1. Dont snob the PIIGS! Bull markets are born on pessimism,
grow on skepticism, mature on optimism and die on euphoria Sir John
Templeton PortugalItaly IrelandGreece Spain 250 200 150 10050 -
3/15/2004 3/15/2005 3/15/2006 3/15/2007 3/15/2008 3/15/2009
3/15/2010 3/15/2011 3/15/2012March 2013Genua
2. Introduction . Europes sovereign debt crisis has been the
center of all attention for the past 3 years and has been very
severe due to poor political governance/management. Instead of
doing the best for their countries, they do the best for theirown
political carriers... pathetic! . As a result, economies in the
Euro zone remain troubled and austerity measures are negatively
impacting growth . However, cosmetic measures taken by Draghi and
the creation of the European Stability Mechanism (ESM) have had a
surprisingly positive effect, CDS levels and - by ricochet - bond
yields have fallen drastically. Thank you Super Mario! Unlimited
help was the trick ;-) In addition to words, hedge funds had to
liquidate naked long CDS positions (naked longs = being long
without the underlying) + short bans on stocks were introduced for
example for the Ibex futures. Regulation seems to have effect! .
Now that the hedge funds have stopped fooling with the PIIGS, and
have/are gradually increas-ed/ing their LONG exposure to them
Risk-ON folks! Moreover, a lot of cash is sitting on the sidelines
ready to be deployed. The Dax and the S&P are at record highs.
I believe that money will flow out of more mature stock markets
into the PIIGS + rotations from bonds to equities. . Yields have
gone back to more tolerable/supportable levels helping also budget
deficits a bit. . Although most of European countries are currently
in recession, expansion is just a matter of month now according to
IMF projections and political leaders are currently working hard on
measures to boost domestic economies.March 2013Genua 2/18
3. Conclusion . All these markets are in oversold territory,
abandoned by feared investors . PIIGS stock markets have
substantial upside after being killed/slashed/shorted/destroyed .
Multi billion bailout programs offers sort of immunity for
struggling economies . Negative media attention has disappeared.
Their focus is on sink-holes, asteroids and meteors currently .
After 15478 credit rating downgrades by the big 3 in the past 3
years, we will start to get credit rating upgrades!! . PIIGS offer
good value especially after recent drop. I dont believe that its a
value trap. . What goes around comes around. Everything always goes
back to normal/mean. Ok, sometimes it takes a bit more time than we
think! . I believe that even the worst of the worst-case scenarios
is priced into these markets. For the pas 3 years we have heard
everything about Greece. Going back to Drachmes, selling Mykonos
island, replacing mozzarella in pizzas with feta, etc . I am
bullish PIIGS but not necessarily bullish on the EUR currency, I
favor the USD the dominant reserve currency. . Bottom-line: recent
pull-back offers great opportunity to go long. Investment horizon :
long term!March 2013Genua 3/18
4. 4/18Genua March 2013 204080 100 120 60 0 1/15/2010 2/15/2010
3/15/2010 4/15/2010 5/15/2010 6/15/2010 7/15/2010 Source: google
trends, Genua 8/15/2010 9/15/2010 10/15/2010 11/15/2010 12/15/2010
1/15/2011 2/15/2011 3/15/2011 4/15/2011 5/15/2011 6/15/2011
7/15/2011 8/15/2011 9/15/2011 10/15/2011 11/15/2011 12/15/2011
1/15/2012 2/15/2012 3/15/2012 4/15/2012 5/15/2012 6/15/2012
7/15/2012the Google search bar 8/15/2012 9/15/2012debt crisis was
punched-inNumber of times European According to Google (trends)
searches, the crisis is over, for now! 10/15/2012 11/15/2012
12/15/2012European debt crisis (100=maximum searches) 1/15/2013
2/15/2013
5. Bailout programs for EU members (since 2008) Financial
Support Instruments. Weapons for stability! Latest European
casualty Cyprus should get 17Bn bailout in the coming
days/hoursEFSM -EFSF - ESM -European European BoP - balance GLF
(greekEuropean BailoutIN BN Time spanIMFWorld Bank EIB / EBRD
Bilateralism Financial Financialof payments loan
facility)Stabilitytotal Stabilisation Stability MechanismMechanism
Facility2013-01-15Jan.2013-Cyprus negociations --- -- - -
negociations negociations Dec.2015 2010-05-01May 2010-
48.1Greece--- -52.9- 144.6- 245.62 Mar.2016 (20.1+19.8+8.2)
2008-11-01Nov.2008-9.15.515.6Hungary 1--- - -- Oct.2010 out of 12.5
out of 6.5out of 20.03 2010-11-01Nov.2010-Ireland22.5 -- 4.8--
22.517.7 - 67.54 Dec.2013 2008-12-01Dec.2008-1.10.0 2.94.5Latvia
0.40.1- - -- Dec.2011out of 1.7 out of 2.2out of 3.1 out of 7.55
2011-05-01May 2011-Portugal26--- --2626- 78May 2014 2009-05-01May
2009- 12.6 19.6Romania 11- 5- - --June 2011out of 13.6out of 20.66
2011-03-01Mar 2011-0.00.0 0.0Romania II---- - --Mar 2013 out of 3.7
out of 1.4out of 5.17 2012-07-23July 2012- 41.4 41.4Spain---- -- -
- Dec.2013 out of 100out of 1008 2013-02-01Perhaps
inSpainnegociations --- -- - - negociations negociations2013Total
Nov.2008-Mar.2016 119.42.41.14.813.4 52.948.5188.341.4472.2Source:
wikipedia, IMF, WB, EIBMarch 2013Genua 5/18
6. CDS - Credit Default SwapsSpreads Back down to more
tolerable levels. Spreads could keep falling 1600Greek CDS
(!)Portugal 14002510020100 12001510010100 10005100100 Jan-09Jan-10
Jan-11 Jan-12 Jan-13800 Ireland600400 SpainItaly200Can go
lower0March 2013Genua Source: Bloomberg, Genua6/18
7. 7/18Genua March 2013 0 5 10 1520 2530 35403/2/20075/2/2007
10 12 14 16024867/2/20079/2/2007 11/2/20071/2/2008 Source:
Bloomberg, Genua3/2/20085/2/20087/2/20089/2/2008 11/2/20081/2/2009
Near to death experienced!3/2/2009Irish 8Y Yields (10Y
N/A)5/2/20097/2/20099/2/200910 Year Bond Yields (%)
11/2/20091/2/20103/2/20105/2/20107/2/20109/2/2010
11/2/20101/2/20113/2/2011ItalyIreland5/2/20117/2/20119/2/2011
11/2/20111/2/20123/2/2012Greece5/2/2012
Spain7/2/20129/2/2012Portugal 11/2/20121/2/2013 Can go lower
8. Debt/GDP Ratios (%)Super high but will not go much higher -
now that it is taken care of () 180 160 Greece Except for Greece,
most of 140 the PIIGS experienced similar debt/GDP levels in the
90s Italy 120 100 Ireland80 Portugal60 Spain4020 0Source: IMF,
GenuaMarch 2013Genua 8/18
9. Real GDP (%)Past, present and future 12 IMF projections 10
Portugal Ireland86 Spain42Italy0 -2 -4 -6Greece -8 Source: IMF,
GenuaMarch 2013Genua 9/18
11. Unemployment rate (%)Poised to drop.30 These levels are
scary butIMF projections should start to reverse course now
Governments25 have to do something. Spain20Greece15Ireland10Italy
5Portugal 0 Source: IMF, GenuaMarch 2013Genua 11/18
13. PIIGS Cycle of Market EmotionsOptimism is on its way We are
here Source: GenuaMarch 2013Genua 13/18
14. PIIGS In figuresValuations are ok for now my view is that
earnings will go up sharply when growth comes back Perf. Since
Perf. Since Current eP/E 2013eP/E 2014 Current 2Y Current 5yS&P
Credit Summer 12 2007 highs10y yieldsCDS levels(x)(x)yields (%)
yields (%)ratinglows (%)(%)(%)Portugal 37-5616.16 12.213.24
5.466.24 BB 380.1Ireland29.5-6119.18 14.411.48 2.896.61 BBB+
164.3Italy29.6-6510.83 8.91 1.893.54.63 BBB+ 277.2Greece
66.3-8223.410.49 164 58.35 11.27B- 23572Spain41.5-4711.75 10.082.43
3.814.99BBB-266.9Germany29.7-2.5 11.64 10.270.033 0.41.394
AAA37.4as of March 05.03.2013 Source: MarketMap, Bloomber,
Boursorama, S&PMarch 2013Genua 14/18
15. PIIGS S&P Credit ratingsRise from the grave?March
2013Genua 15/18
16. European politicsWhat to watch in 2013 Source: Deutsche
Bank,March 2013Genua 16/18
17. Interested in this exciting theme? Contact us
[email protected] are launching a solution to invest in this
theme. On the PIIGS in EUR.Index linked. Equal-weighted.March
2013Genua 17/18
18. Bonus TextDisclaimer Important information: This document
is for general informative purpose only and is not considered as a
financial analysis regarding the SBA Directives aiming to guarantee
the financial analysis independence. As a consequence, the
principles contained in these Directives do not apply to this
document or its content. This document does not constitute an offer
or solicitation to purchase or sell any investment products
mentioned herein. It is not intended for distribution, publication,
or use in any jurisdiction where such distribution, publication or
use would be unlawful, nor it is directed to any person or entity
to which it would be unlawful to direct such a document. Genua
Advisors is available upon request for additional information
regarding offering and selling restrictions. In particular, such
restrictions apply for US persons and/or activity directed to the
USA. The opinions herein do not take into account individual
clients circumstances, objectives or needs. In particular,
structured products, derivatives or alternative investments are to
be considered as complex financial instruments which might involve
important level of risk such as but not limited to: credit risk,
currency risk (changes in the rate of exchange may also cause the
value of the investment to go up and down), political risk and
markets risk. Upon request, Genua Advisors is available to provide
additional information to clients on risks associated with specific
investments. The information and analysis contained herein have
been based on sources believed to be reliable. However, this
information has not been independently verified. Therefore, no
guaranty, representation or warranty (implied or express) can be
accepted about their timeliness, accuracy, or completeness. Genua
Advisors does not accept any liability whatsoever for any direct or
indirect loss or damage resulting from the use of the present
document or its content. Genua Advisors may have published or
publish in the future similar documents whose information could be
inconsistent with the information presented in the present
document. Genua Advisors may stop at its initiative producing or
updating this document. All information (including prices,
performance) and opinions are subject to change without notice.
Past performances, whether actual or back-tested, are not
necessarily indicative of future performance. Shares valuation and
any income generated from them can increase as well as decrease and
are not guaranteed in any way. The financial products potentially
mentioned in this document can fluctuate in value and may be
subject to sudden and large falls that could equal the amount
invested. Genua Advisors may from time to time, on its own behalf
or on behalf of third parties, engage in transactions in the
financial instrument(s) described herein, take positions with,
perform or seek to perform or receive investment banking or other
services. All rights reserved. No element of this publication can
be copied, memorized electronically or transferred by any means,
whether mechanically or electronically without the prior written
consent of Genua Advisors. Genua AdvisorsMarch 2013Genua 18/18
