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Mejores inversiones del año
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
Anti-deflationary measures leave room for positive surprises in Europe
Equity Strategy - November 2014
Beatriz Tejero European Equity Strategist | [email protected] I +34 91 374 46 61
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Anti-deflationary measures leave room for
positive surprises in Europe / November 2014
PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
• Our call for 2014 was to go long on equities, with developed markets outperforming the emerging ones and a relative
outperformance of Europe vs. the US. Despite the lower growth momentum in emerging markets and Europe, our fundamental
position has not changed and we do expect further equity market gains in 2015
• Our constructive outlook in equities is supported by:
1. An improving global growth, although at a slow pace: We expect better growth conditions for the countries which depend
more on local demand, since the concentration of the global supply chains in China will cause global trade to slow further. In that
sense, among emerging markets we prefer Asia over LatAm. Inside LatAm, we still prefer countries that have introduced structural
reforms, and consequently our favourite is Mexico
• In the developed areas, the US is still the bright spot. Productivity levels are supported by contained ULCs and the positive
impact of lower energy costs. This, together with growing private demand based on the wealth effect that underpins the
personal consumption and on the “reindustrialisation”, will help to boost investment
• In Europe, the expansionary policy mix (monetary policy, fiscal policy and structural reforms) avoids a deflationary framework.
We think that there is room for positive surprises driven by less restrictive fiscal policies, aggressive QE and the euro’s
depreciation
• In Spain, credit growth is still weak but the expansionary monetary policy, together with the NPL’s having reached their peak
and the foreseeable cycle improvement, will help the growth in credit volumes accelerate
2. Corporate use of cash: Equities will be underpinned by the positive cycle in the US, and in general by the attractive cash flow
generation, that will support corporate M&A activity, leading to RoE improvement. Shareholder remuneration is a positive.
Considering the low rates environment, relative valuations remain attractive (EY of the S&P 500 at 6.3% vs. 10Y Treasury at
2.3%, EY of the Stoxx600 at 8.0% vs. 10Y Bund at 1.0%)
Executive Summary
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Anti-deflationary measures leave room for
positive surprises in Europe / November 2014
PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
3. Policy mix and structural reforms will continue to reduce the equity risk premium: liquidity will be high and interest
rates will remain low and this will make investors look for yield. The policy actions, the infrastructure development plans
and the weaker euro leave a lot of room for positive surprises for the European cycle and EPS revisions, which are still near all
time lows (-45% vs. 2010 peak and -60% vs. 2007 peak). Margins will be well supported by the operating leverage (European
margins 4% below US ones), and M&A activity (+60% YoY in Europe and +56% YoY globally) will help reach higher RoEs.
Valuations are appealing in both absolute (P/E15 11.5x BBVAe for the Eurostoxx50 vs. 15x of the S&P500) and relative terms
(EY15 Eurostoxx50 at 8.7% vs. BBB European corporate bonds at 1.8%), especially considering the low interest rates
framework. Following our Gordon valuation model, our target for the S&P 500 for 2015 is 2,175, for the Eurostoxx50 3,900
and for the Ibex-35 12,000. Note that Europe has the greatest potential, but entails the highest risks too, since valuations
depend on the policy mix. Our valuation contemplates a QE that includes sovereign bonds. In the US indices, future returns
might moderate if the Fed starts raising rates any time in 2015
4. Earnings can recover even in a low inflation scenario: technological innovation, reindustrialisation and productivity gains on
low ULC and energy costs can compensate for the impact of low CPI. In fact we expect a +9% YoY EPS growth for the S&P500
in 2015, +16% YoY for the Euro Stoxx 50 and +20.5% YoY for the Ibex-35
Executive Summary
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Anti-deflationary measures leave room for
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
5. Sector recommendations: In the US, we look for growth sectors (IT and Healthcare) and look to play the positive surprises in
consumption through Consumer Cyclicals. We also want to be exposed to the floor in oil prices (Oil & Gas sector). Since the
Fed is expected to raise rates in 2H15, we will avoid sectors sensitive to interest rate hikes (Telecommunications and Utilities)
• In Europe, we want to play the RoE recovery though Financials and Cyclicals and the investment repositioning with IT and
Semiconductors. We will profit from the global rise in infrastructure investment by buying the Construction and Building
Materials sector. We want to be exposed to the recent stabilisation of raw material prices, and especially oil, through the
Materials and Oil & Gas sectors
• In Iberia, we want to profit from the ECB’s expansionary policy and the return to higher RoEs by being exposed to the Banking
sector (Santander, Liberbank). We will play the global cyclical recovery by investing in Materials (Acerinox, Arcelor Mittal) and
aim to gain from the floor reached in oil prices through the Oil & Gas sector (Repsol and GALP are our top picks). We want to
be exposed to the Spanish recovery through the Media sector (Mediaset, Atresmedia). We would also like to follow Iberian
Small Caps: Portucel, Técnicas Reunidas, CTT, CAF, CIE Automotive, Deoleo, Logista and Zeltia
Executive Summary
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Anti-deflationary measures leave room for
positive surprises in Europe / November 2014
PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
Section 0
A look at what has happened in 2014
Section 1
On the right track for global growth in 2015 1.1. A modest global acceleration of growth: innovation and trade are key
1.2.The US is still the bright spot
1.3.No deflation in Europe. Room for positive surprises
1.4.Spain. Internal demand and housing sector improving
1.5.Emerging economies: back to growth but at different rates. Transition to a model less dependent on exports and investment
1.6.Key issues for our financial models
Structural low-neutral interest rates in developed markets A stronger USD is here to stay Raw materials will bottom out on the recovery of the cycle
Index
Section 2
Asset allocation
Section 3
Equity strategy in developed markets 3.1 US equities: still positive but lower returns lie ahead
3.2 Why would we invest in European and Iberian equities?
3.3 Investment ideas in the US
3.4 Investment ideas in Europe
3.5 Investment ideas in Iberia
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Anti-deflationary measures leave room for
positive surprises in Europe / November 2014
PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
Section 0
A look at what has happened in 2014
Our call for 2014 was to go long on equities with developed markets outperforming. Relative outperformance of Europe vs. the US and
with Emerging markets lagging behind
The reality check: US equities rallying with European markets remaining flat. Good performance of the traditional safe heavens, such as sovereign bonds
The reason: fears of deflation in Europe and concerns about global growth
25.1 22.6
14.710.0
8.3 7.2 7.2 7.1 5.1 4.6 3.30.8
-3.9 -6.6-10.8
-15.2
-24.4-28.1
CorpUS(TR)
MSCIPERU
S&P 500 IBEX 35 MX IPC MSCIWorld
Govt 10aUS (TR)
STOXXEurope
600
E 50 MSCI EMAsia
MSCI MX HangSeng
Gold MSCI EMLatAm
MSCI BR GSCI TR MSCIPortugal
Oil-Brent
Performance of world indexes (YoY % change until closing of 24/11/2014) Source: DataStream
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Anti-deflationary measures leave room for
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
Index
Section 0
A look at what has happened in 2014 Section 1
On the right track for global growth in 2015
1.1. A modest global acceleration of growth: innovation and trade are key
1.2.The US is still the bright spot
1.3.No deflation in Europe. Room for positive surprises
1.4.Spain. Internal demand and housing sector improving
1.5.Emerging economies: back to growth but at different rates. Transition to a model less dependent on exports and investment
1.6.Key issues for our financial models
Structural low-neutral interest rates in developed markets
A stronger USD is here to stay
Raw materials will bottom out on the recovery of the cycle
Section 2
Asset allocation
Section 3
Equity strategy in developed markets 3.1. US equities: still positive but lower returns lie ahead
3.2. Why would we invest in European and Iberian equities?
3.3. Investment ideas in the US
3.4. Investment ideas in Europe
3.5. Investment ideas in Iberia
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Anti-deflationary measures leave room for
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
Global macroeconomic forecasts *Data updated in September 2014 Source: BBVA based on OECD, EC and IMF
1.1. A modest acceleration of growth: global growth to rise in 2015 to 3.7%-3.8% YoY (vs. 3.2% in 2014e)
Section 1
On the right track for global growth in 2015
2014e 2015e 2014e 2015e 2014e 2015e 2014e 2015e 2014e 2015e 2014e 2015e
World 3.2 3.0 3.2 3.7 3.3 3.8 3.3 3.8 4.2 3.8 4.2 4.4
US 2.8 1.9 2.0 2.5 2.2 3.1 2.2 3.1 2.1 1.5 1.9 2.2 1.8 2.0 2.0 2.1
UK 0.3 1.7 3.1 2.7 3.1 2.7 3.2 2.7 2.8 2.6 1.5 1.6 1.5 1.6 1.6 1.8
Eurozone -0.6 -0.4 0.8 1.3 0.8 1.1 0.8 1.3 2.5 1.4 0.5 1.0 0.5 0.8 0.5 0.9
Germany 0.9 0.5 1.3 1.4 1.3 1.1 1.4 1.5 2.1 1.6 0.9 1.5 0.9 1.2 0.9 1.2
France 0.4 0.4 0.4 1.1 0.3 0.7 0.4 1.0 2.2 1.0 0.7 0.9 0.6 0.7 0.7 0.9
Italy -2.4 -1.8 -0.3 0.8 -0.4 0.6 -0.2 0.8 3.3 1.3 0.3 0.7 0.2 0.5 0.1 0.5
Spain -1.6 -1.2 1.3 2.0 1.2 1.7 1.3 1.7 2.4 1.4 0.0 1.0 -0.1 0.5 0.0 0.6
Portugal -3.3 -1.4 0.9 1.5 0.9 1.3 1.0 1.5 2.8 0.4 0.0 0.7 0.0 0.6 0.0 1.1
LatAm 2.6 2.4 0.9 1.8 1.4 2.4 7.6 8.9 13.1 14.2
Asia 5.2 5.2 5.0 5.2 6.1 6.3 5.5 5.6 3.4 3.5 3.4 3.6 3.7 3.7
Inflation (% YoY, average)GDP (% YoY)
BBVA (Nov-14) EC (Nov-14) IMF (Oct-14) BBVA (Nov-14) EC (Nov-14) IMF (Oct-14)
2012 2013 2012 2013
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Anti-deflationary measures leave room for
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
The expansionary policy mix should lead to positive feed-back loops, especially in Europe, Japan and the emerging markets. In the US much of the effect on growth is already known
Increasing return on capital
Wealth effect
Extremely lax monetary policy
Fiscal policy
(towards a looser stance beyond 2015)
Lower cost of capital
+
Business cycle
1.1. A modest global acceleration of growth
Structural reforms
Efficiency, productivity and lower ULCs
Section 1
On the right track for global growth in 2015
+
+
Innovation, digital revolution and
reindustrialisation
+
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Anti-deflationary measures leave room for
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
Global trade
Global trade to grow at a slower than expected pace. This slowdown might be structural. In fact world trade development has, to a large extent, relied on the globalisation of supply chains, and in the last 2-3 years China has concentrated a growing share of these supply chains. Consequently: i) countries with the right policy mix and/or have implemented structural reforms are more attractive and ii) exchange rates are key for the competitive advantage
World export volumes (% var. 3M) Source: Datastream, BBVA GMR
-4
-3
-2
-1
0
1
2
3
4
5
6
7
Mar-
10
May-
10
Jul-10
Sep-1
0
Nov-
10
Jan-1
1
Mar-
11
May-
11
Jul-11
Sep-1
1
Nov-
11
Jan-1
2
Mar-
12
May-
12
Jul-12
Sep-1
2
Nov-
12
Jan-1
3
Mar-
13
May-
13
Jul-13
Sep-1
3
Nov-
13
Jan-1
4
Mar-
14
May-
14
Jul-14
World exports EMs Developed
-0.4
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
0.4
0.5
BRL JPY CNY EUR USD MXN
Since 2008 Since 2004
Global exchange rates Source: BEA, BBVA GM Research
1.1. A modest global acceleration of growth
Section 1
On the right track for global growth in 2015
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Anti-deflationary measures leave room for
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
Industrial Production: US vs. Eurozone Source Federal Reserve, Eurostat, BBVA GMR
Investment supports the new industrial boom
Investment is the main growth driver in this cyclical recovery. Historically growth cycles driven by investment and industrial production have been longer and more resilient
US new capital goods orders (ex-defence and ex-aircraft) (USD bn) Source BEA, BBVA GMR
80
85
90
95
100
105
110
Dec-
98
Jul-99
Feb
-00
Sep-0
0
Apr-
01
Nov-
01
Jun-0
2
Jan-0
3
Aug-0
3
Mar-
04
Oct-04
May-
05
Dec-
05
Jul-06
Feb
-07
Sep-0
7
Apr-
08
Nov-
08
Jun-0
9
Jan-1
0
Aug-1
0
Mar-
11
Oct-11
May-
12
Dec-
12
Jul-13
Feb
-14
Sep-1
4
US Euro
40000
45000
50000
55000
60000
65000
70000
75000
Jan-9
5
Oct-95
Jul-96
Apr-
97
Jan-9
8
Oct-98
Jul-99
Apr-
00
Jan-0
1
Oct-01
Jul-02
Apr-
03
Jan-0
4
Oct-04
Jul-05
Apr-
06
Jan-0
7
Oct-07
Jul-08
Apr-
09
Jan-1
0
Oct-10
Jul-11
Apr-
12
Jan-1
3
Oct-13
Jul-14
1.2. The US is still the bright spot
Section 1
On the right track for global growth in 2015
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Anti-deflationary measures leave room for
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
Mortgage rates in the US have remained subdued: The recovery in the real estate market continues to support the wealth effect and this, together
with the stock market recovery, has supported the personal consumption expenditure and has offset the impact of the tax increases put in place last
year. The wealth indicator anticipates a PCE stability in the coming quarters. In fact the model of the US economy used by the Federal Reserve
suggests that an additional dollar of household wealth leads to a permanent rise in household consumption of about three to five cents
Impact of the real estate recovery on personal consumption expenditures Source: NAHB, BEA, BBVA GMR
The wealth indicator anticipates a further recovery in personal consumption expenditures Wealth indicator:1/3 (1/mortgage rates YoY) +2/3 SP500 YoY Source: Bloomberg, BBVA GMR
Real estate continues to perform better than expected with a knock-on effect on wealth
-2
-1
0
1
2
3
4
5
-0.4
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
0.4
0.5
Oct-
99
Oct-
00
Oct-
01
Oct-
02
Oct-
03
Oct-
04
Oct-
05
Oct-
06
Oct-
07
Oct-
08
Oct-
09
Oct-
10
Oct-
11
Oct-
12
Oct-
13
Oct-
14
Wealth indicator (-4 months) PCE YoY (%) (rhs)
-2
-1
0
1
2
3
4
5
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
Ja
n-0
0
Ja
n-0
1
Ja
n-0
2
Ja
n-0
3
Ja
n-0
4
Ja
n-0
5
Ja
n-0
6
Ja
n-0
7
Ja
n-0
8
Ja
n-0
9
Ja
n-1
0
Ja
n-1
1
Ja
n-1
2
Ja
n-1
3
Ja
n-1
4
Ja
n-1
5
Median House Sales Prices YoY (%) PCE YoY (%) (rhs)
1.2. The US is still the bright spot
Section 1
On the right track for global growth in 2015
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Anti-deflationary measures leave room for
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
It is important, however, for Europe to follow the path marked out by the United States if it wishes to mitigate the impact of secular stagnation, while also ensuring that the virtuous circle, now underway, does not distort or sag
Transfer of credit
Limited growth despite economic
upturn
Sharp injection
of liquidity via TLTRO
Carry trade
penalty
+
Driving the ABS/securitisation
market
Fostering business in
private equity/private placement
Sharp drop in
borrowing costs < RoE
Incentivising family wealth
by increasing financial assets
Weakening the euro Exports
Consumption
Encouraging private investment in
production
Reactivation
of SME borrowing/capital
Effect
six months
QE
Sovereign bonds
+
Fiscal slack
+
Low rates
Means of offsetting
Dis
inte
rme
dia
tio
n
Low Euro growth outlook
Bank deleveraging
The risk of deflation is very limited in Europe: the market is underestimating the interaction between real and financial variables
Section 1
On the right track for global growth in 2015
1.3. No deflation in Europe. Room for positive surprises
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Anti-deflationary measures leave room for
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
Note that among the central banks of the developed areas, only the Fed is expected to stop increasing the size of its balance sheet and it is going to be the first one to hike rates, although not in the near future. This should foster non-USD exports and help the European recovery
-4
-3
-2
-1
0
1
2
3
4
5
6
7
2000 2002 2004 2006 2008 2010 2012 2014
ECB Fed BoE BoJ
%
0%
10%
20%
30%
40%
50%
60%
70%
Oct-07
Apr-
08
Oct-08
Apr-
09
Oct-09
Apr-
10
Oct-10
Apr-
11
Oct-11
Apr-
12
Oct-12
Apr-
13
Oct-13
Apr-
14
Oct-14
BoE ECB Fed BoJ
Central bank balance sheet (% of GDP) Source: DataStream
Real policy rates Source: DataStream
Catalysts of a positive virtuous cycle in Europe: 1) An expansionary policy mix
Section 1
On the right track for global growth in 2015
1.3. No deflation in Europe. Room for positive surprises
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Anti-deflationary measures leave room for
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
Impact of a fall in the price of oil (pp) Source: BBVA Research
-0.3
-0.2
-0.1
0.0
0.1
0.2
Inflation GDP
2015 2016
Impact of a decline in EURUSD (pp) Source: BBVA Research
0.0
0.1
0.2
0.3
Inflation GDP
According to the ECB a fall in oil prices of -6.5% in two years has an impact on CPI of -0.1pp in the first year and -0.2pp in the second year and for every 1% yearly depreciation of the EUR vs. the USD, the impact on CPI is of 0.07pp and of +0.05pp YoY on the GDP growth rate. We believe that Brent should reach USD95/bbl (vs. the current USD77.02/bbl). This could add +0.18pp and +0.36pp to CPI in 2015 and 2016 respectively and could impede -0.18pp of growth in both 2015 and 2016. We also think that the USD will trade at EURUSD1.20 by the end of 2016 vs. current level of EURUSD1.25 (-4.2%). This would imply a 0.3pp increase in CPI and +0.2pp in GDP YoY growth in 2015 and 2016 respectively. Leading to no impact on growth and limiting the risks of deflation
Catalysts of a positive virtuous cycle in Europe: 3) The positive impact of currency and oil
Section 1
On the right track for global growth in 2015
1.3. No deflation in Europe. Room for positive surprises
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
Volumes of new credit Source ECB, BBVA GMR
The effects of the expansionary policy mix if the cycle recovers: credit improvement
Credit has been improving, especially in the European peripherals. Credit normalisation is essential for a sustainable recovery in Europe and Spain.
This will depend on how fast the fragmentation in European financial markets and the high levels of bank intermediation in Europe are reduced
-6%
-4%
-2%
0%
2%
4%
6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
Jun
-99
Jun
-00
Jun
-01
Jun
-02
Jun
-03
Jun
-04
Jun
-05
Jun
-06
Jun
-07
Jun
-08
Jun
-09
Jun
-10
Jun
-11
Jun
-12
Jun
-13
Jun
-14
Credit to Eurozone residents ex-government YoY (%) EMU GDP YoY (%) (rhs) (-2qtrs)
Credit vs. growth in the Eurozone Source: Bloomberg, BBVA GMR
Section 1
On the right track for global growth in 2015
1.3. No deflation in Europe. Room for positive surprises
-10
-5
0
5
10
15
20
1Q
04
3Q
04
1Q
05
3Q
05
1Q
06
3Q
06
1Q
07
3Q
07
1Q
08
3Q
08
1Q
09
3Q
09
1Q
10
3Q
10
1Q
11
3Q
11
1Q
12
3Q
12
1Q
13
3Q
13
1Q
14
3Q
14
Loans to non financial corp (YoY %) Loans to households (YOY%)
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Anti-deflationary measures leave room for
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
Spain: house transactions (000s per quarter, sa)
and housing prices (2007=100) Source: BBVA based on Ministry of Public Works
Spain: GDP growth breakdown *contribution to GDP growth
Source: BBVA based on INE
Since the beginning of 2014, the Spanish recovery has been based on exports. Since then, domestic demand has started to contribute positively to
growth on the better evolution of the labour market and the increase in credit for household consumption
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
Jun
-12
Se
p-1
2
Dec-1
2
Ma
r-13
Jun
-13
Se
p-1
3
Dec-1
3
Ma
r-14
Jun
-14
Se
p-1
4
Domestic demand* External demand* GDP growth (% QoQ)
60
70
80
90
100
110
25
50
75
100
125
150
175
200
225
250
275
Jun
-04
Dec-0
4
Jun
-05
Dec-0
5
Jun
-06
Dec-0
6
Jun
-07
Dec-0
7
Jun
-08
Dec-0
8
Jun
-09
Dec-0
9
Jun
-10
Dec-1
0
Jun
-11
Dec-1
1
Jun
-12
Dec-1
2
Jun
-13
Dec-1
3
Jun
-14
House transactions (lhs) Nominal house price index (rhs)
Section 1
On the right track for global growth in 2015
1.4. Spain will still be the best performer in Europe. Internal demand and the housing sector are improving
1.4.1. Expansionary financial conditions are rebalancing the Spanish growth structure
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
In China, the economic reforms rely more on the domestic demand and less on exports, which makes China more attractive in the current global environment, as well as a “more efficient and productive use” of China’s finite supply of human resources and capital (TFP) and this should help support growth on a long-term basis. GFCF and labour market stabilisation are essential
China: job vacancies vs. job seekers Source: DataStream
0.8
0.9
1.0
1.1
1.2
04 05 06 07 08 09 10 11 12 13 14
Tighter labour market
Slacker labour market
China: loans vs. urban fixed investment (YoY) Source: DataStream
Section 1
On the right track for global growth in 2015
1.5. Emerging economies: back to growth but at different rates. Transition to a model less dependent on exports and investment A managed soft landing in China towards a new normalised growth of around 6-7%, supported by a favourable policy mix
10%
15%
20%
25%
30%
35%
40%
5%
10%
15%
20%
25%
30%
35%
1Q
04
3Q
04
1Q
05
3Q
05
1Q
06
3Q
06
1Q
07
3Q
07
1Q
08
3Q
08
1Q
09
3Q
09
1Q
10
3Q
10
1Q
11
3Q
11
1Q
12
3Q
12
1Q
13
3Q
13
Urb
an fix
ed in
vestm
ent (Y
oY
)
Fin
ancia
l in
stit
utio
ns lo
ans (Y
oY
)
China financial institutions (loans) Urban fixed investment
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
A stronger USD is here to stay. We forecast a relatively bullish multi-year USD trend
Section 1
On the right track for global growth in 2015
1.6. Financial implications of the current growth model
DXY Source: Bloomberg, BBVA GMR
50
70
90
110
130
150
170
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
'85 Plaza Accord:
concerted effort by
central banks to
weaken the USD after
'79 (until '87 Louvre
Accord), SPX +12%
year on year
Strong recovery in
EM/raw materials
(Equities in BRICS
+400% vs. US +90%)
Unprecedented growth
in central bank
reserves and
diversification out of
the USD
'95-'00 cycle of
productivity
and equities in
US: SPX +20%
year on year
Consolidated USD
negatively affected
by QEs and
benefited by its
status as a safe-
haven currency
Credit spreads, changes
in CB balance sheets,
limits in the flow to EUR
and JPY/GPIF strategy
vs. positions high in
USD and productivity
limits ("permanent
stagnation" on both
sides?)
Risks: surprise
downticks in US,
rallies in Europe?
US:CPI vs Libor 3m Source: Datastream
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Jan-1
0
Oct-10
Jul-11
Apr-
12
Jan-1
3
Oct-13
Jul-14
Yie
ld (%
)
US
CPI
(YoY
%)
US CPI Libor 3m
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
Raw materials will bottom out on the recovery of the cycle. Oil prices might have reached a floor. We expect Brent to return to 95USD/bbl as balanced level
Section 1
On the right track for global growth in 2015
1.6. Financial implications of the current growth model
• In the long term (2019), we believe that demand growth will outpace supply by over 2mbpd, which should keep oil prices close to the marginal
costs of production (USD90-100/bbl, according to our estimates), thus balancing supply and demand
• If current prices remain unchanged, we think that many high-cost projects (gas to liquids, oil sands, unconventional oil, ultra deep water drilling,
Arctic drilling, etc.) will be abandoned, while the pressure placed on the budgets of oil-producing countries (Saudi Arabia, Venezuela, Russia) will
be unsustainable, which should push prices up
• We choose USD95/bbl for Brent, based on marginal costs and balanced supply/demand
Lower OPEC weighting in production (values in mbpd) Source: EIA
Production cost curve (USD/bbl) Source: BBVA GMR
0
20
40
60
80
100
120
140
Sa
udi A
rabia
Iran/Ira
q
Ku
wait
Nort
h A
fric
a
UA
E
Bra
zil
CIS
Ea
gle
Fo
rd
Ve
nezuela
Rest of E
uro
pe
LatA
m
Rest of A
fric
a
An
gola
/ N
igeria
Ba
kken
Me
xic
o
Chin
a
Nort
h S
ea
Oth
er
Sh
ale
s U
SA
Russia
Con
ve
ntio
na
l U
SA
Bitum
en C
ana
da
Bitum
en s
ands
Gas to liq
uid
s
35%
40%
45%
50%
55%
60%
0
20
40
60
80
100
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
mb
/d
Middle East
Former Soviet Union
Non-OECD Europe
China
Asia
Non-OECD Americas
Africa
OECD Asia, Oceania
OECD Europe
OECD Americas
OECD share
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
Section 0
A look at what has happened in 2014
Section 1
On the right track for global growth in 2015 1.1. A modest global acceleration of growth: innovation and trade are key
1.2.The US is still the bright spot
1.3.No deflation in Europe. Room for positive surprises
1.4.Spain. Internal demand and housing sector improving
1.5.Emerging economies: back to growth but at different rates. Transition to a model less dependent on exports and investment
1.6.Key issues for our financial models
Structural low-neutral interest rates in developed markets A stronger USD is here to stay Raw materials will bottom out on the recovery of the cycle
Index
Section 2
Asset allocation
Section 3
Equity strategy in developed markets 3.1. US equities: still positive but lower returns lie ahead
3.2. Why would we invest in European and Iberian equities?
3.3. Investment ideas in the US
3.4. Investment ideas in Europe
3.5. Investment ideas in Iberia
Annex
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Asset allocation: Equities Source: BBVA GMR
Section 2
Asset allocation
0
5
10
15
20
25
30
0
2
4
6
8
10
12
Jan-0
7
May-
07
Sep-0
7
Jan-0
8
May-
08
Sep-0
8
Jan-0
9
May-
09
Sep-0
9
Jan-1
0
May-
10
Sep-1
0
Jan-1
1
May-
11
Sep-1
1
Jan-1
2
May-
12
Sep-1
2
Jan-1
3
May-
13
Sep-1
3
Jan-1
4
May-
14
Sep-1
4
Premium (rhs) Synthetic EY (lhs) 10Y synthetic (lhs)
%%
Valuation global equity / bonds* *Composite EEUU, Euro, Spain, Mexico and Brazil Source: BBVA GMR
We prefer equities because: i) expansionary policy mix will be supportive of lower growth in developed markets in 2015, ii) QE increases the relative value of equities vs. fixed income, iii) emerging markets are on a long-term growth path but depend on infrastructure spending, low rates, stable raw materials and weaker currencies (preference for countries with domestic market potential), iv) leverage and M&A cycle to support margins and RoEs (depend on capacity reduction), and v) high cash flow and dividend generators are preferred.
2.1. Equities remain our favourite asset, especially in Europe and Asia
- 0 +
Global Equities
EuroStoxx50
S&P500
Peripheral Equities
Asian Equities
LatAm Equities
Brazil
Colombia
Mexico
- 0 +
Global Corporates
Peripheral Europe
Corporates LatAm
Sovereign Bonds
Peripheral Europe
Core Europe
USA
LatAm
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
Section 0
A look at what has happened in 2014
Section 1
On the right track for global growth in 2015 1.1. A modest global acceleration of growth: innovation and trade are key
1.2.The US is still the bright spot
1.3.No deflation in Europe. Room for positive surprises
1.4.Spain. Internal demand and housing sector improving
1.5.Emerging economies: back to growth but at different rates. Transition to a model less dependent on exports and investment
1.6.Key issues for our financial models
Structural low-neutral interest rates in developed markets A stronger USD is here to stay Raw materials will bottom out on the recovery of the cycle
Index
Section 2
Asset allocation Section 3
Equity strategy in developed markets 3.1. US equities: still positive but lower returns lie ahead
3.2. Why would we invest in European and Iberian equities?
3.3. Investment ideas in the US
3.4. Investment ideas in Europe
3.5. Investment ideas in Iberia
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Section 3
Equity strategy in developed markets
3.1. US equities: still positive but lower returns lie ahead
3.1.1. Growth momentum and re-industrialisation
3.1.2. Cash flow and shareholder remuneration are attractive, especially against a backdrop of lower financial leverage
3.1.3. Adjusted by our low-neutral rates, long-term valuations remain appealing
3.1.4. Relative valuations vs. corporates and fixed income remain attractive in spite of above average P/E ratios
3.1.5. However, future returns in the US might start to moderate, especially if the Fed begins raising rates in 2015
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US equity cycles: current vs. 2002-07 Source: Bloomberg, Datastream, BBVA GMR
64.6
4.3
12.9
2.9
12.9
21.2
84.6
5.7
11.5
2.3
10.5
21.4
110.8
1.7
15.0
2.7
10.9
19.3
EPS
Corp. rates
RoE
P/B
PCF
EBITDA /Sales
Average 02-07 2008 03-Sep-14
Growth momentum is supportive for EPS and profitability. The slow but steady US expansion provides a stable outlook for corporate revenues.
Profit margins remain near historical highs and show little sign of pressure, supported by ULC contention and low energy prices. Against this
backdrop, single-digit corporate profit growth appears achievable.
10%
12%
14%
16%
18%
20%
22%
-6
-4
-2
0
2
4
6
Dec-
99
Jul-00
Feb
-01
Sep-0
1
Apr-
02
Nov-
02
Jun-0
3
Jan-0
4
Aug-0
4
Mar-
05
Oct-05
May-
06
Dec-
06
Jul-07
Feb
-08
Sep-0
8
Apr-
09
Nov-
09
Jun-1
0
Jan-1
1
Aug-1
1
Mar-
12
Oct-12
May-
13
Dec-
13
Jul-14
CPI - PPI EBITDA/Sales
Margin indicator (CPI –PPI) vs. margin Source: Datastream and BBVA GMR
Section 3
Equity strategy in developed markets
3.1.1. Growth momentum and reindustrialisation
3.1. US equities: still positive but lower returns lie ahead
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S&P 500: buy-backs (USD bn) Source: Datastream and BBVA GMR
0
20
40
60
80
100
120
140
160
180
Dec-07 Jun-09 Dec-10 Jun-12 Dec-13
US: non-financial leverage (*) (*) Non-farm, Non-fin. corp. bus: US credit market debt / US market value of corp. equities – Non-farm, Non fin. Corp. bus Source: Datastream (Flow of Funds)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
Section 3
Equity strategy in developed markets
3.1.2. Cash flow and shareholder remuneration are attractive, especially against a backdrop of lower financial leverage
3.1. US equities: still positive but lower returns lie ahead
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
In historical terms, a proper multiple on the S&P 500 is 20 minus the 10-year Treasury yield. With the 10-year Treasury yield sitting at 2.5% and real
rates close to zero, and the S&P 500 trading at 16x earnings, that puts the fair value for stock market valuations at about 17x earnings. So there is
a little bit of room to run. The key is where the real neutral rate is.
US: P/E (Schiller) vs. 10Y real rates Source: Bloomberg and BBVA GMR
US: P/E vs. 10Y real rates Source: Bloomberg and BBVA GMR
0
5
10
15
20
25
30
35
40
-4 -2 0 2 4 6 8 10
Real interest rates (%)
Schiller
P/E
(x)
0
5
10
15
20
25
30
35
40
-2 0 2 4 6 8 10
Real interest rates %
S&
P 5
00 P/E
(x
)
Section 3
Equity strategy in developed markets
3.1.3. Adjusted by our low-neutral rates, long term valuations remain appealing
3.1. US equities: still positive but lower returns lie ahead
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US: earnings yield vs. corporate BAA vs. 10Y Govt Source: Datastream, BBVA GMR
S&P 500: P/E +12M Source: Datastream and BBVA GMR
Section 3
Equity strategy in developed markets
3.1.4. Relative valuations vs. corporates and fixed income remain attractive in spite of above average P/E
3.1. US equities: still positive but lower returns lie ahead
8
10
12
14
16
18
20
22
24
26
Nov-84 Nov-89 Nov-94 Nov-99 Nov-04 Nov-09 Nov-14
Average
Current
1
3
5
7
9
11
13
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Earnings yield Baa US 10Y Govt
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S&P 500: EPS (USD) Source: Datastream and BBVA GMR
S&P 500: P/E (x) Source: Datastream and BBVA GMR
S&P 500: EPS and fair value estimates Source: Datastream and BBVA GMR
Target 2014
2,045
Target 2015
2,175
S&P 500 2013 2014 2015 14/13 15/14
Consensus 109 117 131 8.0% 12.0%
BBVAe 109 119 130 9.9% 8.9%
EPSApr-13 Nov-13 May-14 Jul-14 Sep-14
Interest rates 3.7% 3.7% 3.5% 3.5% 3.0%
Risk Premium 4.8% 4.0% 4.0% 4.0% 4.0%
G 1.0% 1.0% 1.0% 1.0% 1.0%
Section 3
Equity strategy in developed markets
3.1.5. However, future returns in the US might start to moderate, especially if the Fed begins raising rates in 2015
3.1. US equities: still positive but lower returns lie ahead
5
10
15
20
25
30
35
97 99 00 01 02 03 04 05 06 07 08 09 10 12 13 14 15
0
20
40
60
80
100
120
140
160
97 99 00 01 02 03 04 05 06 07 08 09 10 12 13 14 15
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Section 3
Equity strategy in developed markets
3.2. Why would we invest in European and Iberian equities?
3.2.1. Earnings are still depressed, so there is room for positive surprises following policy actions, and a weak euro
3.2.2. Operating leverage in Europe leaves a lot of room for margins. Valuations are appealing
3.2.3. The QE to be implemented by the ECB will lead to an improvement of the financial conditions and put a floor under the market. Relative valuations vs. fixed income are at historical lows
3.2.4. Attractive valuations on a medium-term perspective. M&A is key for reducing capacity and allowing RoEs to improve
3.2.5. Yields and cash flow are crucial
3.2.6. Our Gordon valuation model
3.2.7. Potential is higher in Europe than in other developed areas but the risk is greater, and depends on the policy mix. Our valuation contemplates a QE that includes sovereign bonds
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If the Financial Stress Index (FSI) rises back to its historical level, the European ERP would still have room to fall by an additional 100bp. In fact, we
expect the FSI to remain subdued in the next two to three years, on the back of expansionary monetary policy. The FSI summarises credit,
financing and monetary market conditions and has a negative correlation with EPS, so a low FSI should help upwards EPS revisions
BBVA EMU FSI vs. ERP Eurostoxx50 Source: BBVA GMR
BBVA EMU FSI vs. EPS Euro Stoxx 50 Source: BBVA GMR
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
FTI Europe Avg. FTI Europe EYG Europe (rhs)
y = -0.0152x - 0.0029 R² = 0.0127
-0.15
-0.1
-0.05
0
0.05
0.1
0.15
0.2
-1 -0.5 0 0.5 1 1.5 2
FTI Europe (4 week change)
Eu
ros
tox
x50 E
PS
FY
2e 4
week %
ch
an
ge
Section 3
Equity strategy in developed markets
3.2. Why would we invest in European and Iberian equities?
3.2.1. Earnings are still depressed, so there is room for positive surprises following policy actions and a weak euro
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Euro depreciation should have a positive impact on margins. A 10% increase in the real effective exchange rate decrease margins by 1-3%. This export resistance suggests that part of the impact of a stronger euro is absorbed though margins.
S&P 500 vs. Stoxx 600: Profit margin Source: Datastream
-9%
-8%
-8%
-7%
-7%
-6%
-6%
-5%
Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14
Stoxx600 Capex/Sales S&P500 Capex/Sales
S&P 500 vs. Stoxx 600: Capex/sales Source: Datastream
Section 3
Equity strategy in developed markets
3.2. Why would we invest in European and Iberian equities?
3.2.2. Operating leverage in Europe leaves a lot of room for margins. Valuations are appealing
There is room for further margin improvement
6
7
8
9
10
11
12
13
14
15
Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14
S&P 500 Stoxx 600
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Low rates and low inflation make investors look for high yielding assets. The 10-year equity return forecast shows that in the long run the Stoxx600
gives on average a 7% YoY return. In fact, we decompose the expected return into: i) EPS growth, ii) repricing, and 3) dividends. EPS growth can
be split into inflation and “real” earnings growth (around 3% YoY). For the repricing we assume that the market’s P/E ratio tends to move towards
the long-term average (this adds about 1% to the long-run return) . And we apply a dividend yield of 3% for Europe (historical average)
Stoxx 600: 10Y expected returns Source: Datastream & BBVA GMR
0%
1%
2%
3%
4%
5%
6%
7%
8%
Breakeven Real EPSGrowth
EPS meanreversion
Earnings PE meanreversion
DividendYield
Total
Section 3
Equity strategy in developed markets
3.2. Why would we invest in European and Iberian equities?
3.2.3. The QE to be implemented by the ECB will lead to an improvement of the financial conditions and put a floor under
the market. Relative valuations vs. fixed income are at historical lows
EYG Stoxx 600 vs. 10Y Bund vs. IBOXX Corporate Europe BBB Source: DataStream and BBVA GMR
0
2
4
6
8
10
12
Nov-04 Nov-06 Nov-08 Nov-10 Nov-12 Nov-14
EYG 10Y Govt Corporate BBB
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0
5
10
15
20
25
Feb
-05
Feb
-06
Feb
-07
Feb
-08
Feb
-09
Feb
-10
Feb
-11
Feb
-12
Feb
-13
Feb
-14
Feb
-15
Feb
-16
S&P 500 E50
RoE: S&P 500 and Euro Stoxx 50 Source: Datastream and BBVA GMR
In the medium term, European indexes have the greatest potential for re-rating, because of the ample room for RoE normalisation, particularly in banks. The Schiller P/E (cyclically-adjusted P/E ratio) remains attractive even if current valuations are distorted by global growth divergences
2014e 2015e RoE 2004 Dif RoE 2004-14e % Potential
S&P 500 16.50% 18.30% 15.10% -1.40% -9.80%
E50 10.10% 11.30% 12.40% 2.30% 16.10%
Cyclically adjusted P/E Source: Datastream and BBVA GMR
0
5
10
15
20
25
30
35
40
45
50
Feb-83 Feb-86 Feb-89 Feb-92 Feb-95 Feb-98 Feb-01 Feb-04 Feb-07 Feb-10 Feb-13
USA Euro Spain
3.2. Why would we invest in European and Iberian equities?
3.2.4. Attractive valuations on a medium-term perspective. M&A is key for reducing capacity and allowing RoEs to improve
Section 3
Equity strategy in developed markets
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Global equity valuation Source: Datastream and BBVA GMR
MSCI indices: DY (%) Source: Datastream and BBVA GMR
PE +12M P/B P/CF DY PE +12M P/B P/CF DY
Msci World 13.47 1.96 8.99 2.50% 13.01 2.11 8.74 2.41%
France 12.54 1.38 8.30 3.53% 11.41 1.55 6.35 3.29%
UK 12.56 1.81 7.36 3.79% 11.48 1.95 8.14 3.62%
Australia 13.61 1.81 10.76 4.82% 13.30 2.37 13.03 4.25%
Germany 11.49 1.58 7.42 2.99% 11.47 1.54 7.88 2.93%
Japan 12.83 1.24 7.47 1.94% 15.66 1.43 8.21 1.56%
Canada 13.35 1.89 9.91 2.83% 13.62 2.21 10.22 2.29%
Sw itzerland 15.06 2.55 14.83 3.13% 13.42 2.48 -11.39 2.57%
United States 14.72 2.62 10.10 1.90% 13.95 2.46 9.83 2.00%
Current 10Y avg
0%
1%
2%
3%
4%
5%
6%
Spain
Aust
ralia UK
Fra
nce
Sw
itzela
nd
Italy
Germ
any
Canada
World
Japan
US
Dividend flow is going to remain one of the appealing investment issues in the coming years in Europe, since we expect a low interest rates policy
for an extended period of time
Section 3
Equity strategy in developed markets
3.2. Why would we invest in European and Iberian equities?
3.2.5. And attractive valuation vs. the developed markets: yields and cash flow are required
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Target 2015
3,900
Objetivo 2015
12.000
E50 2013 2014 2015 2016
Consensus 211,81 228,40 267,20 298,71 7,8% 17,0%
BBVAe 211,81 228,97 265,60 302,79 8,1% 16,0%
EPS
14/13 15/14
abr-13 nov-13 may-14 jul-14 sep-14 nov-14
Interest rates 3,7% 3,7% 3,5% 3,5% 3,0% 3,0%
Risk Premium 4,8% 4,0% 4,0% 4,0% 4,0% 3,8%
G 1,0% 1,0% 1,0% 1,0% 1,0% 1,0%
IBEX 2013 2014 2015 2016
Consensus 549.41 587.26 723.43 845.25 6.9% 23.2%
BBVAe 549.41 616.67 742.82 895.10 12.2% 20.5%
EPS
14/13 15/14
abr-13 nov-13 may-14 jul-14 sep-14 nov-14
Interest rates 4,3% 3,7% 3,7% 3,7% 3,5% 3,5%
Risk Premium 4,8% 4,0% 4,0% 4,0% 4,0% 4,0%
G 1,0% 1,0% 1,0% 1,0% 1,0% 1,0%
We have lowered our ERP estimates to 4.00% for the Ibex-35 (vs. 4.25% previously) to 3.75% for the Euro Stoxx 50 (vs. 4.00% previously) and to 3.75% for the S&P 500 (vs. 4.30% previously) since we expect an extremely expansive monetary policy by the ECB during the coming two years. In that sense, our central scenario is that the ECB will carry out a QE programme from December onwards that will lead to an increase in the bank’s balance sheet of EUR1trn, mainly to buy covered bonds and ABS, although additional measures are not ruled out if needed. The resulting target prices offer more potential for the Euro Stoxx 50 and the Ibex-35 (20.3% and 11.1% respectively) than for the S&P 500 (5.1%)
EPS estimates and fair value Source: BBVA GMR estimates
Valuation model
( ) ( ) 2-t 1
15e 1
14e
e e K
Tv EPS K
EPS FV
+
+ + +
= t
Section 3
Equity strategy in developed markets
3.2. Why would we invest in European and Iberian equities?
3.2.6. Our Gordon valuation model: TP Ibex-35: 12.000; Euro Stoxx 50: 3.900
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• We look for growth (IT and HealthCare)
• Play the positive surprises in consumption in the US through Consumer Cyclicals
• Play the floor in oil prices
• Avoid sectors sensitive to interest rate hikes
Section 3
Equity strategy in developed markets
3.3. Investment ideas in the US
What sectors do we recommend in the US?
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3.3. Investment ideas in the US
Sectors with an Overweight recommendation. Sanford Bernstein’s Top Picks and least preferred stocks Source: Bernstein Research and BBVA GMR
Section 3
Equity strategy in developed markets
Overweight Main Takeaways Preferred Stocks Least Preferred
Oil & Gas Despite the expected additional RoE deterioration, w e see upside potential from better
than expected oil pricing. Relative valuations are attractive
Cobalt International Energy, Talisman
Energy, Apache Corp
Noble Energy, Devon Energy
Technology Scepticism appears excessive, source of attractively valued earnings pow er.
Reindustrialisation in the US comes from IT
Adobe, Oracle CRM, CA
Defence Current valuations leave little room for further expansion, but w e see them as source of
above average earnings pow er
Boeing, Lockheed Martin General Dynamics
Consumer cyclicals Room for positive revisions from better than expected disposable income grow th. Room
for positive surprises in consumption in the US linked to employment and housing.
Capital discipline remains a positive
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3.3. Investment ideas in the US
Section 3
Equity strategy in developed markets
Neutral Main Takeaways Preferred Stocks Least Preferred
Healthcare Services Neutral due to potential impact from uncertain regulatory environment Baxter Int, Boston Scientif ic Abbott Laboratories,
Johnson & Johnson
Financials Some optimism on continued RoE recovery priced in, positive revisions could help
sustain current valuations, although regulatory concerns could w eight on the sector
Citigroup, JPMorgan Chase Bank of America, American
Express
Transport Source of above average earnings pow er provided capital discipline and pricing pow er
are sustained
UPS, JBHT FedEx, Norfolk
Autos/Housing Consensus seems achievable, but valuations are not attractive anymore
Sectors with a Neutral recommendation. Sanford Bernstein’s Top Picks and least preferred stocks Source: Bernstein Research and BBVA GMR
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3.3. Investment ideas in the US
Section 3
Equity strategy in developed markets
Underweight Main Takeaways Preferred Stocks Least Preferred
Telecommunications Dow nside risk from negative beta to rate rises Ubiquiti Netw orks, Juniper Netw orks Aruba Netw orks, Ruckus
Wireless
Utilities Dow nside risk from rising rates PCG, Edison International Dominion Resources,
Nextera Energy
Capital
equipment
Valuations appear elevated in the context of RoEs that are likely to remain depressed
barring a signif icant upside surprise in capital spending
Honeyw ell Int, Eaton Corp 3M, Emerson
Consumer
Staples
RoE erosion not fully reflected in valuations; See dow nside risk from rising rates for
high-yielding stocks
Estee Lauder, Procter & Gamble,
Mondelez
Dr Pepper, Campbell, General
Mills
Commodities Risk of dow nw ard revisions and further de-rating from current valuations Freeport-McMoRan, Teck Resources United States Steel, Nucor
Healthcare
Products
Relative RoE recovery embedded in consensus seems achievable but does not seem
fully reflected in valuations. Avoid SMID Biotech as they see further dow nside risk
Actavis, Momenta Hospira, Theravance
Sectors with an Underweight recommendation. Sanford Bernstein’s Top Picks and least preferred stocks Source: Bernstein Research and BBVA GMR
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• Play the RoE recovery though Financials and Cyclicals
• Get exposure to pent-up demand and investment repositioning with IT and Semiconductors
• Buy cash flow and dividends through Utilities
• Play the recent stabilisation of raw material prices with exposure to the oil sector
3.4. Investment ideas in Europe What sectors do we recommend in Europe?
Section 3
Equity strategy in developed markets
Consensus estimates for EPS FY2 YoY for the sectors of the Stoxx600 Source: Bloomberg, BBVA GMR
MSCI Europe Banks: revisions of the relative EPS vs. P/E Source: Bloomberg, BBVA GMR
0.6
0.7
0.7
0.8
0.8
0.9
0.9
1.0
1.0
1.1
1.1
-0.12
-0.10
-0.08
-0.06
-0.04
-0.02
0.00
0.02
Jan-10 Oct-10 Jul-11 Apr-12 Jan-13 Oct-13 Jul-14
Rela
tive P
/E (B
anks
/Tota
l)
Banks
earn
ings revis
ions (M
A12M
)
Banks earnings revisions (MA12M) Relative P/E (Banks/Total)
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
Dec-
07
Jun-0
8
Dec-
08
Jun-0
9
Dec-
09
Jun-1
0
Dec-
10
Jun-1
1
Dec-
11
Jun-1
2
Dec-
12
Jun-1
3
Dec-
13
Jun-1
4
EPS YoY Growth (%) Cyclicals vs non Cyclicals Cyclicals Non Cyclicals
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3.4. Investment ideas in Europe
Section 3
Equity strategy in developed markets
Sectors with an Overweight recommendation (1). Sanford Bernstein’s Top Picks and least preferred stocks Source: Bernstein Research and BBVA GMR
Overweight Main Takeaways Preferred Stocks Least Preferred
Banking RoEs should return to low -mid teens numbers (normalised RoE e: 9% - 14%)
Potential low ering of CoE due to improved bank safety
Four key drivers w ill support recovery in RoEs: 1) Normalisation of credit cost, 2) Presence in fast
grow ing markets, 3) Potential for further operating leverage and 4) Adapted CIB divisions
Best Value/Grow th combination in our GARP Model (see Annex)
INTESA, BNP, BCP
Oil&Gas Solid upstream pipelines focus on more profitable projects; Shift to long life assets w ill drive grow th for
both production and free cash flow ; Improving capital discipline; Refinery closures
Attractive valuation in GARP, and very attractive valuation in our score (see Annex)
BG, GALP, SHELL
Metals&Mining Q4 should see a recovery in the iron ore price; Real demand grow th has not come to an end in China;
Improving Capital discipline from the majors
Among the best Value/Grow th combinations in our GARP Model (see Annex)
Cheap in our Score valuation (see Annex)
RIO TINTO, ANGLO AMERICAN BHP BILLITON
Building
Materials&Construction
Momentum has reached rock bottom; Expected grow th in underlying earnings; Recovery in construction
markets (US and UK), emerging markets
HEIDELBERG, SAINT GOBAIN HOLCIM, LAFARGE
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3.4. Investment ideas in Europe
Section 3
Equity strategy in developed markets
Sectors with an Overweight recommendation (2). Sanford Bernstein’s Top Picks and least preferred stocks Source: Bernstein Research and BBVA GMR
Overweight Main Takeaways Preferred Stocks Least Preferred
Technology Strong scale advantage in Wireless, revenue expectations
In the extremely attractive area in terms of our GARP Model (see Annex)
ERICSSON, ALCATEL NOKIA
Beverages Western Europe is on track to deliver another strong surples (bigger than last year). Global grain prices
having fallen back sharply. W European forw ard prices imply a small fall in malting barley prices after a
fall in 2013. Aluminium spot prices imply modest pressure on 2015 costs. Transactional FX pressures in
emerging markets have reached up again in recent w eeks.
Among the best combinations Value/Grow th in our GARP Model
CARLSBERG, PERNOD RICARD REMY COINTREAU
Semiconductors Sounder operating margins, stock undervalued ASML, INFINEON STM, ARM
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3.4. Investment ideas in Europe
Sectors with a Neutral recommendation. Sanford Bernstein’s Top Picks and least preferred stocks Source: Bernstein Research and BBVA GMR
Section 3
Equity strategy in developed markets
Neutral Main Takeaways Preferred Stocks Least Preferred
Utilities The key factors that underpinned the sector's disappointing performance have now become substantially
w eaker or have disappeared and four key areas of development have emerged (Emerging Markets, global
Renew ables, global LNG (and gas)and regulated business) and w ill be the engines of grow th in coming
years (expected 4-6% CAGR EM pow er demand) and continue throughout the decade.
How ever in some European countries there is some regulatory risk still pending and in a framew ork of
cyclical recovery, the sector might underperform the market.
ENEL, RWE EDP
Food Prefer Food over HPC. The European Food Group is w ell-positiones for the long-term grow th, and they
expect accelerating grow th in 2014
Among the best combinations of Value/Grow th in our GARP Model (see Annex)
In the "expensive part" according to our score valuation (see Annex)
UNILEVER, NESTLE ABF, DANONE
Luxury Goods Macro-economic indicators, maintain our LT positive stance on the Luxury sector. Slow dow n in Sw iss
w atch exports appears to be bottoming out, w ith reversals of decline particularly noticeable in China.
Retail sales trends in Europe have show n signs of recovery. Global tourism has show n some signs of
instability. FX remains a key theme and expect tailw inds to gather as w e move into 4Q14 and 2015.
Unattractive in terms of Value and offers limited grow th according to our GARP model (see Annex)
Expensive according to our score valuation (see Annex)
LVMH, RICHEMONT HERMES,BURBERRY
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3.4. Investment ideas in Europe
Sectors with an Underweight recommendation. Sanford Bernstein’s Top Picks and least preferred stocks Source: Bernstein Research and BBVA GMR
Section 3
Equity strategy in developed markets
Underweight Main Takeaways Preferred Stocks Least Preferred
Oil services
& Equipment
Continue to forecast the low est level of new offshore activity since 1999
Still see margin compression of up to 30%.
2015 earnings for the offshore players w ill be even w orse than w e expected.
PETROFAC, VALLOUREC, TECHNIP SAIPEM, SBM OFFSHORE, SUBSEA 7
Pharma The drug sector has become slightly constructive.
Sales trends: grow th has been slow ing dow n.
FX: negative impact of the USD vs. GBP and vs. CHF in 3Q14 vs. 3Q13. Neutral vs. the EUR.
The most unattractive sector in terms of value, according to our GARP
Expensive according to our score valuation
Still probabilities of M&A activity in the sector according to our estimates.
NOVARTIS, ROCHE, SANOFI ASTRAZENECA, GLAXO SMITHKLINE
Food Retail We prefer companies w ith distinct retail models, high quality earnings grow th and those w ho
are w ell positioned to compete in "space races" in international markets.
AHOLD, SAINSBURY, CASINO MORRISONS
Insurance Negative impact of a low rates environment, that could erode the sectors results. RSA, MAPFRE GENERALI, MUNICH RE, AVIVA,
SWISS RE
Autos Poor prospects for earnings grow th, valuation remains modest PEUGEOT FIAT CHRYSLER, DAIMLER
HPC Well-positioned for long-term grow th betw een 5-6% (given good categories, markets,
dominance etc.) along w ith some margin grow th and good cash generation, but w e expect
some slow dow n in 2014 and 2015 driven by w eak markets and strong competitive and
promotional pressures.
After very strong FX headw inds in 2013/2014, expect tailw inds for most companies in 2015.
HENKEL, RECKITT L'OREAL, BEIERSDORF
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• Play the RoE recovery and ECB action though Financials
• We want benefit from the stabilisation of raw material prices, getting exposure to the oil sector
• Gain exposure to the global recovery through Materials
• Profit from the bottoming out in activity in Iberia through Small & Mid Caps exposed to the Iberian economy
• Get exposure to pent-up demand and investment repositioning with IT and Semiconductors
• Buy cash flows and dividends through Utilities
3.5. Investment ideas in Iberia
What sectors do we recommend in Iberia?
Section 3
Equity strategy in developed markets
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3.5. Investment ideas in Iberia
Sectors with an Overweight recommendation Source: BBVA GMR
Section 3
Equity strategy in developed markets
Overweight Main Takeaways Preferred Stocks Least Preferred
Banks The main takeaw ays to recommend the Iberian banking sector are 1) ROEs normalisation to low -mid
teens (normalised RoE e: 9-14%) on the sector's adjusted capacity, 2) NPL's peaking, w hich w ill affect
positively the sector's net profit, 3) Low er f inancing costs on the expansionary policy of the ECB w ill
low er the f inancing costs and 4) Expected cycle recovery that w ill help increase credit volumes.
Sabadell, Santander,
Liberbank, Popular
Bankinter, Bankia, BPI
Oil & Gas We expect a re-rating of the sector, since w e think that oil has reached a bottom and should recover in
the coming months on higher activity levels and supply reduction. We also expect better CF in the sector
on CAPEX discipline.
Repsol, Galp
Materials The steel industry w ill be supported by 1) the European sector consolidation, 2) Supportive framew ork,
including anti-dumping measures and 3) the global cyclical recovery.
Acerinox, Arcelor Mittal Tubos Reunidos
Media In Media, the recovery of the advertising sector is a fact and this together w ith contained OPEX and a
strong operating leverage, supports a strong recovery of the sector. Moreover the companies are
strong cash generators and this makes them very attractive
Mediaset, Atresmedia
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Sectors with a Neutral recommendation Source: BBVA GMR
Section 3
Equity strategy in developed markets
3.5. Investment ideas in Iberia
Neutral Main Takeaways Preferred Stocks Least Preferred
Telecommunications We believe that the transformation process of the sector continues through the consolidation, that should lead to better
margins. Another positive factor is that prices are stabilising. How ever, the companies have a level of debt that can be
excesive, especially taking into account that the consolidation process leads to high CAPEX requirements.
Telefónica, NOS
Utilities The sector offers an attractive cash generation (DY at least at 4%) and cyclical recovery should support higher
electricity prices and consumption. How ever, concerns about regulatory risk could arise again in 2015 on the Spanish
Gerneral Elections. Moreover valuations are adjusted to a large extent and this w ill limit the performace of the sector.
Iberdrola, Endesa,
EDPR
Gamesa
Construction &
Building materials
Weak contruction margins and w eak w orking capital in general and higher risk profile in international construction (very
large contracts are failing to generate cash). How ever the improvement of the Spanish cycle, together w ith the increase
infrastructure plans on a global scale could benefit the companies.
Ferrovial FCC, ACS, OHL
Food Retail Valuations of the sector are attractive. In fact the fragile Iberian momentum is priced- in and valuations price in a fall in
Iberian sales in perpetuity. How ever the environment of low prices in the sector makes us be cautious and therefore w e
have a neutral recommendation on the sector.
DIA Jeronimo Martins
Pharma After f ive health reforms in 2010-12, the market has plummeted 29% from its peak and pharma spending remains at
2004’s levels. Although w e do not expect a volume recovery until 2016e, w e do not foresee any new large measures
affecting drug spending (current spending is below 1% of GDP that is the EU recommendation). The pharma business
implies high volatility and regulatory risk regarding drug approvals and therefore a healthy balance sheet position is
required. This w ill help maintain the M&A activity seen during 2014, in the coming years. How ever valuations are
adjusted and limits the appeal of the sector.
Grifols, Almirall, Zeltia FAES, Rovi
Consumption Prospects for the domestic consumer sector are solid, driven by the improvement in private consumption in 2014e
(+2.1% BBVAe) and the continuation of the international expansion. Moreover the companies of the sector are usually
high cash generators due to negative WK (retailers) or productive investments that require low capex
(Food&Beverages).
Logista, DIA, Inditex Natra, Codere
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Sectors with an Underweight recommendation Source: BBVA GMR
Section 3
Equity strategy in developed markets
Other Small & Mid Caps Source: BBVA GMR
3.5. Investment ideas in Iberia
Preferred Stocks Least Preferred Stocks
Other Small & Mid CapsPortucel, Técnicas Reunidas, CTT, CAF, CIE Automotive, Deoleo,
Logista, Zeltia
eDreams, Prosegur, Viscofán, Barón de ley, ESS, Indra, REN, Ence,
Codere, Natra, Viscofán
Underweight Main Takeaways Preferred Stocks Least Preferred
Insurance The low rates environment makes the sector less appealing than the rest. In the non-life insurance sector w e w ill
probably see premiums improving and margins deteriorating (especially in the Motor sector).
Mapfre Grupo Catalana
Occidente
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Section 0
A look at what has happened in 2014
Section 1
On the right track for global growth in 2015
Section 2
Asset allocation
Section 3
Equity strategy in developed markets
Section 4
Equity strategy: Europe and Iberia
Annex
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The financial markets have encountered a number of external shocks in 2014. These shocks have not been systemic but market perception towards emerging markets has deteriorated after the summer
S&P 500: external shocks and volatility in 2014 Source: Bloomberg, BBVA GMR
Section 0
A look at what has happened in 2014
DMs vs. EMs: Financial tension index Source: BBVA Research
-0.10
-0.08
-0.06
-0.04
-0.02
0.00
0.02
0.04
0.06
-0.7
-0.4
-0.1
0.2
0.5
0.8
1.1
1.4
1.7
Dec-
11
Mar-
12
Jun-1
2
Sep-1
2
Dec-
12
Mar-
13
Jun-1
3
Sep-1
3
Dec-
13
Mar-
14
Jun-1
4
Sep-1
4
Developed Emerging (rhs)
10
12
14
16
18
20
22
24
26
28
30
1400
1500
1600
1700
1800
1900
2000
2100
2200
Jan-1
3
Feb
-13
Mar-
13
Apr-
13
May-
13
Jun-1
3
Jul-13
Aug-1
3
Sep-1
3
Oct-13
Nov-
13
Dec-
13
Jan-1
4
Feb
-14
Mar-
14
Apr-
14
May-
14
Jun-1
4
Jul-14
Aug-1
4
Sep-1
4
Oct-14
Ukranie crisis starts
Portugal banking sector (BES)
EU cycle losing Momentum
Iraq
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Anti-deflationary measures leave room for
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
Section 1
On the right track for global growth in 2015
Global
acceleration of growth
Policy mix:
• Monetary
• Fiscal Policies
• Structural reforms
Relative
competitiveness is key Global trade
Domestic demand,
consumption, investment
Asset
repricing wealth effect
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Anti-deflationary measures leave room for
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
GFCF (base 100 1Q99) US vs. EMU vs. JP Source: DataStream
60
70
80
90
100
110
120
130
140
Feb
-99
Feb
-00
Feb
-01
Feb
-02
Feb
-03
Feb
-04
Feb
-05
Feb
-06
Feb
-07
Feb
-08
Feb
-09
Feb
-10
Feb
-11
Feb
-12
Feb
-13
Feb
-14
US EMU JP
60
160
260
360
460
560
660
760
860
960
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
CH MX BR
GFCF (base 100 1Q99) China vs. Mexico vs. Brazil Source: DataStream
Investment is one of the drivers of innovation and has been especially active in the US since the beginning of the crisis. In fact GFCF has remained sluggish in Europe, Mexico and Japan, where there is now room for positive surprises
Section 1
On the right track for global growth in 2015
Domestic demand: investment
A modest global acceleration of growth
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Anti-deflationary measures leave room for
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
The global recovery continues to be driven by the typical cyclical factors, while policy actions and structural issues continue to be just tailwinds. Personal consumption in durable goods has made the difference in the pace of the recovery between the US and the rest
Car registrations (base 100 Q1 2000 accum. 1Y) Source: DataStream
MSCI US vs. EM vs. JP: HH and durable goods (August 1999: base 100) Source: DataStream
40
50
60
70
80
90
100
110
120
130
140
1Q
00
3Q
00
1Q
01
3Q
01
1Q
02
3Q
02
1Q
03
3Q
03
1Q
04
3Q
04
1Q
05
3Q
05
1Q
06
3Q
06
1Q
07
3Q
07
1Q
08
3Q
08
1Q
09
3Q
09
1Q
10
3Q
10
1Q
11
3Q
11
1Q
12
3Q
12
1Q
13
3Q
13
1Q
14
3Q
14
UK US JP EM ES
0
50
100
150
200
250
Jan-9
9
Aug-9
9
Mar-
00
Oct-00
May-
01
Dec-
01
Jul-02
Feb
-03
Sep-0
3
Apr-
04
Nov-
04
Jun-0
5
Jan-0
6
Aug-0
6
Mar-
07
Oct-07
May-
08
Dec-
08
Jul-09
Feb
-10
Sep-1
0
Apr-
11
Nov-
11
Jun-1
2
Jan-1
3
Aug-1
3
Mar-
14
Oct-14
EM JP US
Section 1
On the right track for global growth in 2015
Domestic demand: consumption
A modest global acceleration of growth
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Anti-deflationary measures leave room for
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
ULC contention helps boost exports and consequently growth. This is supporting the turnaround of the cycle in Europe
Real wealth indicator Brazil vs. China (GNI at PPP) 2005: base 100 Source: World Bank, BBVA GM Research
100
150
200
250
300
350
400
450
2005 2006 2007 2008 2009 2010 2011 2012 2013
Brazil China
100
105
110
115
120
125
130
135
140
145
2005 2006 2007 2008 2009 2010 2011 2012 2013
Germany Mexico Spain United States
Real wealth indicator by country (GNI at PPP) 2005: base 100 Source: World Bank, BBVA GM Research
Section 1
On the right track for global growth in 2015
A modest global acceleration of growth Global trade
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Anti-deflationary measures leave room for
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
EMU BBVA FTI vs. M2 YoY (%) Source ECB, BBVA GMR
EMU BBVA FTI vs. Economic Confidence Source: Bloomberg, BBVA GMR
0
2
4
6
8
10
12
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
Oct-
05
Ap
r-06
Oct-
06
Ap
r-07
Oct-
07
Ap
r-08
Oct-
08
Ap
r-09
Oct-
09
Ap
r-10
Oct-
10
Ap
r-11
Oct-
11
Ap
r-12
Oct-
12
Ap
r-13
Oct-
13
Ap
r-14
Oct-
14
FTI EMU M2 EMU YoY (rhs)
The expansionary monetary policy of the ECB has helped to ease the financing conditions in Europe and this is having a very positive effect on economic sentiment, which should translate into higher activity rates
Historically M2 and the Financial Tensions Index (FTI) have acted as leading indicators for the economic cycle
60
70
80
90
100
110
120-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
Oct-
05
Ma
r-06
Au
g-0
6
Jan
-07
Jun
-07
Nov-0
7
Ap
r-08
Se
p-0
8
Fe
b-0
9
Jul-0
9
Dec-0
9
Ma
y-1
0
Oct-
10
Ma
r-11
Au
g-1
1
Jan
-12
Jun
-12
Nov-1
2
Ap
r-13
Se
p-1
3
Fe
b-1
4
Jul-1
4
FTI EMU (inv. Rhs) EC Euro Economic Confidence
Catalysts of a positive virtuous cycle in Europe : 1) An expansionary policy mix
Section 1
On the right track for global growth in 2015
No deflation in Europe. Room for positive surprises
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
3.4
14.4
5.9
4.7
3.5 3.5 3.3 2.9
0.7
-1
1.5 1.5 1.9
0.31.2
-0.1
-2
0
2
4
6
8
10
12
14
16
Eurozone Greece Portugal UK Spain Italy France Germany
2010-13 2013-16
Government fiscal drag (% of potential GDP reduction in structural deficits from one period to the next) Source: Eurostat, BBVA GMR
Catalysts of a positive virtuous cycle in Europe: 2) Less negative fiscal policy
Section 1
On the right track for global growth in 2015
No deflation in Europe. Room for positive surprises
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Anti-deflationary measures leave room for
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
Structural reforms help to contain ULCs in the long term. This has led to an increase in exports that is backing the turnaround of the European
cycle, limiting the likelihood of generating deflation in the foreseeable future
Labour productivity in Europe Source: BBVA Research estimates based on the Smets-Wouters model
EMU exports vs. unit labour costs Source: Eurostat, BBVA GM Research
-20
-15
-10
-5
0
5
10
15
20
25
Mar-
96
Mar-
97
Mar-
98
Mar-
99
Mar-
00
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
Mar-
14
-2
-1
0
1
2
3
4
5
6
7
Exports YoY (%) ULC YoY (%) (-2 qtrs) (inv rhs)
Catalysts of a positive virtuous cycle in Europe: 4) Europe’s competiveness has already improved, but there is still a lot of room for additional reforms
Section 1
On the right track for global growth in 2015
No deflation in Europe. Room for positive surprises
-20
-15
-10
-5
0
5
10
15
Gre
ece
Irel
and
Spain
Port
uga
l
EA
17
Denm
ark
Germ
any
Italy
Fra
nce
Neth
erla
nds
Unite
d K
ingdom
Aust
ria
Fin
land
Belg
ium
Labour productivity (inverted) Wages Unit labour cost
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Anti-deflationary measures leave room for
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
Spain: merchandise exports by geography (% of total) Source: BBVA based on Ministry of Economy and Competitiveness
Spain: share and growth
of merchandise exports by sector (in nominal terms) Source: BBVA based on Ministry of Economy and Competitiveness
Euro depreciation since May 2014 (-11% vs. USD) has led to a surge in exports and a diversification by type of product and by geographical area. Note that the contribution of the foreign trade within the Eurozone with the Eurozone has diminished in favour of exports to Asia and Africa, that are faster growing economic areas
-5-3-113579111315
0
5
10
15
20
25
Eq
uip
ment
and
ma
chin
ery
Fo
od a
nd
bevera
ge
Au
tom
otive
industr
y
Chem
ical
pro
du
cts
Non-c
hem
ical
pro
du
cts
Ma
nufa
ctu
red
con
s.g
oods
En
erg
y
Raw
ma
teria
ls
Dura
ble
goods
Export share (%, Jan-Sep 2014, lhs) % YoY growth (%, Jan-Sep 2014, rhs)
% YoY growth (%, 2013, rhs)
0
5
10
15
20
25
30
35
40
45
50
55
60
EMU Rest of Europe Africa Asia North America Latam
Share Jan-Sep 2014 Share 2008
Section 1
On the right track for global growth in 2015
Spain will still be the best performer in Europe. Internal demand and the housing sector are improving
Euro depreciation uncovers new growth opportunities
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Anti-deflationary measures leave room for
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
New loans to the non-financial
private sector (%YoY quarterly cumulative data) Source: BBVA based on Bank of Spain
Spain: Loan-to-deposit
and non-performing loan ratios Source: BBVA based on Bank of Spain
NPLs have stabilised during 2014 and this together with the current low rates have led to an increase in the volume of new loans to households and SME’s and has given support to the recovery. However total credit growth rates are still in negative territory and this leaves room for domestic demand to grow further
115%
125%
135%
145%
155%
165%
175%
0%
2%
4%
6%
8%
10%
12%
14%
16%
Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 Aug-12 Aug-13 Aug-14
NPL ratio (lhs) Loan-to-deposit ratio (rhs)
-100
-50
0
50
100
Jun
-04
Dec-0
4
Jun
-05
Dec-0
5
Jun
-06
Dec-0
6
Jun
-07
Dec-0
7
Jun
-08
Dec-0
8
Jun
-09
Dec-0
9
Jun
-10
Dec-1
0
Jun
-11
Dec-1
1
Jun
-12
Dec-1
2
Jun
-13
Dec-1
3
Households: consumptionHouseholds: house purchaseNon-financial corporations: loans up to EUR1mnNon-financial corporations: loans over EUR1mn
Section 1
On the right track for global growth in 2015
Spain will still be the best performer in Europe. Internal demand and the housing sector are improving
Credit growth is still meagre, but is on the right track
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Anti-deflationary measures leave room for
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
• In our opinion, there are three main forces that drive
global demand:
1. the resilience to the slowdown in Chinese growth,
2. solid U.S. growth momentum; and
3. the contribution of productivity to growth
• We rate these factors from 1 to 10 for a selection of
emerging countries and obtain a total score
• This total score shows that, except for Mexico and
Colombia, Asian countries have a greater resilience
to the cycle than LatAm countries
Section 1
On the right track for global growth in 2015
Emerging economies: back to growth but at different rates. Transition to a model less dependent on exports and investment
3 U.S. 8 10 9.3 4.5 7.95
2 Mexico 7.7 10 9.8 1.5 7.25
4 Colombia 8.1 7.1 8.9 1.5 6.4
6 Japan 6.1 2.8 9.7 3 5.4
8 India 6.8 2 9.2 3 5.25
12 Brazil 6.6 1.4 9 1.5 4.625
19 Greece 8.5 0.3 6.2 1.7 4.175
20 Peru 2.4 3.4 8.6 1.5 3.975
17 China 0 3.7 8.9 3 3.9
29 Russia 6.9 0.7 5.5 1.7 3.7
21 Italy 6.8 1.1 4.8 1.7 3.6
18 UK 7.4 1.7 3.4 1.7 3.55
27 Chile 1.3 2.3 8.7 1.5 3.45
24 France 7.4 1.1 3.5 1.7 3.425
35 Spain 7.9 0.5 2.4 1.7 3.125
30 Germany 5.1 1.5 4 1.7 3.075
32 Portugal 7.9 0.6 0.6 1.7 2.7
T o tal Sco reR ank
C o ntribut io n
o f T F P to
GD P gro wth
Overall R esilience to
C hina's
Investment
Slo wdo wn
T rade
Expo sure to
U.S. R eco very
R esilience to
EZ Gro wth
Slo wdo wn
Country score Source: Damodaran, BBVA GMR
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Anti-deflationary measures leave room for
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
Base case macroeconomic scenario. LatAm will grow 1% in 2014 and 2% in 2015
• Downward revisions of growth forecasts across all countries, except for Colombia. Main downwards corrections in ARG, BRA, VEN, PER.
• There are very important differences across countries. The Pacific Alliance (Mexico, Colombia, Peru and Chile) to grow 2.9% and 3.9% in 2014-
15. Mercosur in recession in 2014-15.
-4
-2
0
2
4
6
20
13
20
14
20
15
20
13
20
14
20
15
20
13
20
14
20
15
20
13
20
14
20
15
20
13
20
14
20
15
20
13
20
14
20
15
20
13
20
14
20
15
20
13
20
14
20
15
ARG BRA CHI COL PER VEN Lat5 Lat6
Oct-14 Jul-14
LatAm GDP growth forecasts Pacific Alliance: MEX, COL, PER, CHI Mercosur: BRA, ARG, VEN, PAR, URU
Source: BBVA Research
LatAm 2013-15 growth forecasts Source: BBVA Research
Section 1
On the right track for global growth in 2015
Emerging economies: back to growth but at different rates. Transition to a model less dependent on exports and investment
6.1
4.1
2.6
2.4 1.0
2.0
-1
0
1
2
3
4
5
6
7
2010 2011 2012 2013 2014e 2015e
LatAm Mercosur Pacific Alliance
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Anti-deflationary measures leave room for
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
Global and LatAm currencies. The USD will continue to dominate in 2015
Outlook: Long-term USD cycle linked to UST rates, flows and raw materials. LatAm is on its own: continued weakness in LatAm FX, and only the Fed's soft policy after the increases can create opportunities. In general, our recommendations focus on the differentiation and relative values of LatAm or the possibility of financing in other G10
Factors:
A. different central bank monetary policies and balance sheets
B. mediocre growth, LatAm stalling between the deceleration in China and the slow recovery in developed markets
C. limits to LatAm's fiscal and monetary capacity
D. falling raw material prices put pressure on the trade and fiscal balances
E. lack of competitiveness leads to adjustments in exchange rates
F. different correlations based on the market depth (fixed income, equities)
Inertia in the US and in LatAm but different, and there may be limits to the Fed's increases
Section 1
On the right track for global growth in 2015
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Anti-deflationary measures leave room for
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
• The ongoing negative short-term rates, with low inflation rates, will continue to anchor the long end of the euro curves
• The German Bund will limit the margin of increase of the US Treasuries
• Based on our simultaneous estimates, as long as the German Bund fluctuates below 1.5% or is close to that level, the spread with the UST will move to an average of 115bp. If the spread remains at current levels, the range for the 10Y Treasury would be 2.6-3.3%
• And vice versa: if the spread increases to a record high of 200bp, the ratio with the 10Y UST would be 3.35%
Structural low-neutral interest rates in the developed markets, driven by low inflation and global liquidity
Section 1
On the right track for global growth in 2015
Financial implications of the current growth model
10Y bonds Source: Fed and BBVA GMR
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Jan-1
0
Apr-
10
Jul-10
Oct-10
Jan-1
1
Apr-
11
Jul-11
Oct-11
Jan-1
2
Apr-
12
Jul-12
Oct-12
Jan-1
3
Apr-
13
Jul-13
Oct-13
Jan-1
4
Apr-
14
Jul-14
Oct-14
UST 10Y German bund
Developed vs. emerging markets: CPI (YoY %) Source: DataStream
-5
0
5
10
15
20
25
30
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
Emerging Developed
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Anti-deflationary measures leave room for
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
Raw materials will bottom out on the recovery of the cycle. Oil: Rebound following the sharp correction, but fundamentals will remain weak in 2015
Section 1
On the right track for global growth in 2015
• We believe that the recent price correction (-25% since June) is justified following the revised estimates pointing to lower demand (IEA:
+0.7mbpd 14e vs. +1.4mbpd in June 14) in a context of greater non-OPEC production (+1.7mbpd vs. a forecast +1.3mbpd one year previously)
and stable OPEC production (recovery in Libya and Iraq)
• The current weakness could continue during 2015 (demand 15e +1.13mbpd vs. non-OPEC supply 15e +1.26mbpd), unless OPEC takes action
to protect production by increasing idle capacity (4.0mbpd)
Oil price performance Values in USD/bbl Source: Bloomberg
Medium term market balance Annual change (mbpd) Source: EIA
Supply glut
150$
140$
120$
100$
80$
60$
40$
20$
0$
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
03
04
05
06
07
08
09
10
11
12
13
14
Operation desert storm Chinese growth�
takes off
Financial crisis
BP oil spillArab
springIran nuclear
tensions
Worlddemand slows
Peak $ 147.27
July 11, 2008
-1
0
1
2
3
4
5
6
7
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
mb
/d
Implied spare capacity
Effective OPEC spare capacity
World demand growth
World supply capacity growth
Financial implications of the current growth model
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Anti-deflationary measures leave room for
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
• LatAm trades at a premium of 17% vs. the rest of emerging markets vs. the historical average PE 12M FWD of +13x and in line with the historical premium of +12% in terms of P/BV 12M FWD. Premiums are similar vs. Asian markets. In our opinion there is a derating risk in LatAm because of the influence of Brazil and raw materials
• We continue to prefer markets with growth potential based on reforms and internal demand, to avoid valuation traps until commodities recover.
PE MSCI: LatAm / Emerging mkts vs. LatAm / Asia Source: Bloomberg and BBVA GMR
Asia has a more appealing valuation and less sensitivity to raw materials than LatAm. In LatAm we prefer Mexico
Relative valuation criteria - LatAm Source: Bloomberg and BBVA GMR estimates
Section 2
Asset allocation
Equities remain our favourite asset, especially in Europe and Asia
0.80
0.85
0.90
0.95
1.00
1.05
1.10
1.15
1.20
1.25
1.30
Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14
LatAm/Asia Latam / Emerging mkts
0
20
40
60
80
100Struct. advances. (+)
Domestic demand (+)
Trade DNA (+)Exp. to commodities (-)
Valuations (=)
Brazil Chile Colombia Mexico Peru
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
0
20
40
60
80
100
Struct.advances. (+)
Domesticdemand (+)
Trade DNA (+)Exp. to
commodities (-
)
Valuations (=)
Brazil Chile Colombia Mexico Peru
• After an intense period of volatility due to the stabilisation of growth in China and the expectation regarding the election results in Brazil, the markets seem to have returned to trading based on their respective fundamentals. Therefore, we reiterate our preference for Mexico and Colombia in Latin America
• Our country selection methodology gives a relevant weighting to: i) the process of structural reforms; ii) relative strength of domestic demand; iii) stock market exposure to commodities (energy and materials); iv) the portion of value added products among exports, and v) relative valuations
Relative valuation criteria - LatAm Source: Bloomberg and BBVA GMR estimates
We continue to prefer markets with growth potential based on
reforms and internal demand to avoid valuation traps until
commodities recover
In LatAm we overweight Mexico
Section 2
Asset allocation
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Valuations * Target calculated with consensus EPS and the valuation parameters of BBVA GMR. Source: Bloomberg and BBVA GMR estimates
% chg in EPS
FV 2015e
Target
2015e Pot.
P/E @ Target (x)
2014e 2015e 2016e 2014e 2015e 2016e
Brazil Bovespa
BBVA* 113 14.8 16.5 59,659 59,700 108 14.3 125 10.7
Mexico CPI
BBVA 75 239 178 52,136 52,150 16.2 272 219 18.6
Consensus 248 92 174 52,770 23.7 21.7 18.5
Colombia Colcap
BBVA* 62 10.4 13.7 1,890 1,870 14.8 20.4 18.4 16.2
Peru IGBVL
BBVA 20 180 15.0 17,454 17,500 142 20.8 176 153
Chile IPSA
BBVA* 11 79 77 4,088 4,100 4.8 20.5 19.0 17.6
Our target prices for 2015 imply upsides of 16% and 15% for Mexico and Colombia respectively. These markets are even more attractive when adjusted for volatility
Potential vs. volatility Source: Bloomberg and BBVA GMR estimates
0.0
0.1
0.2
0.3
0.4
0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Mexico Colombia Peru Brazil Chile
Pote
ntia
l/ Price v
ola
tility
Pote
ntia
l / Earn
ings v
ola
tility
Potential / Earnings volatility Potential / Price volatility
In LatAm we overweight Mexico
Section 2
Asset allocation
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Section 3
Equity strategy in developed markets
Why would we invest in European and Iberian equities?
Our Gordon valuation model: If the ECB measures are not aggressive enough, target for the Ibex-35: 10.338;
Euro Stoxx 50: 3.104; and S&P 500: 2.039
Price 5Y avg 2014 2015 5Y avg 2014 2015 Fair value
Ibex 10,148.00 12.93 17.19 13.97 1.25 1.38 1.33 10,338
Euro Stoxx 50 3,059.99 11.76 13.69 12.22 1.25 1.40 1.32 3,104
Stoxx 600 335.63 13.67 14.97 13.34 1.57 1.69 1.61
S&P 500 2,039.82 16.64 17.32 15.77 2.33 2.66 2.49 2,039
P/E P/B
P/E estimates and fair value Source: BBVA GMR estimates
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Sectors where there could be M&A activity: Energy, Health Care and Materials
AutosCapital Goods
C.Durables
Energy
Food Retailing
Food&Bev.
Health Care
HH &PP
Materials
Pharma
Retail
Semiconductors
Softw are
Telecoms
Transportation
Utilities
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
-8 -6 -4 -2 0 2 4 6 8 10
Capex/s
ale
s 2
014
-2013
RoE-Wacc 2014-2013
Investment ideas in Europe
Section 3
Equity strategy in developed markets
• Note that on a dynamic basis, the sectors that have evolved towards ratios that increase the likelihood of corporate activity are the ones with:
– The highest expected increases in RoE-WACC
– The largest expected reduction in capex/sales
– The highest expected FCF generation in 2014-2013
• These are mainly: Energy, Health Care (Pharma) and Materials
European sectors: RoE-WACC, capex/sales and FCF (2014-2013) Source: Bloomberg, BBVA GMR
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GARP Source: Bloomberg, BBVA GMR
We think that global economy is bottoming out on the expansionary policy mix and therefore we recommend growth sectors. Our GARP model
points out Banks, Food, Materials and Retail & Luxury as growth sectors with attractive valuations. Utilities and Energy are appealing on a value
basis and Food Retail is the best positioned sector according to this same parameter
Sector Score valuation
Food Retail -1.02
Energy -0.56
Telecoms -0.43
Materials -0.09
Utilities -0.01
Banking 0.05
S&P Europe 350 0.15
Financials 0.20
HHPP 0.27
Autos 0.30
Pharma 0.42
Cons.Staples 0.43
Industrials 0.57
Food&Beverage 0.62
Technology 0.63
Cons.Discretionary 0.66
Retail&Luxury 0.82
Insurance 0.86
Cheap
Expensive
For each sector we calculate the current number of standard deviations above/below the
historical average of the valuation ratios
We calculate P/E 15e, P/BV 15e, EV/EBITDA 15e, P/CF 15e, RoE 15e, capex 2015e, capex/sales 15e,
EBIT 2015e (net income for Financials), operating margin 2015e (NIM 15e for Financials) and EPS 15e
Investment ideas in Europe
Section 3
Equity strategy in developed markets
R.Est
Utilities
Autos
Transport
PharmaBanks
Materials
Media
TelecomsEnergy
Insurance
Retail
Cons. DurablesHPP Food&Bev.
Cap.GoodsTech Hard&Equip
Food Retail
Softw are
Semiconductors
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0
Gro
wth
Value
Grow th
Unattractive
GARP
Extremaly AttractiveAtractive
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EPS elasticity to GDP growth in the different areas, combined with the weight of each area in the revenues of the Ibex-35, result in the following
inputs for our valuation model: estimated EPS growth of 15.5% YoY in 2015 and +18.4% YoY in 2016 (vs. 22% YoY and 14.6% YoY respectively
estimated by the consensus). The new g should be increased to 2.4%, the ERP to 4.9% and the risk-free rate to 4.6%. Using these criteria, our
target of the Ibex-35 is 11,600
GDP and EPS estimates Source: Bloomberg and BBVA GMR
Considering a geographical approach the upside potential is greater for Europe: Ibex-35 target: 11,600
Section 4
Equity strategy: Europe and Iberia
Valuation inputs Source: Bloomberg and BBVA GMR
Target Ibex-35: 11,600
2014 2015 2016
Weight in
revenues
Elasticity
of EPS
World 3.6% 3.8% 3.9% 11.6% 5.7
US 2.5% 2.5% 3.0% 6.5% 1.9
Spain 1.1% 1.9% 2.0% 30.0% 8.0
Asia (ex. Japan) 5.0% 5.2% 6.0% 5.5% 6.8
LatAm 2.3% 2.5% 4.0% 24.6% 5.7
Eurozone 1.1% 1.9% 2.0% 21.8% 6.5
EPS YoY % BBVAe 12.0% 15.5% 18.4%
EPS YoY % Consensus 11.9% 22.0% 14.6%
Total World US Spain
Asia (ex.
Japan) LatAm Eurozone
Rf 4.6% 3.1% 3.0% 3.5% 4.6% 8.4% 3.0%
G 2.4% 2.1% 1.0% 1.0% 1.5% 6.0% 1.0%
ERP 4.9% 6.4% 3.7% 4.0% 6.5% 6.3% 3.7%
Weight in revenues 11.6% 6.5% 30.0% 5.5% 24.6% 21.8%
Elasticity of EPS 5.7 1.9 8.0 6.8 5.7 6.5
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GDP and EPS estimates Source: Bloomberg and BBVA GMR
Valuation inputs Source: Bloomberg and BBVA GMR
Considering a geographical approach the upside potential is higher:
Euro Stoxx 50 target: 4,200
Target Euro Stoxx 50: 4,200
2014 2015
World 2.9% 3.1%
US 2.6% 3.0%
Japan 1.6% 1.3%
Asia exJapan 6.3% 6.2%
LatAm 3.2% 3.6%
Eurozone 1.4% 1.7%
EPS YoY% BBVAe 12.2% 13.5%
EPS YoY% Consensus 11.4% 11.6%
Total World US Japan Asia exJapan LatAm Eurozone
Rf 4.1% 4.4% 4.0% 1.0% 4.6% 8.6% 3.7%
G 1.7% 2.4% 1.5% 1.0% 1.5% 6.7% 1.3%
ERP 4.3% 4.8% 3.8% 3.8% 6.0% 6.3% 4.0%
Weight in revenues 9.8% 14.4% 0.2% 9.3% 6.1% 58.0%
Elasticity of EPS 5.7 1.9 0.6 6.8 5.5 6.0
Section 4
Equity strategy: Europe and Iberia
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GDP and EPS estimates Source: Bloomberg and BBVA GMR
Valuation inputs Source: Bloomberg and BBVA GMR
Considering a geographical approach the upside potential is higher:
S&P 500 target: 2,400
Target S&P 500: 2,400
2014 2015
World 2.9% 3.1%
US 2.6% 3.0%
Japan 1.6% 1.3%
Asia exJapan 6.3% 6.2%
LatAm 3.2% 3.6%
Eurozone 1.4% 1.7%
EPS YoY% BBVAe 11.2% 12.5%
EPS YoY% Consensus 11.0% 10.7%
Total World US Japan
Asia
exJapan LatAm Eurozone
Rf 4.1% 4.4% 4.0% 1.0% 4.6% 8.6% 3.7%
G 1.7% 2.4% 1.5% 1.0% 1.5% 6.7% 1.3%
ERP 4.0% 4.8% 3.8% 3.8% 6.0% 6.3% 4.0%
Weight in revenues 14.8% 72.0% 0.5% 4.4% 1.4% 6.4%
Elasticity of EPS 5.7 3.3 1.2 6.6 5.2 5.5
Section 4
Equity strategy: Europe and Iberia
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MSCI Europe Banks: P/E (Trailing) Source: DataStream, BBVA GMR
MSCI Europe Banks: P/B (Trailing) Source: DataStream, BBVA GMR
1. Valuations are near pre-crisis levels in terms of P/E and dividend yield, but the P/B ratio and RoE remain near their respective lows
2. The EPS trends have stabilised
3. The AQR has helped to clean up the system and reduce systemic risk
4. Most of the capital increases have already taken place
5. The reduction in credit spreads and financing costs is essential to lower the cost of corporate financing
Reasons to buy banks
0.0
0.5
1.0
1.5
2.0
2.5
Jan-0
4
Jul-04
Jan-0
5
Jul-05
Jan-0
6
Jul-06
Jan-0
7
Jul-07
Jan-0
8
Jul-08
Jan-0
9
Jul-09
Jan-1
0
Jul-10
Jan-1
1
Jul-11
Jan-1
2
Jul-12
Jan-1
3
Jul-13
Jan-1
4
Jul-14
Average
+1STD
-1STD
0
5
10
15
20
25
Jan-9
9
Aug-9
9
Mar-
00
Oct-00
May-
01
Dec-
01
Jul-02
Feb
-03
Sep-0
3
Apr-
04
Nov-
04
Jun-0
5
Jan-0
6
Aug-0
6
Mar-
07
Oct-07
May-
08
Dec-
08
Jul-09
Feb
-10
Sep-1
0
Apr-
11
Nov-
11
Jun-1
2
Jan-1
3
Aug-1
3
Mar-
14
Oct-14
Average
+1STD
+1STD
Investment ideas in Europe
Section 4
Equity strategy: Europe and Iberia
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MSCI Europe Source: DataStream, BBVA GMR
0.0
0.5
1.0
1.5
2.0
2.5
Jan-0
4
Jul-04
Jan-0
5
Jul-05
Jan-0
6
Jul-06
Jan-0
7
Jul-07
Jan-0
8
Jul-08
Jan-0
9
Jul-09
Jan-1
0
Jul-10
Jan-1
1
Jul-11
Jan-1
2
Jul-12
Jan-1
3
Jul-13
Jan-1
4
Jul-14
Average
+1STD
-1STD
Investment ideas in Europe
Section 4
Equity strategy: Europe and Iberia
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MSCI Europe Banks: revised EPS (upwards-downwards)/
(upwards+downwards) + 12M moving average Source: Bloomberg, BBVA GMR
MSCI Europe Banks: revisions of the relative EPS vs. P/E Source: Bloomberg, BBVA GMR
-120%
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
09 10 11 12 13 14
0.6
0.7
0.7
0.8
0.8
0.9
0.9
1.0
1.0
1.1
1.1
-0.12
-0.10
-0.08
-0.06
-0.04
-0.02
0.00
0.02
Jan-10 Oct-10 Jul-11 Apr-12 Jan-13 Oct-13 Jul-14
Rela
tive P
/E (B
anks
/Tota
l)
Banks
earn
ings revis
ions (M
A12M
)
Banks earnings revisions (MA12M) Relative P/E (Banks/Total)
Investment ideas in Europe
Section 4
Equity strategy: Europe and Iberia
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1. Global cycle is bottoming out, although at a slow pace
2. Investment is still rising in the US and is starting to recover in Europe
3. Capital discipline favours higher margins and RoE
4. Valuations favour Cyclicals vs. Non-cyclicals
Reasons to buy Cyclicals
Investment ideas in Europe
Consensus estimates for the P/E FY2 for the sectors of the Stoxx600 Source: Bloomberg, BBVA GMR
The cyclical sectors of the Stoxx600 offer the greatest level of relative attractiveness vs. the non-cyclical sectors since 2007. Moreover policy mix together with the Euro depreciation should support EPS growth in 2015
Consensus estimates for EPS FY2 YoY for the sectors of the Stoxx600 Source: Bloomberg, BBVA GMR
-3
-1
1
3
5
7
9
11
13
15
Mar-
06
Jul-06
Nov-
06
Mar-
07
Jul-07
Nov-
07
Mar-
08
Jul-08
Nov-
08
Mar-
09
Jul-09
Nov-
09
Mar-
10
Jul-10
Nov-
10
Mar-
11
Jul-11
Nov-
11
Mar-
12
Jul-12
Nov-
12
Mar-
13
Jul-13
Nov-
13
Mar-
14
Jul-14
PE Cyclicals vs non Cyclicals Cyclicals Non Cyclicals
-50%
-30%
-10%
10%
30%
50%
Dec-
07
Jun-0
8
Dec-
08
Jun-0
9
Dec-
09
Jun-1
0
Dec-
10
Jun-1
1
Dec-
11
Jun-1
2
Dec-
12
Jun-1
3
Dec-
13
Jun-1
4
EPS YoY Growth (%) Cyclicals vs non Cyclicals Cyclicals Non Cyclicals
Section 4
Equity strategy: Europe and Iberia
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Sector valuation ratios (Closing of 24/11/2014) Source: BBVA GMR
Investment ideas in Europe
Price P/E TR (x) P/E +12M (x) P/BV +12M (x) P/CF +12M (x) DY (%)
Auto G 177.377 9.987 8.818 1.098 4.658 6.128
Banks IG 66.52 13.198 10.653 0.896 5.402 3.128
Cap Gds 233.874 16.458 14.554 2.291 10.405 7.767
Comm Prof Svs 112.611 17.989 16.304 4.116 11.808 3.45
Cons Dur/App 268.737 18.358 16.257 2.487 12.262 6.62
Consr Svs Ind 147.956 20.88 18.792 3.911 12.888 3.749
Div Fin IG 51.741 14.641 11.76 0.891 9.785 1.811
Energy IG 152.547 10.772 10.773 1.138 4.949 8.158
Fd/Bev/Tob 289.557 20.466 18.944 3.644 14.64 8.935
Fd/Drug RtlIG 63.886 12.951 13.275 1.366 5.92 2.166
H/C Eq/Svs 310.736 23.052 20.391 3.056 12.976 5.098
H/H Pers Prd 332.87 20.919 19.519 3.335 15.415 7.793
Insurance IG 70.29 10.957 10.445 1.166 9.129 3.373
Materials IG 229.462 15.025 13.559 1.52 7.466 7.961
Media IG 100.974 18.138 16.103 3.386 10.146 3.496
Pharm/Biotec 179.529 18.199 17.139 4.069 14.557 5.556
Real EstateIG 156.516 20.728 19.505 1.009 16.494 6.618
Retailing 171.024 21.608 19.067 4.159 13.832 5.572
S/W & SVS 85.666 17.38 15.854 3.071 13.421 1.719
SemiIG 214.834 30.064 22.547 3.417 16.2 3.087
T/Cm Svs IG 79.473 17.972 18.192 1.658 5.47 3.558
Tch H/W/Eq 41.649 24.776 17.477 2.366 14.038 1.133
Transpt 140.832 15.732 13.418 1.842 7.072 4.581
Utilities IG 116.008 14.744 14.398 1.348 5.823 5.627
Section 4
Equity strategy: Europe and Iberia
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Contacts
Antonio Pulido Director Global
Markets Research [email protected]
+34 91 374 31 81
Ana Munera Director Global Equity [email protected]
+34 91 374 36 72
Equity Iberia
Telecoms and Media Chief Analyst Ivón Leal [email protected] +34 91 537 81 44 Construction / Infrastructure / Industrials / Real Estate / Hotels Chief Analyst Antonio Rodríguez [email protected] +34 91 374 66 21 Javier Pinedo [email protected] +34 91 374 99 07
Luis García, CFA [email protected] +34 91 374 59 77 Financials Chief Analyst Ignacio Ulargui, CFA [email protected] +34 91 537 50 47 Silvia Rigol [email protected] +34 91 374 32 94 María Torres [email protected] +34 91 537 77 28
Utilities Chief Analyst
Isidoro del Álamo [email protected] +34 91 374 75 07 Daniel Ortea [email protected] +34 91 537 05 50 Oil / Raw Materials Chief Analyst Luis de Toledo, CFA [email protected] +34 91 537 07 09 Consumer / Pharma / Small Caps Chief Analyst Isabel Carballo [email protected] +34 91 374 32 69 Juan Ros [email protected] +34 91 537 88 57
Equity Derivatives Chief Analyst
Juan Antonio Rodríguez, CFA [email protected] +34 91 374 30 54
Alfredo de la Figuera [email protected] +34 91 537 61 16
Mayte Frutos [email protected] +34 91 374 76 21 Strategy European Equity Strategist
Beatriz Tejero [email protected] +34 91 374 46 61
Equity Mexico
Chief Analyst
Rodrigo Ortega [email protected]
+52 55 5621 9701
Telecoms / Media / Housing
Alejandro Gallostra, CFA [email protected]
+52 55 5621 9870
Beverages / Consumption / Food
Fernando Olvera [email protected]
+52 55 5621 9804
Retail / Pharma
Miguel Ulloa [email protected]
+52 55 5621 9706
Technical Analysis
Chief Analyst
Alejandro Fuentes [email protected]
+52 55 5621 9705
Analyst
Roberto Gonzalez
+52 55 5621 9704
Mining / Steel
Chief Analyst
Miguel Leiva [email protected]
+511 414 2968
Agribusiness / Consumer
Goods / Energy
Odeth Salomon [email protected]
+511 414 3057
Infrastructure / Capital goods
Joswilb Vega [email protected] +511 211 2397
Construction / Fibras / Infrastructure Chief Analyst
Francisco Chávez [email protected]
+52 55 5621 9703
Construction / Housing / Fibras
Mauricio Hernandez [email protected]
+52 55 5621 9369
Mining / Industrials / Transport
Jean Baptiste Bruny
+52 55 5621 9849
Financials
Ernesto Gabilondo [email protected]
+52 55 5621 9702
Equity Peru
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Contacts
Javier Valderde
Sorensen Director Cash
Equities [email protected]
+34 91 374 53 50
Head of Cash Equities
Javier Godoy [email protected]
+34 91 382 62 49
Deputy Head of Cash Equities
Javier Enrile [email protected]
+34 91 537 07 65
International +34 91 374 53 60
Fernando Gugel [email protected]
Jorge Batchilleria [email protected]
Claudine Innes [email protected]
Stephane Prinet [email protected]
Peter Prischl [email protected]
Spain +34 91 374 53 50
Team Leader
Milagros Treviño
Juan Bueno [email protected]
Carlos Gonzalez [email protected]
José Villanueva [email protected]
Sales Trading +34 91 374 53 61
Team Leader
Daniel Ruiz [email protected]
Eric Hongisto [email protected]
Carlos Kuster [email protected]
Europe and International Mexico Director
Juan Carlos Rodriguez
+52 55 5621 9940
Sales Trading
Alejandro Pavon [email protected]
+52 55 5621 9377
Julio Garcia
+52 55 5621 9171
Equity Net
Elba Padilla [email protected]
+52 55 5621 9408
Network Sales
Jose Miguel Fonseca
+52 55 5621 9490
Ana Maria Rivera
+52 55 5621 9176
Viart Vazquez [email protected]
+52 55 5201 2000 ext 3933
Berenice Patron [email protected]
+52 55 5621 9456
Felipe Casillas [email protected]
+52 55 5621 9984
Institutional Sales
Omar Revuelta [email protected]
+52 55 5621 9322
Vivian Salomon [email protected]
+52 55 5621 9811
Marie Laure Dang [email protected]
+52 55 5621 9232
Mauricio Martinez [email protected]
+52 55 5621 9289
Aron Brener [email protected]
+52 55 5621 9524
Bogota (Colombia) Head of Equity
Felipe Duque Urrea [email protected]
Institutional Sales Trading
Maria Camila Franco Villegas [email protected]
+57 1 3139843
+57 1 3077018 ext.12943
Lady Esperanza Rivera [email protected]
+57 1 3139821
+57 1 3077018 ext 12991
Javier Camilo Sanchez [email protected]
+57 1 3139842
+57 1 3077018 ext 12942
Willy Alexander Enciso [email protected]
+57 1 3139841
+57 1 3077018 ext 12941
Lima (Peru) Head of Equity
Jorge Ramos [email protected]
+51 1 0211 2380
Head Trader - Institutional
Equity Sales
Erick Valdez [email protected]
+51 1 2111276
Trader Equity
Vanessa Juarez [email protected]
+51 1 2112382
Head of Equity
Mauricio Andrés Bonavia [email protected]
+56 2 2679 1474/1471
Diego Susbielles [email protected]
Antonio Palacios [email protected]
Guillermo Arias [email protected]
Santiago (Chile)
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PLEASE SEE IMPORTANT DISCLOSURES ON THE LAST THREE PAGES OF THIS REPORT.
Contacts
BBVA Equity Derivatives Distribution
Director
Emilio Sainz de Baranda +34 91 374 51 36
Spain
Madrid
+34 91 374 51 36
+34 91 374 51 14
Europe
Paris
+33 1 42 96 81 80
+33 1 42 96 81 81
Milan
+39 0 27 629 63 65
+39 0 27 629 63 85
Lisboa
+35 1 21 311 75 06
London
+44 207 397 61 12
+44 207 648 75 97
Düsseldorf
+49 211 97 55 05 14
+49 211 97 55 05 70
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Disclaimer
Important Disclosures
The BBVA Group companies that have participated in preparing or contributed information, opinions, estimates, forecasts or recommendations to this report are identified by the location(s) of the author(s) listed on the first page as follows: 1) Madrid, London or Europe = Banco Bilbao Vizcaya Argentaria, S.A., including its E.U. branches (hereinafter called ‘BBVA’); 2) Mexico City = BBVA Bancomer, S.A. Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer (hereinafter called ‘BBVA Bancomer’); 3) New York = BBVA Securities, Inc. (hereinafter called "BBVA Securities"); 4.) New York Branch = BBVA, New York branch; 5.) Lima = BBVA Continental; 6.) Bogota = BBVA Colombia S.A.; 7.) Santiago = BBVA Chile S.A.; 8.) Hong Kong = BBVA, Hong Kong branch. For recipients in the European Union, this document is distributed by BBVA, a bank supervised by the Bank of Spain and by Spain’s Stock Exchange Commission (CNMV), and registered with the Bank of Spain with number 0182. For recipients in Hong Kong, this document is distributed by BBVA, which Hong Kong branch is supervised by the Hong Kong Monetary Authority. For recipients in Mexico, this document is distributed by BBVA Bancomer, a bank supervised by the Comisión Nacional Bancaria y de Valores de México. For recipients in Peru, this document is distributed by BBVA Continental, a bank supervised by the Superintendencia de Banca, Seguros y Administradoras Privadas de Fondos de Pensiones. For recipients in Singapore, this document is distributed by BBVA, which Singapore branch is supervised by the Monetary Authority of Singapore. For recipients in USA, research on products other than equity securities or swaps is being distributed by BBVA Securities, a subsidiary of BBVA registered with and supervised by the U.S. Securities and Exchange Commission and a member of the Financial Industry Regulatory Authority (“FINRA”) and the Securities Investor Protection Corporation. U.S. persons wishing to execute any transactions should do so only by contacting a representative of BBVA Securities in the U.S. Unless local regulations provide otherwise, non-U.S. persons should contact and execute transactions through a BBVA branch or affiliate in their home jurisdiction. Research on swaps is being distributed by BBVA, a swaps dealer registered with and supervised by the Commodity Futures Trading Commission (“CFTC”). U.S. persons wishing to execute any transactions should do so only by contacting a representative of BBVA. Unless local regulations provide otherwise, non-U.S. persons should contact and execute transactions through a BBVA branch or affiliate in their home jurisdiction. Research prepared by BBVA on equity securities and equity derivatives is being distributed by BBVA to “major U.S. institutional investors” based on an exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). BBVA is not a registered broker-dealer in the United States and is not subject to U.S. rules on preparing research or independence of research analysts. BBVA and BBVA Group companies or affiliates (art. 42 of the Royal Decree of 22 August 1885 Code of Commerce), are subject to the BBVA Group Policy on Conduct for Security Market Operations which establishes common standards for activity in these entities’ markets, but also specifically for analysis and analysts. This BBVA policy is available for reference at the following web site: www.bbva.com. Analysts residing outside the U.S. who have contributed to this report are not registered with or qualified as research analysts by FINRA or the New York Stock Exchange and may not be considered “associated persons” of BBVA Securities (as such term is construed by the rules of FINRA). As such, they are not subject to NASD Rule 2711 restrictions on communications with subject companies, public appearances and trading of securities held in research analysts’ accounts. BBVA or any of its affiliates beneficially owned at least 1 % of the common equity securities of the following companies covered in this report: ACS, Bolsa, Cemex, Galp Energia, Iberdrola, Meliá Hotels Int., OHL, Ohlmex, Telefónica, Técnicas Reunidas, Tubos Reunidos. In the past twelve months, BBVA or one or more of its affiliates managed or co-managed public offerings of the following companies covered in this report: Abertis, ACS, Actinvr, Aeromex, Almirall, Acciona, Bayer AG, BBVA, BES, Cemex, Chdraui, CTT - Correios de Portugal, DIA, EDP, Enel Green Power, Enagás, ESS, Falabella, Funo, Gamesa, Gfamsa, Herdez, Kof, GRUPO LALA SAB DE CV, Liberbank, Livepol, Logista, Arcelor Mittal, OHL, Oma, Pinfra, Banco Popular, Red Eléctrica, Telefónica, Telefónica Deutschland. In the past twelve months, BBVA or one or more of its affiliates has received compensation for investment banking services from the following companies covered in this report: Alfa, Alicorp, Almirall, Alsea, Amx, Acciona, Ara, Bimbo, Bolsa, Cemex, Cementos Lima, Enel Green Power, Funo, Gas Natural, Grifols, Gruma, Ica, Mexchem, Ohlmex, Pinfra, Repsol, Telefónica, Telmex. In the next three months, BBVA or one or more of its affiliates expects to receive or intends to seek compensation for investment banking services from the companies covered in this report. BBVA or one or more of its affiliates makes a market/provides liquidity in the securities of the following companies covered in this report: Amx, Bankia, Cemex, DIA, Endesa, Falabella, Femsa, Gas Natural, Gcarso, Gmexico, Iberdrola, Meliá Hotels Int., Banco Popular, Repsol, Banco Sabadell, Telefónica, Telmex, Televisa, Walmex. BBVA is subject to a Code of Conduct for Security Market Operations, which details the standards of the above-mentioned overall policy for the EU. Among other regulations, it includes rules to prevent and avoid conflicts of interests with the ratings given, including information barriers. This Code of Conduct for Security Market Operations is available for reference in the ‘Corporate Governance’ section of the following web site: www.bbva.com. BBVA Bancomer is subject to a Code of Conduct and to Internal Standards of Conduct for Security Market Operations, which details the standards of the above-mentioned overall policy for Mexico. Among other regulations, it includes rules to prevent and avoid conflicts of interests with the ratings given, including information barriers. This Code and the Internal Standards are available for reference in the ‘Grupo BBVA Bancomer’ subsection of the ‘Conócenos’ menu of the following web site: www.bancomer.com. BBVA Continental is subject to a Code of Conduct and to a Code of Ethics and Internal Standards of Conduct for Security Market Operations, which details the standards of the above-mentioned overall policy for Peru. Among other regulations, it includes rules to prevent and avoid conflicts of interests with the ratings given, including information barriers. Both Codes are available for reference in the ‘Quiénes Somos’ subsection of the ‘Conócenos’ menu of the following web site: www.bbvacontinental.pe. BBVA Securities is subject to a Capital Markets Code of Conduct, which details the standards of the above-mentioned overall policy for USA. Among other regulations, it includes rules to prevent and avoid conflicts of interests with the ratings given, including information barriers.
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Disclaimer
Exclusively for Recipients Resident in Mexico
In the past twelve months, BBVA Bancomer has granted banking credits to the following companies covered in this report: Alfa, AXTEL SAB DE CV - CPO, Bachoco, Bimbo, Chdraui, Gas Natural, Gcarso, Geo, Gfamsa, Iberdrola, Ica, Lab, GRUPO LALA SAB DE CV, Livepol, Urbi.
In the past twelve months, BBVA Bancomer has granted Common Representative services to the following companies covered in this report: N/A.
As far as it is known, a Director, Executive Manager or Manager reporting directly to the BBVA Bancomer General Manager has the same position in the following companies that may be covered in this report: Alfa, Alsea, Amx, Asur, Bimbo, Femsa, Gap, Gcarso, Gfinbur, Gmodelo, Gruma, Kof, Livepol, Oma, Pe&oles, Telmex, Televisa, Urbi.
BBVA Bancomer acts as a market maker/specialist in: MexDer Future Contracts (US dollar [DEUA], 28-day TIIEs [TE28], TIIE Swaps, 91-day CETES [CE91]), Bonos M, Bonos M3, Bonos M10, BMV Price and Quotations Index (IPC), Options Contracts (IPC, shares in América Móvil, Cemex, CPO, Femsa UBD, Gcarso A1, Telmex L) and Udibonos.
BBVA Bancomer, and, as applicable, its affiliates within BBVA Bancomer Financial Group, may hold from time to time investments in the securities or derivative financial instruments with underlying securities covered in this report, which represent 10% or more of its securities or investment portfolio, or 10% or more of the issue or underlying of the securities covered.
Equity Derivatives - Ratings System
Recommended strategies in equity derivatives may include taking positions in an equity underlying instrument (such as stocks, stock indices, sector indices, or dividends on stocks or stock indices), volatility or correlation/dispersion instruments, and/or structured products. Strategies may be: 1.) directional, long or short positions; or 2.) relative, spread based, between products that are the subject of a report. Factors that are considered in recommending strategies may include current market prices and conditions, macroeconomic trends and outlook, fundamental analysis of underlying companies and securities, outlook for dividends, as well as expected volatility and momentum in securities prices. Recommended strategies are maintained until expired, or recommended to be closed in a report.
Recommended strategies employing equity derivatives may differ from ratings that have been made by BBVA on underlying companies and their securities. Strategies over different time horizons may also not be consistent. You should note that actual outcomes and results could materially differ from what is expressed, implied or forecasted in the recommended strategies, or price targets, as these involve risks, uncertainties and assumptions that are beyond the ability of BBVA or its affiliates to control or predict. Future actions, conditions or events (affecting both market and non-market conditions, including those of a political or macroeconomic nature) and future results of operations of subject companies may cause prices of recommended securities to differ materially from those expressed in this document.
Equities - Ratings System, Distribution and History
We have three ratings for stocks based on our current expectations of relative returns over a six to twelve month period: i.) Outperform – we expect the stock to have returns more than 5% above its benchmark; ii.) Market Perform - we expect the stock to perform in-line (+/-5%) with its benchmark; and iii.) Underperform - we expect the stock to have returns more than 5% below its benchmark. Factors which may influence our ratings include: current market prices and conditions, operating issues and financing needs, macroeconomic trends and outlook, mergers and acquisitions, and valuation. Valuation methods used by BBVA include multiples of comparable companies, discounted cash flows, sum of the parts, and other generally accepted methods that may apply to a particular case.
Price targets are provided based on the methodology explained above. You should note that actual outcomes and results could materially differ from what is expressed, implied or forecasted in these price targets, as these involve risks, uncertainties and assumptions that are beyond the ability of BBVA or its affiliates to control or predict. Future actions, conditions or events (affecting both market and non-market conditions, including those of a political or macroeconomic nature) and future results of operations of subject companies may cause stock prices to differ materially from those expressed in this document.
As of today, for the whole universe of companies which BBVA has under coverage there are 42.86%Outperform ratings, 29.76% Market Perform ratings and 22.62% Underperform ratings. BBVA or any of its affiliates has rendered Investment Banking services or participated as manager and/or co-manager in public offerings in 53.33% of the Outperform ratings, 30% of the Market Perform ratings and in 10% of the Underperform ratings.
Analyst Certification
This report has been prepared by different authors. The analysts who have prepared this report, whose names appear on the page 27 under Equity Iberia section, hereby certify that the views expressed in this research report accurately reflect their personal views about the subject company(ies) and its (their) securities. They also certify that they have not been, are not and will not be receiving direct or indirect compensation in exchange for any specific recommendation in this report.
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Disclaimer
This document and the information, opinions, estimates, forecasts and recommendations expressed herein have been prepared to provide BBVA Group’s customers with general information and are current as of the date hereof and subject to changes without prior notice. Neither BBVA nor any of its affiliates is responsible for giving notice of such changes or for updating the contents hereof.
This document and its contents do not constitute an offer, invitation or solicitation to purchase or subscribe to any securities or other instruments, to undertake or divest investments, or to participate in any trading strategy. Neither shall this document nor its contents form the basis of any contract, commitment or decision of any kind.
Investors who have access to this document should be aware that the securities, instruments or investments to which it refers may not be appropriate for them due to their specific investment goals, financial positions or risk profiles, as these have not been taken into account to prepare this report. Therefore, investors should make their own investment decisions considering the said circumstances and obtaining such specialized advice as may be necessary. Other than the disclosures relating to BBVA Group, the contents of this document are based upon information available to the public that has been obtained from sources considered to be reliable. However, such information has not been independently verified by BBVA or any of its affiliates and therefore no warranty, either express or implicit, is given regarding its accuracy, integrity or correctness. To the extent permitted by law, BBVA and its affiliates accept no liability of any type for any direct or indirect losses or damages arising from the use of this document or its contents. Investors should note that the past performance of securities or instruments or the historical results of investments do not guarantee future performance.
The market prices of securities or instruments or the results of investments could fluctuate against the interests of investors. Investors should be aware that they could even face a loss of their investment. Transactions in futures, derivatives, options on securities or high-yield securities can involve high risks and are not appropriate for every investor. Indeed, in the case of some investments, the potential losses may exceed the amount of initial investment and, in such circumstances, investors may be required to pay more money to support those losses. Thus, before undertaking any transaction with these instruments, investors should be aware of their operation, as well as the rights, liabilities and risks implied by the same and the underlying securities. Investors should also be aware that secondary markets for the said instruments may not exist.
BBVA or any of its affiliates’ salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to its clients that reflect opinions that are contrary to the opinions expressed herein. Furthermore, BBVA or any of its affiliates' proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. No part of this document may be (i) copied, photocopied or duplicated by any other form or means (ii) redistributed or (iii) quoted, without the prior written consent of BBVA. No part of this report may be copied, conveyed, distributed or furnished to any person or entity in any country (or persons or entities in the same) in which its distribution is prohibited by law. More specifically, this document is in no way intended for, or to be distributed or used by an entity or person resident or located in a jurisdiction in which the said distribution, publication, use of or access to the document contravenes the law which requires BBVA or any of its affiliates to obtain a licence or be registered. Failure to comply with these restrictions may breach the laws of the relevant jurisdiction.
The remuneration system concerning the analysts responsible for the preparation of this report is based on multiple criteria, including the revenues obtained by BBVA and, indirectly, the results of BBVA Group in the fiscal year, which, in turn, include the results generated by the investment banking business; nevertheless, they do not receive any remuneration based on revenues from any specific transaction in investment banking.
In the United Kingdom, this document is directed only at persons who (i) have professional experience in matters relating to investments falling within article 19(5) of the financial services and markets act 2000 (financial promotion) order 2005 (as amended, the "financial promotion order"), (ii) are persons falling within article 49(2) (a) to (d) (“high net worth companies, unincorporated associations, etc.”) of the financial promotion order, or (iii) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) may otherwise lawfully be communicated (all such persons together being referred to as "relevant persons"). This document is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is available only to relevant persons and will be engaged in only with relevant persons.
BBVA Hong Kong Branch (CE number AFR194) is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission of Hong Kong. In Hong Kong this report is for distribution only to professional investors within the meaning of Schedule 1 to the Securities and Futures Ordinance (Cap 571) of Hong Kong.
This document is distributed in Singapore by BBVA’s office in this country for general information purposes and it is generally accessible. In this respect, this document does not take into account the specific investment goals, the financial situation or the need of any particular person and it is exempted from Regulation 34 of the Financial Advisors Regulation (“FAR”) (as required in Section 27 of the Financial Advisors Act (Chapter 110) of Singapore (“FAA”))
BBVA, BBVA Bancomer, BBVA Chile S.A., BBVA Colombia S.A., BBVA Continental and BBVA Securities are not authorised deposit institutions in accordance with the definition of the Australian Banking Act of 1959 nor are they regulated by the Australian Prudential Regulatory Authority (APRA).
General Disclaimer for Readers Accessing the Report through the Internet
Internet Access
In the event that this document has been accessed via the internet or via any other electronic means which allows its contents to be viewed, the following information should be read carefully:
The information contained in this document should be taken only as a general guide on matters that may be of interest. The application and impact of laws may vary substantially depending on specific circumstances. BBVA does not guarantee that this report and/or its contents published on the Internet are appropriate for use in all geographic areas, or that the financial instruments, securities, products or services referred to in it are available or appropriate for sale or use in all jurisdictions or for all investors or counterparties. Recipients of this report who access it through the Internet do so on their own initiative and are responsible for compliance with local regulations applicable to them.
Changes in regulations and the risks inherent in electronic communications may cause delays, omissions, or inaccuracy in the information contained in this site. Accordingly, the information contained in the site is supplied on the understanding that the authors and editors do not hereby intend to supply any form of consulting, legal, accounting or other advice.
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