Embed Size (px)
Citation preview
See Appendix A-1 for analyst
certification, important disclosures
and the status of non-US analysts.
Any authors named on this report
are research analysts unless
otherwise indicated.
China: Growth may disappoint in 2013
June 2013
Zhiwei Zhang – Chief China Economist +852 2536 7433
1
Contents
2013 Outlook: Not a sustainable recovery p.2
Contrary to the consensus, we believe the recovery is NOT sustainable
Q1 growth has slowed already despite strong policy easing
Leading indicators point to further trouble ahead
Policy will likely tighten in Q2 p.9
Government may tolerate growth slowdown as it is structural
Financial risks have increased concerns over systemic crisis
Property prices and pollution also call for policy tightening
Rising risks of financial crisis p.17
China exhibits three symptoms that precede major financial crises
Trust companies, property developers, and LGFVs face default risks
Loose policy in 2013 would increase the likelihood of a systemic crisis in 2014
2
2013 Outlook: Not a sustainable recovery
Our cautious GDP forecast has been ahead of the curve
Source: CEIC and Nomura Global Economics.
We were the only house forecasting 2013 GDP growth to decline from 2012.
The consensus has been revised down in recent months and got close to our view.
3
Before
revision
After
revision
Date of
revision
% y-o-y % y-o-y
Consensus 8.2 7.8
HSBC 8.6 8.2 16 April
GS 8.2 7.8 18 April
UBS 8.0 7.7 21 May
Standard
Chartered8.3 7.7 14 May
CICC 8.1 7.7 20 May
Merrill Lynch 8.0 7.6 14 May
JP Morgan 7.8 7.6 14 May
Nomura 7.7 7.5 15 April
2013 GDP growth forecast
7.2
7.4
7.6
7.8
8.0
8.2
8.4
8.6
8.8
Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13
% y-o-y
Nomura Consensus
China 2013 GDP forecast
4
We called for a temporary recovery in our September report
We made an out-of-
consensus call on 14
September 2012 that
China's growth will
surprise on the upside in
Q4 2012 and H1 2013…
… but we expect the
recovery to be temporary
– our forecast remains for
growth to slow to 7.2% by
Q4 2013.
The recovery is driven by policy easing through shadow banking
Source: CEIC and Nomura Global Economics.
Policy easing has mostly occurred through local government bond issuance and shadow
banking activities such as trust loans.
5
Total social financing Trust loan issuance soared
-50
0
50
100
150
200
250
300
350
400
450
Nov-11 May-12 Nov-12 May-13
RMB bn RMB bn Apr-12 May-12 Apr-13 May-13
Total Social Financing 963.7 1143.2 1747.0 1190.0
New Loans 691.4 823.4 877.6 703.1
Trust Loans 3.7 55.7 195.3 99.2
Coporate bond 88.7 144.1 190.0 216.7
Banker's acceptance bill 27.9 38.0 220.9 -112.4
Non-financial enterprise
equity financing and
Entrusted Loans
120.5 39.9 220.0 219.8
6 Source: CEIC and Nomura Global Economics.
Investment growth rebounded but only temporarily
-10
0
10
20
30
40
50
60
May-05 May-06 May-07 May-08 May-09 May-10 May-11 May-12 May-13
Manufacturing FAI Real Estate FAI Infrastructure FAI
% y-o-y, ytd
Growth may slow further in Q2
Source: CEIC and Nomura Global Economics.
Leading indictors in the property sector weakened in March
Manufacturing FAI declined sharply despite strong policy easing.
7
Housing starts and land purchased (volume) Manufacturing FAI growth and total FAI growth
-40
-20
0
20
40
60
80
100
May-07 Nov-08 May-10 Nov-11 May-13
% y-o-y ytd
Floor space started
Land purchased
15
20
25
30
35
40
May-05 May-07 May-09 May-11 May-13
% y-o-y ytd
Manufacturing FAI
Total FAI
Export growth is distorted by capital flows and working days
Source: CEIC and Nomura Global Economics.
We estimate export growth to be around 2% yoy in April after excluding capital flows and
working day distortions.
Tariff revenue growth suggests import growth may be negative in Q1.
8
Export growth Import growth and tariff revenue growth
-5
5
15
25
35
May-11 Nov-11 May-12 Nov-12 May-13
% y-o-y Total exports
Export excluding special zone trade
-40
-20
0
20
40
60
80
May-07 Nov-08 May-10 Nov-11 May-13
Tariff revenue
Import value
% y-o-y, 3mma
9
Policy will likely tighten in Q2
Government may tolerate growth slowdown as it is structural
Source: CEIC and Nomura Global Economics.
The labor market has become structurally tight as excess labor supply has been depleted.
The labor market tightened to a historical high when Q1 GDP growth dropped to 7.7%.
We believe potential growth has slowed to 7-7.5%.
10
6
8
10
12
14
16
0.6
0.7
0.8
0.9
1.0
1.1
Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13
% y-o-y Ratio Labor demand/supply ratio
Real GDP growth, rhs
Inflation is not an issue for Q2 but it remains a concern
Source: CEIC and Nomura Global Economics.
March CPI dropped but non-food CPI rose more than the historical average.
CPI inflation is not seen as a problem for Q2 but the government is vigilant for risks in H2.
11
CPI inflation path for 2012 and 2013 CPI inflation (m-o-m basis)
3.8
2.9
1.9 2.1
2.4 2.3 2.6
3.4
0
1
2
3
4
5
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13
% y-o-y
Forecast
-0.50
-0.25
0.00
0.25
0.50
Headline Food Non food Core
% m-o-m Apr-13
Historical average
Policy will tighten in Q2 on shadow banking activities
Source: Various local media reports and Nomura Global Economics.
12
Financial risks in the shadow banking sector have intensified. Report Date Risk event
Feb 2012 SDIC Trust arranged a trust loan of RMB200mn to a company with no income or tax record, and with poor collateral.
Mar 2012 Jilin Province Trust suffered a loss from a fraud related to one of its trusts worth RMB150mn.
May 2012 Local government in Shandong reportedly asked trust companies to issue trust products for government financing.
June 2012 China Credit Trust's RMB3.0bn mineral energy trust product reportedly faced a high default risk.
Sep 2012 Zhong Rong International Trust's RMB1.164bn of products related to real estate projects in Ordos faced a high default risk.
Nov 2012 China Fortune International Trust failed to pay interest on its RMB547mn of trust products.
Nov 2012 A trust product sold by Huaxia Bank defaulted, which was widely reported in both Chinese and international media.
Dec 2012 CITIC Trust's RMB1.3bn San Xia Quan Tong Project faced high default risks and failed to make interest payments on time.
Dec 2012Qingdao Kaiyue, a RMB300mn trust loan product originated by Zhong Rong International Trust, had difficulty paying investors. The
collateral (real estate assets) was auctioned at 60% below the original appraised price.
Dec 2012Chaorisolar, a listed solar power company, pledged its equity to eight trust companies. It faces the risk of bankcruptcy and the CEO
has disappeared. Trust loans linked to the company face default risks.
Dec 2012Pingan Trust's RMB3.6bn project "Jiayuan #25" faces heightened default risk as its Fuzhou property project is far from completion, but
the trust repayment date is close.
Dec 2012 The RMB400mn "golden bull" trust product issued by CCB Trust reportedly suffered a book loss of over 50%.
Jan 2013CITIC Trust's RMB710mn real estate project in Qingdao faces a high default risk. The collateral (real estate assets) was auctioned at
40% below the original appraised price
Jan 2013 Xinhua Trust announced one of its trust loans faces default risks, as the guarantor, Gaoyuan Real Estates, is stuck in a debt crisis.
Jan 2013 CITIC Trust's RMB1.3bn San Xia Quan Tong Project failed to pay interest on time
Feb 2013Tianjin Trust's one trust product was was terminated prematurely in February, less than three months from its issurance, due to inter-
organizational disputes.
Mar 2013An Xin Trust announced a sharp decline in net profit attitributed to shareholders, down by 44.8% from RMB195mn in 2011 to RMB108bn
in 2012.
Mar 2013 The trust product named Chuang FU, issued by Ping'an Trust, was reported to have suffered a loss close to 30%.
Policy signals on containing financial risks
October 2012: IMF Global Financial Stability Report highlighted risks in China’s shadow
banking activities.
December 16, 2012: Central Economic Working Conference: “Defend the bottom line of
preventing financial systematic crisis.”
December 29, 2012: PBoC Q4 Monetary Committee Meeting. Elevated “controlling risks”
as one of the top four policy objectives.
December 31, 2012: Joint statement by Ministry of Finance, NDRC, PBoC, CBRC. Tighten
control on improper activities by local governments to raise funds. Ban local government
guarantees on LGFV financing. Ban infrastructure investment through “BT” framework.
March 5, 2013: Government sets M2 target at 13%, lower than 14% in 2012. This suggests
policy tightening as M2 growth is 15.2% in February.
13
Growth will likely slow when the credit boom is over
Source: CEIC and Nomura Global Economics.
14
6
8
10
12
14
16
-40
0
40
80
120
160
2H03 2H04 2H05 2H06 2H07 2H08 2H09 2H10 2H11 2H12 2H13F
% y-o-y % y-o-y
Total social financing
Real GDP growth, rhs
Growth of total social financing likely peaked in H2 2012.
F
Property prices also put pressure on government to tighten
Source: WIND, CEIC and Nomura Global Economics.
15
Property prices rebounded partly due to monetary policy loosening in H2 2012.
10
13
16
19
22
25
28
31
-3
0
3
6
9
12
15
18
Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13
% y-o-y % y-o-y
70 city property price
M2 growth, rhs
One more reason to keep policy tight: Pollution
Source: NASA Earth Observatory and Nomura Global Economics.
16
17
Rising risks of financial crisis
The first symptom of financial risks: A rapid buildup of leverage
Source: CEIC and Nomura Global Economics.
18
Domestic credit is at a historical high: 155% of GDP.
Domestic credit to GDP ratio rose by 34% from 2008 to 2012.
-30
-20
-10
0
10
20
30
40
80
90
100
110
120
130
140
150
160
1991 1994 1997 2000 2003 2006 2009 2012
Percentage point % of GDP Domestic credit to GDP
Changes (pp), rhs
The 5-30 rule shows China faces rising risks of financial crisis
Note:Charts show leverage as measured by domestic credit as percentage of GDP.
Source: IMF, CEIC and Nomura Global Economics.
19
Leverage in Japan, Europe, US increased by around 30% of GDP in 5 years before they
experienced financial crises. Leverage in China has increased by 34% in the past 5 years
Total social financing offers a better gauge for credit supply
Source: CEIC and Nomura Global Economics estimates.
20
(RMB bn) 2004 2005 2006 2007 2008 2009 2010 2011 2012
TSF estimated by Nomura 3328 3438 4701 7993 7510 15388 15494 14050 17068
Government bonds 326 292 240 1793 234 867 986 755 778
Underground lending 140 145 191 233 296 610 489 466 529
TSF released by the PBC 2863 3001 4270 5966 6980 13911 14019 12829 15761
New loans 2406 2496 3298 4019 5099 10521 8430 8043 9120
Trust loans 0 0 83 170 315 436 386 203 1289
Corporate bonds 47 201 231 229 552 1237 1106 1366 2250
Short-term bill -29 2 150 670 107 461 2335 1027 1050
NF equity f inancing & entrusted
loans379 230 423 770 759 1013 1454 1734 1535
Others 61 71 85 108 150 243 308 455 518
Leverage buildup is even faster once non-bank credit is included
Source: CEIC and Nomura Global Economics.
21
100
120
140
160
180
200
220
2004 2006 2008 2010 2012
% of GDP
Domestic credit to GDP
Total social financing (by the PBoC)
Total social financing (by Nomura)
The second symptom of financial crisis: Elevated property prices
Source: CEIC and Nomura Global Economics.
Property prices in China rose more than in the US.
Land price rose by 600% since 2003 according to official data.
22
Property price: China versus US China’s land price and property price
100
150
200
250
300
Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12
Jan 2000=100
US: CS property price index
China
0
100
200
300
400
500
600
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
2003=100
Land price
Property price
Property market inventory remains high
Source: CEIC and Nomura Global Economics.
23
0
400
800
1200
1600
2000
Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13
Floor space started
Floor space sold
Square meter mn (12 month rolling sum)
The third symptom of financial crisis: A decline of potential growth
Source: World Bank, CEIC and Nomura Global Economics.
24
Share in world exports (Japan) Share in world exports (US)
Share in world exports (Spain) Share in world exports (Thailand)
A productivity slowdown, as measured by the market share of global exports, preceded
crises.
China’s global market share stalled since 2010
Source: CEIC and Nomura Global Economics. Note: Footwear for labour-intensive goods, telecom and sound equipment for capital-intensive goods.
China’s share in the US may have peaked in 2012, which suggests that China’s share of
world exports may have also peaked.
Share of Labour-intensive goods falls, while that of capital-intensive goods rises.
25
China’s share in US imports China’s share in US imports by goods
10
15
20
25
30
35
40
45
50
55
40
50
60
70
80
Nov-00 Nov-02 Nov-04 Nov-06 Nov-08 Nov-10 Nov-12
% of total % of total Labour-intensive goods
Capital-intensive goods
5
10
15
20
25
1994 1997 2000 2003 2006 2009 2012
% of total
China’s competitiveness has declined
Source: World Bank, CEIC and Nomura Global Economics.
26
Working-age population declined in China RMB appreciated vs other EM currencies
Comparison of wage levels by country Growth of foreign direct investment
Demographics, currency and slow progress on reforms are all eroding competitiveness.
Sector analysis helps to identify risks
Source: CEIC and Nomura Global Economics.
27
Preferably we should look at the balance sheet of each sector, but only limited information
is available.
We zoom in on each sector and determined that risks are high in LGFVs, trust
companies, and property developers.
Baseline case: Policy tightening in 2013, growth slows to 7.7% for full year of 2013 and
7.3% in H2.
Risk scenario: Policy remains loose in 2013, growth maintains 8% in 2013, higher risks of
financial crisis in 2014 and beyond.
The public sector faces a liquidity problem, not a solvency problem
Source: CASS and Nomura Global Economics.
28
2010 Balance sheet of Chinese governments (central and local governments)
Total Assets RMB trn Total Liabilities RMB trn
Government deposit in the PBoC 2.4 Central government's domestic debt 6.7
Reserve asset 19.7 Sovereign debt 2.3
Natual resources including land 44.3 Local government debt (excluding LGFV) 5.8
SOA in administrative public entities 7.8 Debt of LGFV 9.0
SOA in non-financial enterprises 59.1 Debt of non-financial SOEs (excluding LGFV) 35.6
SOA in f inancial institutions 8.2 Debt of policy banks 5.2
SOA in national social security fund 0.8 NPL of banks 0.4
Potential debt from solving NPL 4.2
Implicit debt from pension fund 3.5
Total assets 142.3 Total liabilities 72.7
Public sector net assets 69.6
Local government faces severe financing pressures in 2013
Source: WIND, CEIC and Nomura Global Economics.
LGFVs relied on land sales and bond and trust issuance in 2008-12, but incremental
financing sources are limited.
Total LGFV debt is RMB11trn. Principal and interest payments would be RMB1.76trn in
2013 if with 10% matures and 6% interest, more than total LGFV bond issuance in 2012.
29
Land sales revenue and bond issuance Trust products on infrastructure
0
20
40
60
80
100
120
2004 2006 2008 2010 2012
RMB bn
0
200
400
600
800
1,000
1,200
1,400
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2006 2007 2008 2009 2010 2011 2012
RMB bn RMB bn
Land sales revenue, lhs
Urban construction bond, rhs
Banks face manageable risks from LGFVs and the property sector
Source: WIND, CEIC and Nomura Global Economics. Note: The left chart is as of end-September 2012.
Banks’ exposure to LGFVs and the property sector is sizable but contained since 2010.
Risks from the mortgage sector are limited.
30
Loan breakdown Breakdown of mortgage loans
LGFVs: RMB9.3trn
Mortgages: RMB7.9trn
Property developers: RMB3.8trn
Others: RMB40.5trn
Mortgages issued before
2009
Mortgages issued before
tightening (2009-10)
Mortgage issued after tightening (2011-12)
30%
55%
15%
Banks face problems in the wealth management products (WMP)
Source: WIND, CEIC and Nomura Global Economics. Note: Data of January and February for 2013*.
Three problems about WMPs: maturity mismatch, lack of transparency, and links to risky
assets.
31
WMPs by tenor WMPs by investment channel
The rapid rise of trust companies’ AUM is a worrying sign
Source: WIND, CEIC and Nomura Global Economics.
Trust companies have become the second largest group of financial institutions, bigger
than insurance companies.
Official data likely understate exposure to LGFVs and property sectors.
32
Asset under management by sectors Breakdown of trust products
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2007 2008 2009 2010 2011 2012
RMB bn
Mutual funds Insurance Trust
0
200
400
600
800
1,000
1,200
1,400
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12
RMB bn
Infrastructure
Real Estate
Industrial & Commercial Enterprise
The trust boom leads to policy tightening and a growth slowdown
Source: CEIC and Nomura Global Economics.
33
-2
0
2
4
6
8
10
12
14
16
1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
% y-o-y Real GDP growth
Sept 1985
Oct 1988
1993-1996
1998
Mar 2007
Regulators have tightened controls on trust loans five times since 1985. In every case,
GDP growth has dropped after tightening.
Property developers’ leverage has risen in recent years
Source: Bloomberg and Nomura Global Economics.
34
0
10
20
30
40
50
60
70
80
2009 2010 2011 2012
Ratio Net debts to asset ratio of listed property developers
Policy makers may learn lessons from Japan and Germany in the 1980s
Source: IMF, CEIC and Nomura Global Economics.
35
160
190
220
250
90
100
110
120
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992
% of GDP
Germany Japan, rhs
% of GDP
36
Forecast summary
Note: Numbers in bold are actual values; others forecasts. Interest rate and currency forecasts are end of period; other measures are period average. All
forecasts are modal forecasts (i.e., the single most likely outcome). Table last revised on 9 May 2013.
Source: Nomura Global Economics.
% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014
Real GDP 8.1 7.6 7.4 7.9 7.7 7.5 7.4 7.2 7.8 7.5 7.5
Consumer prices 3.8 2.9 1.9 2.1 2.4 2.3 2.6 3.4 2.6 2.7 4.0
Core CPI 1.5 1.3 1.5 1.5 1.7 1.8 2.2 2.1 1.5 2.0 2.0
Retail sales (nominal) 14.9 13.9 13.5 14.9 12.4 12.8 13.4 14.3 14.2 13.2 16.0
Fixed-asset investment (nominal, ytd) 20.9 20.4 20.5 20.6 20.9 21.0 21.1 21.6 20.6 21.6 20.0
Industrial production (real) 11.6 9.5 9.1 10.0 9.5 9.5 9.3 9.3 10.1 9.4 9.7
Exports (value) 7.6 10.4 4.4 9.5 18.4 4.0 6.0 6.0 7.9 8.1 6.0
Imports (value) 6.9 6.4 1.4 2.8 8.3 8.0 9.0 9.0 4.4 8.6 10.0
Trade surplus (US$bn) 0.2 68.4 79.2 83.4 43.5 52.9 70.1 74.3 231.2 240.8 199.8
Current account (% of GDP) 2.3 1.8 0.9
Fiscal balance (% of GDP) -1.6 -1.5 -1.6
New increased RMB loans (CNY trn) 8.2 9.0 9.0
1-yr bank lending rate (%) 6.56 6.31 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00
1-yr bank deposit rate (%) 3.50 3.25 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
Reserve requirement ratio (%) 20.5 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 19.0
Exchange rate (CNY/USD) 6.30 6.35 6.28 6.23 6.21 6.08 6.12 6.15 6.23 6.15 6.18
Disclosure Appendix A-1 ANALYST CERTIFICATIONS
I, Zhiwei Zhang, hereby certify (1) that the views expressed in this report accurately reflect our personal views about any or all of the subject securities or issuers referred to in this report, (2) no part of our
compensation was, is or will
be directly or indirectly related to the specific recommendations or views expressed in this report and (3) no part of our compensation is tied to any specific investment banking transactions performed by
Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.
Issuer Specific Regulatory Disclosures
The term "Nomura Group" used herein refers to Nomura Holdings, Inc. or any of its affiliates or subsidiaries, and may refer to one or more Nomura Group companies.
Issuer Disclosures
PEOPLE'S REPUBLIC OF CHINA A13
A13 The Nomura Group has a significant financial interest (non-equity) in the issuer.
IMPORTANT DISCLOSURES
Online availability of research and additional conflict-of-interest disclosures
Nomura research is available on www.nomuranow.com/research, Bloomberg, Capital IQ, Factset, MarkitHub, Reuters and ThomsonOne.
Important disclosures may be accessed through the left hand side of the Nomura Disclosure web page http://www.nomura.com/research or requested from Nomura Securities International, Inc., on 1-877-
865-5752. If you have any difficulties with the website, please email [email protected] for technical assistance.
The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, a portion of which is generated by Investment Banking activities.
Unless otherwise noted, the non-US analysts listed at the front of this report are not registered/qualified as research analysts under FINRA/NYSE rules, may not be associated persons of NSI, and may not
be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account.
Nomura Global Financial Products Inc. (“NGFP”), Nomura Derivative Products Inc. (“NDP”) and Nomura International plc. (“NIplc”) are registered with the Commodities Futures Trading Commission as a
major swap participant and a swap dealer, respectively, and each is a member in good standing of the National Futures Association. NGFP, NDP, and NIplc are generally engaged in the trading of futures
and derivative products, any of which may be the subject of this report.
ADDITIONAL DISCLOSURES REQUIRED IN THE U.S.
Principal Trading: Nomura Securities International, Inc. and its affiliates will usually trade as principal in the fixed income securities (or in related derivatives) that are the subject of this research report. Analyst
Interactions with other Nomura Securities International, Inc. Personnel: The fixed income research analysts of Nomura Securities International, Inc. and its affiliates regularly interact with sales and trading
desk personnel in connection with obtaining liquidity and pricing information for their respective coverage universe.
Valuation methodology – Fixed Income
Nomura’s Fixed Income Strategists express views on the price of securities and financial markets by providing trade recommendations. These can be relative value recommendations, directional trade
recommendations, asset allocation recommendations, or a mixture of all three.
The analysis which is embedded in a trade recommendation would include, but not be limited to:
•Fundamental analysis regarding whether a security’s price deviates from its underlying macro- or micro-economic fundamentals.
•Quantitative analysis of price variations.
•Technical factors such as regulatory changes, changes to risk appetite in the market, unexpected rating actions, primary market activity and supply/ demand considerations.
The timeframe for a trade recommendation is variable. Tactical ideas have a short timeframe, typically less than three months. Strategic trade ideas have a longer timeframe of typically more than three
months.
DISCLAIMERS
This document contains material that has been prepared by the Nomura entity identified at the top or bottom of page 1 herein, if any, and/or, with the sole or joint contributions of one or more Nomura entities
whose employees and their respective affiliations are specified on page 1 herein or identified elsewhere in the document. The term "Nomura Group" used herein refers to Nomura Holdings, Inc. or any of its
affiliates or subsidiaries and may refer to one or more Nomura Group companies including: Nomura Securities Co., Ltd. ('NSC') Tokyo, Japan; Nomura International plc ('NIplc'), UK; Nomura Securities
International, Inc. ('NSI'), New York, US; Nomura International (Hong Kong) Ltd. (‘NIHK’), Hong Kong; Nomura Financial Investment (Korea) Co., Ltd. (‘NFIK’), Korea (Information on Nomura analysts registered
with the Korea Financial Investment Association ('KOFIA') can be found on the KOFIA Intranet at http://dis.kofia.or.kr); Nomura Singapore Ltd. (‘NSL’), Singapore (Registration number 197201440E, regulated by
the Monetary Authority of Singapore); Nomura Australia Ltd. (‘NAL’), Australia (ABN 48 003 032 513), regulated by the Australian Securities and Investment Commission ('ASIC') and holder of an Australian
financial services licence number 246412; P.T. Nomura Indonesia (‘PTNI’), Indonesia; Nomura Securities Malaysia Sdn. Bhd. (‘NSM’), Malaysia; NIHK, Taipei Branch (‘NITB’), Taiwan; Nomura Financial Advisory
and Securities (India) Private Limited (‘NFASL’), Mumbai, India (Registered Address: Ceejay House, Level 11, Plot F, Shivsagar Estate, Dr. Annie Besant Road, Worli, Mumbai- 400 018, India; Tel: +91 22 4037
4037, Fax: +91 22 4037 4111; SEBI Registration No: BSE INB011299030, NSE INB231299034, INF231299034, INE 231299034, MCX: INE261299034); and NIplc, Madrid Branch (‘NIplc, Madrid’). ‘CNS
Thailand’ next to an analyst’s name on the front page of a research report indicates that the analyst is employed by Capital Nomura Securities Public Company Limited (‘CNS’) to provide research assistance
services to NSL under a Research Assistance Agreement. CNS is not a Nomura entity.
THIS MATERIAL IS: (I) FOR YOUR PRIVATE INFORMATION, AND WE ARE NOT SOLICITING ANY ACTION BASED UPON IT; (II) NOT TO BE CONSTRUED AS AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITY IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE ILLEGAL; AND (III) BASED UPON INFORMATION FROM SOURCES THAT WE
CONSIDER RELIABLE, BUT HAS NOT BEEN INDEPENDENTLY VERIFIED BY NOMURA GROUP.
Nomura Group does not warrant or represent that the document is accurate, complete, reliable, fit for any particular purpose or merchantable and does not accept liability for any act (or decision not to act)
resulting from use of this document and related data. To the maximum extent permissible all warranties and other assurances by Nomura group are hereby excluded and Nomura Group shall have no liability for
the use, misuse, or distribution of this information.
Opinions or estimates expressed are current opinions as of the original publication date appearing on this material and the information, including the opinions and estimates contained herein, are subject to
change without notice. Nomura Group is under no duty to update this document. Any comments or statements made herein are those of the author(s) and may differ from views held by other parties within
Nomura Group. Clients should consider whether any advice or recommendation in this report is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice.
Nomura Group does not provide tax advice.
Nomura Group, and/or its officers, directors and employees, may, to the extent permitted by applicable law and/or regulation, deal as principal, agent, or otherwise, or have long or short positions in, or buy or
sell, the securities, commodities or instruments, or options or other derivative instruments based thereon, of issuers or securities mentioned herein. Nomura Group companies may also act as market maker or
liquidity provider (within the meaning of applicable regulations in the UK) in the financial instruments of the issuer. Where the activity of market maker is carried out in accordance with the definition given to it by
specific laws and regulations of the US or other jurisdictions, this will be separately disclosed within the specific issuer disclosures.
This document may contain information obtained from third parties, including ratings from credit ratings agencies such as Standard & Poor’s. Reproduction and distribution of third party content in any form is
prohibited except with the prior written permission of the related third party. Third party content providers do not guarantee the accuracy, completeness, timeliness or availability of any information, including
ratings, and are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such content. Third party content providers give no
express or implied warranties, including, but not limited to, any warranties of merchantability or fitness for a particular purpose or use. Third party content providers shall not be liable for any direct, indirect,
incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including lost income or profits and opportunity costs) in connection with any use of their
content, including ratings. Credit ratings are statements of opinions and are not statements of fact or recommendations to purchase hold or sell securities. They do not address the suitability of securities or the
suitability of securities for investment purposes, and should not be relied on as investment advice.
Any MSCI sourced information in this document is the exclusive property of MSCI Inc. (‘MSCI’). Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be
reproduced, re-disseminated or used to create any financial products, including any indices. This information is provided on an "as is" basis. The user assumes the entire risk of any use made of this information.
MSCI, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for
a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the
information have any liability for any damages of any kind. MSCI and the MSCI indexes are services marks of MSCI and its affiliates.
Investors should consider this document as only a single factor in making their investment decision and, as such, the report should not be viewed as identifying or suggesting all risks, direct or indirect, that may
be associated with any investment decision. Nomura Group produces a number of different types of research product including, among others, fundamental analysis, quantitative analysis and short term trading
ideas; recommendations contained in one type of research product may differ from recommendations contained in other types of research product, whether as a result of differing time horizons, methodologies or
otherwise. Nomura Group publishes research product in a number of different ways including the posting of product on Nomura Group portals and/or distribution directly to clients. Different groups of clients may
receive different products and services from the research department depending on their individual requirements. Clients outside of the US may access the Nomura Research Trading Ideas platform (Retina) at
http://go.nomuranow.com/equities/tradingideas/retina/
Figures presented herein may refer to past performance or simulations based on past performance which are not reliable indicators of future performance. Where the information contains an indication of future
performance, such forecasts may not be a reliable indicator of future performance. Moreover, simulations are based on models and simplifying assumptions which may oversimplify and not reflect the future
distribution of returns.
Certain securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of, or income derived from, the investment.
The securities described herein may not have been registered under the US Securities Act of 1933 (the ‘1933 Act’), and, in such case, may not be offered or sold in the US or to US persons unless they have
been registered under the 1933 Act, or except in compliance with an exemption from the registration requirements of the 1933 Act. Unless governing law permits otherwise, any transaction should be executed
via a Nomura entity in your home jurisdiction.
This document has been approved for distribution in the UK and European Economic Area as investment research by NIplc. NIplc is authorised by the Prudential Regulation Authority (‘PRA’), regulated by the
Financial Conduct Authority and the PRA and .is a member of the London Stock Exchange. This document does not constitute a personal recommendation within the meaning of applicable regulations in the
UK, or take into account the particular investment objectives, financial situations, or needs of individual investors. This document is intended only for investors who are 'eligible counterparties' or 'professional
clients' for the purposes of applicable regulations in the UK, and may not, therefore, be redistributed to persons who are 'retail clients' for such purposes. This document has been approved by NIHK, which is
regulated by the Hong Kong Securities and Futures Commission, for distribution in Hong Kong by NIHK. This document has been approved for distribution in Australia by NAL, which is authorized and
regulated in Australia by the ASIC. This document has also been approved for distribution in Malaysia by NSM. In Singapore, this document has been distributed by NSL. NSL accepts legal responsibility for
the content of this document, where it concerns securities, futures and foreign exchange, issued by their foreign affiliates in respect of recipients who are not accredited, expert or institutional investors as
defined by the Securities and Futures Act (Chapter 289). Recipients of this document in Singapore should contact NSL in respect of matters arising from, or in connection with, this document. Unless
prohibited by the provisions of Regulation S of the 1933 Act, this material is distributed in the US, by NSI, a US-registered broker-dealer, which accepts responsibility for its contents in accordance with the
provisions of Rule 15a-6, under the US Securities Exchange Act of 1934.
This document has not been approved for distribution to persons other than ‘Authorised Persons’, ‘Exempt Persons’ or ‘Institutions’ (as defined by the Capital Markets Authority) in the Kingdom of Saudi Arabia
(‘Saudi Arabia’) or to clients other than 'professional clients' (as defined by the Dubai Financial Services Authority) in the United Arab Emirates (‘UAE’) by Nomura Saudi Arabia, NIplc or any other member of
Nomura Group, as the case may be. Neither this document nor any copy thereof may be taken or transmitted or distributed, directly or indirectly, by any person other than those authorised to do so into Saudi
Arabia or in the UAE or to any person other than ‘Authorised Persons’, ‘Exempt Persons’ or ‘Institutions’ located in Saudi Arabia or to clients other than 'professional clients' in the UAE. By accepting to receive
this document, you represent that you are not located in Saudi Arabia or that you are an ‘Authorised Person’, an ‘Exempt Person’ or an ‘Institution’ in Saudi Arabia or that you are a 'professional client' in the
UAE and agree to comply with these restrictions. Any failure to comply with these restrictions may constitute a violation of the laws of the UAE or Saudi Arabia.
NO PART OF THIS MATERIAL MAY BE (I) COPIED, PHOTOCOPIED, OR DUPLICATED IN ANY FORM, BY ANY MEANS; OR (II) REDISTRIBUTED WITHOUT THE PRIOR WRITTEN CONSENT OF A
MEMBER OF NOMURA GROUP. If this document has been distributed by electronic transmission, such as e-mail, then such transmission cannot be guaranteed to be secure or error-free as information could
be intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. The sender therefore does not accept liability for any errors or omissions in the contents of this document, which may
arise as a result of electronic transmission. If verification is required, please request a hard-copy version.
Nomura Group manages conflicts with respect to the production of research through its compliance policies and procedures (including, but not limited to, Conflicts of Interest, Chinese Wall and Confidentiality
policies) as well as through the maintenance of Chinese walls and employee training.
Additional information is available upon request and disclosure information is available at the Nomura Disclosure web page:
http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx
