%
at the recent rates, it is likely that those targets will 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
still be missed. Source: European Commission, IMF
8. Euro‐zone: the economic growth outlook remains challenging
• Swiss and Swedish GDP Euro‐zone Economic Sentiment Indicator and
figures for Q3 2012 125
GDP Growth
6%
showed that the two 115 4%
economies are still doing 105 2%
better than the Euro‐
95 0%
zone;
• Latest data still shows 85 ‐2%
weakness in lending in 75 Euro‐zone GDP (y/y) ‐4%
southern Europe. There Euro‐sone Economic Sentiment Indicator
65 ‐6%
is some evidence of 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
(*) Italy figure is for the period January to September
deposit stabilization in Source: European Commission and Eurostat Source: Finance Ministries
Greece, Spain and GDP (y/y)
10% 10%
Ireland;
8% 8%
• Italy, Spain and Portugal 6% 6%
are still struggling to cut 4% 4%
their budget deficits; 2% 2%
0% 0%
• The small rise in the
‐2% ‐2%
overall economic ‐4%
Switzerland
‐4%
Euro‐zone
sentiment index (for ‐6% Sweden ‐6%
November) was the first ‐8% ‐8%
2000 2002 2004 2006 2008 2010 2012
increase since February Source: Swiss State Secretariat of Economic Affairs; Statistics
Area of Bubbles = Deposit Flows : Orange for increase and Grey for
decrease.
(see chart). Sweden Source: European Central Bank
9. US: Housing is increasingly a positive. Investment is a concern.
• Most of the lost output Real Personal Disposable Income GDP Growth and ISM Manufacturing Index
0.8% 8% 62
m/m (LHS)
due to hurricane Sandy 3m/3m Ann. (RHS) 4%
should be recovered in 0.6% 6% 57
2%
the coming months; 0.4% 4% 52
• Consumer confidence 47
0%
0.2% 2%
remains at a five‐year ‐2%
42
high, reflecting the 0.0% 0%
ISM Manufacturing Index (LHS)
drop in gasoline prices ‐0.2% ‐2%
37
GDP (% y/y, RHS)
‐4%
and the improvement ‐0.4% ‐4%
32 ‐6%
in the housing market; Jan‐11 May‐11 Sep‐11 Jan‐12 May‐12 Sep‐12
2000 2002 2004 2006 2008 2010 2012
Source: Bureau of Economic Analysis and ISM Institute
• Capital goods orders Source: Bureau of Economic Analysis
and shipments are Change in Private Payroll Employment Non‐Defence Capital Goods (Ex. Air.) (y/y)
both falling. This is (000s) 15% 25%
350 350
Change in Private Payroll Employment
10%
consistent with a 300 Three Month Average 300 15%
5%
weakening in business 250 250 5%
0%
investment (see chart); 200 200
‐5% ‐5%
• The labor market has 150 150 ‐10%
‐15%
picked‐up in recent 100 100 ‐15% Shipments
months (see chart); 50 50 ‐20%
Orders ‐25%
• Inflation remains close 0 0 ‐25% ‐35%
2006 2008 2010 2012
to the Fed’s target rate. Oct‐10 Feb‐11 Jun‐11 Oct‐11 Feb‐12 Jun‐12 Oct‐12
Source: Bureau of Labor Statistics Source: US Census Bureau
10. China: Modest recovery continues
LHS)
• China’s manufacturing China Exports and Imports
100%
PMI compiled by the NBS 50% Manufacturing PMI
80%
index, sa
and the China Federation 30% 60% 2011 Aug‐12 Sep‐12 Oct‐12 Nov‐12
of Logistics and 11.6% 40% Overall (NBS) 51.4 49.2 49.8 50.2 50.6
Purchasing rose to 50.6 in 10%
20% Output 53.5 50.9 51.3 52.1 52.5
New Orders 51.9 48.7 49.8 50.4 51.2
November, compared to ‐10%
2.4%
0%
New Export Orders 50.0 46.6 48.8 49.3 50.2
50.2 in October (see ‐20%
Source: National Bureau of Statistics of China
‐30% ‐40%
table); 2007 2008 2009 2010 2011 2012 2013
• The 18th Party Congress Exports (y/y, RHS) Imports (y/y, LHS)
was concluded. The Source: National Bureau of Statistics of China
government is expected China GDP and Industrial Production China NBS Manufacturing Index and CPI
uction (y/y, LHS) 65 10%
to implement a range of 25% 13%
8%
reforms (fiscal reforms, 12% 60
20% 6%
Financial liberalization 11% 55
50.6
and interest rate 15% 10%
50
4%
reforms). A GDP target 9% 2%
45
for 2013 will be 10%
Industrial Production
8% 0%
40
announced; (y/y, LHS) 7% ‐2%
5%
• September and October GDP Growth (y/y, RHS) 6% 35 ‐4%
2005 2007 2009 2011 2013
exports growth was 0% 5%
NBS Manufacturing PMI (LHS) CPI (y/y, RHS)
strong. 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: China Federation of Logistics & Purchasing; National
Source: National Bureau of Statistics of China Bureau of Statistics
11. PSI20 monthly review
• ENI (ENI IM) raised €1.4bn from the sale of shares and 130
Galp Share Price vs. PSI 20 Index
convertible bonds in Galp Energia (GALP PL). Following 120
the sale of 5% to Amorim Energia at €14.25, ENI had
110
28.34% of Galp. Now, after the two operations and
considering that Amorim Energia holds pre‐emptive 100
PSI20
rights over 10.34% of Galp, ENI still holds at least 5% of
90 GALP
the company. Drilling is undergoing in Jupiter and results
are expected to be announced before year‐end. Its E&P 80 Jan 12 = 100
portfolio and earnings growth profile still makes GALP 70
one of most interesting stories in the Portuguese Market; Jan‐12 Mar‐12 May‐12 Jul‐12 Sep‐12 Nov‐12
Source: Bloomberg
• Jerónimo Martins (JMT PL) rose 6.3% in November. The
retail company provided some visibility on the number of PSI 20 Selected Members Ranked Returns
stores to be opened in 2013 in Colombia (30‐40). Sonae Indústria ‐14.0%
Jerónimo Martins will held its Investor’s day on Portugal Telecom ‐8.0%
December 11th, a long awaited event in which investors EDP ‐7.2%
BPI ‐6.1%
are willing to get news from Poland and further PSI 20 ‐1.9%
information on the company’s venture in Colombia; BES 2.3%
• Energias de Portugal (EDP PL) fell 7.2% in November. The EDP Renováveis 2.5%
stock has underperformed the European Utilities sector Jerónimo Martins 6.3%
Zon 7.7%
this year. Regulatory receivables have taken EDP’s
‐20% ‐15% ‐10% ‐5% 0% 5% 10%
leverage up and become a concern for investors. Source: Bloomberg
12. The fiscal cliff remains the biggest uncertainty in the US
What we are watching in December:
• Another Eurogroup meeting starts today Date Region Event
1‐Dec‐12 China PMI Manufacturing
and an EU finance ministers meeting is 3/4 ‐Dec‐12 Europe Eurogroup and EcoFin meetings
scheduled for tomorrow. They will 3‐Dec‐12 UK PMI Manufacturing
3‐Dec‐12 US ISM Manufacturing
probably continue to work on the final 5/7 ‐Dec‐12 Germany Merkel attends CDU Annual Party Crongress
shape of the Greek agreement. The 5‐Dec‐12 Europe PMI Manufacturing
5‐Dec‐12 US ISM Non‐Manufacturing
Cypriot rescue programme will probably 6‐Dec‐12 Europe ECB Governing concil policy meeting and press conference
also be discussed; 6‐Dec‐12 UK BoE Meeting
• At this month’s ECB meeting (December 7‐Dec‐12 Europe
th
7 review of Irish aid programme
7‐Dec‐12 US Unemployment rate
6th), new staff projections on growth 7‐Dec‐12 US Nonfarm Payrolls
and inflation will be published, including 7‐Dec‐12 US University of Michigan Confidence
9‐Dec‐12 China Industrial Production
2014 forecasts for the first time. No
11/15 ‐Dec‐12 China Money Supply (New Loans)
policy action is expected; 11‐Dec‐12 Europe Zew Survey
• In the US, the FOMC will end 2012 with 12‐Dec‐12 US FOMC Meeting
13/14 ‐Dec‐12 Europe EU Leaders hold Summit in Brussels
a two‐day policy meeting on December 13/14 ‐Dec‐12 Europe IMF and EC hold joint conference on Fiscal Governance
11th‐12th. With Operation Twist 13‐Dec‐12 Switzerland SCB holds monetary policy assessment
13‐Dec‐12 US Advance Retail Sales
expected to finish by the end of 2012, 14‐Dec‐12 US Industrial Production
investors will look for forward guidance 18‐Dec‐12 US NAHB Housing Market Index
and more clarity on further asset 19‐Dec‐12 Germany IFO Survey
19‐Dec‐12 US Housing Starts
purchases; 20‐Dec‐12 Japan BOJ Target Rate
• Fiscal cliff discussions are expected to 21/24 ‐Dec‐12 Europe PMI Manufacturing
24‐Dec‐12 US S&P/Case Shiller Home Price Index
intensify in December. 1‐Jan‐13 Ireland EU Council Presidency
13. The fiscal cliff remains the biggest uncertainty in the US
• The tax hikes and spending cuts due to take place at the
start of 2013 threaten to reduce GDP by c.3%;
• An agreement to avoid the fiscal cliff is still expected,
despite the known political obstacles to a deal. The
working deadline for an agreement appears to be
December 21st;
• Taxes remain a big obstacle to a deal. Republicans
remain opposed to tax rate increases. The President
doesn´t want a deal without tax increases in the
“wealthy”; Source: Congressional Budget Office
• Entitlement reforms could also be part of the package
to be announced. Additional deficit reduction measures
should be released only in 2013;
• The debt limit will need to be increased by February or
March 2013. Will the debt limit increase be included in
a year‐end deal?
• It is likely that discussions will intensify over the next
weeks, with comments from different parties and
media reports on the proposals being discussed;
• Nonetheless, some fiscal drag is likely no matter what
deal is struck (e.g. “Obamacare” and Medicare payroll
tax hikes are expected to begin on January 1st, 2013). Source: Congressional Budget Office
14. ECB will hold a new Interest Rate Meeting on December 6th
• Key interest rates are expected to remain unchanged; Italian and Spanish 10‐year Bond Yields
8% 8%
• At the post‐Governing Council meeting press
conference, Mario Draghi is likely to repeat that the Italy
7% Spain 7%
ECB stands ready to put its bond purchase plan into
action;
6% 6%
• The ECB President will likely repeat that Euro‐zone
governments should play a key role to address the
5% 5%
debt crisis;
• At the November 8th meeting there was no strong hint 4% 4%
at a refi rate cut in December. However, there was a Jan‐11 Apr‐11 Jul‐11 Oct‐11 Jan‐12 Apr‐12 Jul‐12 Oct‐12
downward revision to the growth outlook. The Source: Bloomberg
economy is expected to remain weak rather than to
recover gradually;
• The new quarterly ECB staff macroeconomic forecasts
will be revealed at the press conference. They are
likely to show that the growth momentum remain
weak. Euro‐zone real GDP growth in 2013 will
probably be pushed lower (the mid‐point back in
September was 0.5%);
• Spanish and Italian bond yields have remained below
the levels seen before the OMT announcement.
Source: Bundesbank
15. FOMC will hold a policy meeting on December 11th and 12th
• FED Chairman, Ben Bernanke, at his recent 3,000
Total Reserve Assets ($bn)
speech in the New York Economic Club,
2,500
underlined the disappointing growth of the US
economy. Although the job market has recently 2,000
looked healthier, the unemployment rate remains 1,500
at a high level;
1,000
• The minutes of the October FOMC meeting
suggested that the committee is likely to shift the 500
forward guidance from the current mid‐2015 0
formulation to a threshold rule (in terms of the 2007 2008 2009 2010 2011 2012
Source: US Federal Reserve
unemployment rate and inflation). Will it happen US Employment Rate and Participation Rate
at the December meeting? 67% 10%
• Operation Twist will finish by the end of 2012. 66% 8%
Additional asset purchases when the twist comes
to an end remain probable. According to the 65% 6%
minutes of the October FOMC meeting: "a
64% 4%
number of participants indicated that additional
asset purchases would likely be appropriate next 63% 2%
year after the conclusion of the maturity 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Oct
extension program“. An announcement at the Unemployment Rate (RHS) Participation Rate in the Labour Force (LHS)
December meeting is possible. Source: Bureau of labor and Statistics
16. Japan to hold elections on December 16th
• Shinzo Abe, the leader of the largest opposition party, 0.6%
BoJ Target Rate and
130
JPY/USD Exchange Rate (JPY per USD)
the LDP, is favoured in local polls to head the next
0.5% 120
administration after the December 16th election; BoJ Target Rate (LHS)
• The LDP will probably win a majority or near majority 0.4% JPY/USD Exchange Rate (RHS) 110
in the lower house. Nevertheless, the LDP will need a 0.3% 100
coalition partner in order to pass legislation through 0.2% 90
the upper house;
0.1% 80
• The focus of the markets is the inflationary policy in
the next administration. Political comments could 0.0% 70
2007 2008 2009 2010 2011 2012
affect the Yen and possibly Japanese Government Source: Bank of Japan; Bloomberg
Bonds (JGBs);
• Shinzo Abe wants an inflation target of 2‐3%, Bank of 3% Japan Nationwide CPI (y/y)
Japan (BoJ) underwriting of JGBs, and revisions to the 2%
BoJ Act. The BoJ is under political pressure to ease 1%
further. However, the LDP has recently toned down its
language considerably; 0%
• The Yen has been declining based on expectations of ‐0.4%
‐1%
inflation targeting and debt monetization. The fiscal ‐2%
policy stance of the next administration will be
important for the JGBs market. The supplementary ‐3%
2007 2008 2009 2010 2011 2012
budget drafting process will start at year‐end.
Source: Ministry of Internal Affairs & Communications of Japan
17. Charts we are watching
• The Shanghai Composite Index lost 4.3% in November,
7,000 China's Shanghai Composite Index
the biggest drop since July. Standard & Poor’s said last
week that China has strong growth prospects and 6,000 6,092
reaffirmed its credit rating. Despite some signs 5,000
suggesting that the local economy is rebounding, the 4,000
Shanghai Composite index fell to a 45‐month low of 3,000
1,960 before recovering to 1,980 on Friday (still below 2,000
the 2,000 threshold). Is the market expecting that 1,980
1,000
growth could turn out to be worse than expected in
0
2013? Or, are investors adapting to China growing at 2006 2008 2010 2012
7‐8%, rather than 10‐12%? Source: Bloomberg
• In Brazil, Real GDP was much weaker‐than‐expected
during Q3 2012 (0.59% q/q vs. 1.2% q/q consensus),
reflecting the 2.0% q/q contraction in gross fixed capital
formation. Given the current uninspiring real business
cycle dynamics, the BRL/USD is trading above 2.00. On
a 12‐month rolling basis, the consolidated public‐sector
primary surplus declined to 2.25% of GDP, with the
overall fiscal balance at ‐2.7% of GDP. The authorities
have recently acknowledged that the 3.1% of GDP
primary surplus target for 2012 is no longer achievable. Source: Bloomberg
18. Disclosure Section
This research report is based on information obtained from sources which we believe to be credible and reliable, but is
not guaranteed as to accuracy or completeness. All the information contained herein is based upon information
available to the public.
The recipient of this report must make its own independent assessment and decisions regarding any securities or
financial instruments mentioned herein.
This report is not, and should not be construed as an offer or a solicitation to buy or sell any securities or related
financial instruments. The investment discussed or recommended in this report may be unsuitable for investors
depending on their specific investment objectives and financial position.
The material in this research report is general information intended for recipients who understand the risks associated
with investment. It does not take account of whether an investment, course of action, or associated risks are suitable
for the recipient.
Investors should seek financial advice regarding the appropriateness of investing in any securities or investment
strategies discussed or recommended in this research report and should understand that the statements regarding
future prospects may not be realized. Investors may receive back less than initially invested. Past performance is not a
guarantee for future performance.
Fincor – Sociedade Corretora, S.A. accepts no liability of any type for any indirect or direct loss arising from the use of
this research report.
Recommendations and opinions expressed are our current opinions as of the date referred on this research report.
Current recommendations or opinions are subject to change as they depend on the evolution of the company or may
become outdated as a consequence of changes in the environment.
Fincor ‐ Sociedade Corretora, S.A. provides services of reception, execution, and transmission of orders.
