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21st
July 2014
European Investment Notes
Cross Asset Research No. 207
Decision Time We recognise the significance of the conflict in the Ukraine. The controversy concerns European equity, not its American counterpart. There is no good reason to change the “buy the pullback” playbook for US equity.
Our interpretation has not changed. Although we cannot expect a recovery of European equity to be sustained at this point we do not think that this is a time to sell European equity. We have confirmation of the “slow sink” of the Euro. The reporting season is providing support, notably for financials.
We cannot remove the defensive bias to our portfolio until the most secure bond markets begin to weaken. We are reinforcing the consumer universe through the P & H sector. For similar reasons we are upgrading the UK market at the expense of the EZ.
Research team
Christopher Potts [email protected] +44 20 7621 6640
Nicolas Trémel [email protected] +44 20 7621 6642
Clément Genes [email protected] +33 1 53 65 36 41
Joakim Tabet [email protected] +44 20 7621 5122
IMPORTANT. Please refer to the last page of this report for “Important disclosures” and analyst(s) certifications
keplercheuvreux.com
Economy & Strategy
2 keplercheuvreux.com
Recommended sector and market asset allocation This is decision time for European equity. Deflation anxiety has been on the rise for some time. Over the last two
weeks investors have been reminded about both credit risk and geopolitical risk. We recognise the significance of
the conflict in the Ukraine. Its consequences are reduced commercial and financial ties between Russia and the West,
the reassessment of European energy policy and the weakening of the Russian economy to the point of recession
through 2015. The controversy concerns European equity, not its American counterpart. There is no good reason to
change the “buy the pullback” playbook for US equity. The reporting season in America is sending familiar,
reassuring signals. Our interpretation has not changed. We cannot expect a recovery of European equity to be
sustained at this point. However, we do not think that this is a time to sell European equity. There have been no signs
of panic in Europe’s markets. We have confirmation of the “slow sink” of the Euro against the US$. The reporting
season is also providing support for financials. Inflation in the region is stabilising. The forex market should bring
relief, albeit slowly. Earnings downgrades in the region should stabilise through the months ahead. America will tell
us when to sell equity assets, not Europe. America is not yet ready for the sell sign.
We cannot remove the defensive bias to our recommended portfolio until the most secure bond markets begin to
weaken. The category of European equity that should draw benefit from the current context is the consumer
universe, both Staples and Discretionary. We are upgrading the Personal & Household sector to OW because profit
leadership remains apparent here but its relative valuation has virtually completed its return to-mean. A similar
logic applies to the UK market, at the expense of the euro zone. The UK also has relatively high exposure to the
positive effects of a stronger US$. For similar reasons we are moving to over-weight from neutral in the global-
consumer Danish market to the expense of Finland.
Weightings and asset allocation for the MSCI Europe Universe
* The exposure to risk is measured by the weighted average of 2-y betas. We manage the liquidity ratio within a 0-10% rank. Source: Kepler Cheuvreux
21/07/2014Neutral weight in
MSCI (%)
2-yr beta values
(vs MSCI)
Tactical sector
rating
Recommended
allocation (%)
Consumer Discretionary 10.2 1.1 OW 11
Automobiles & Components 3.3 1.5 OW 4
Consumer Durables & Apparel 2.5 1.1 OW 3
Consumer Services 0.9 0.9 OW 2
Media 2.0 0.9 UW 1
Retailing 1.3 0.9 UW 1
Consumer Staples 13.5 0.7 N (UW) 14
Food & Staples Retailing 1.4 1.0 UW 1
Food Beverage & Tobacco 10.4 0.6 N 10
Household & Personal Product 1.7 0.7 OW (N) 3
Energy 9.6 0.9 OW 11
Financials 22.1 1.3 N 22
Banks 11.5 1.3 N 11
Diversified Financials 3.7 1.4 N 4
Insurance 5.8 1.2 N 6
Real Estate 1.1 0.9 OW 2
Healthcare 12.9 0.8 N 13
Healthcare Equipment & Services 1.1 0.6 N 1
Pharmaceuticals & Biotechnology 11.8 0.8 N 12
Industrials 11.1 1.1 UW 9
Capital Goods 8.4 1.1 UW 7
Commercial & Professional Services 1.2 0.8 UW 1
Transportation 1.4 1.0 OW 2
Information Technology 3.2 1.1 UW 2
Software & Services 1.5 0.9 UW 1
Technology & Hardware Equipment 0.9 1.3 UW 0
Semiconductors 0.8 1.2 UW 0
Materials 8.2 1.2 N 8
Telecommunication Services 4.9 0.9 OW 6
Utilities 4.3 0.8 N 4
Exposure to risk (beta value) 1.00
Liquidity ratio 2%
Economy & Strategy
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21/07/2014 Neutral weight in Stoxx (%)2-year Beta Values
(vs DJ Stoxx)
Tactical
Sector rating Recommended Allocation (%)
Automobiles 3.0 1.5 OW 4
Banks 13.1 1.4 N 13
Basic Resources 3.1 1.4 N 3
Chemicals 4.5 1.0 UW 4
Construction & Mat. 2.3 1.3 OW 4
Financial Services 1.6 1.2 OW 2
Food & Beverages 8.1 0.6 N 8
Healthcare 11.4 0.7 N 11
Industrials 10.5 1.1 UW 9
Insurance 6.4 1.2 N 6
Media 2.5 0.9 UW 2
Oil & Gas 7.3 0.9 OW 8
Personal & HG 5.8 0.8 OW (N) 7
Real Estate 1.5 0.8 OW 2
Retail 3.0 1.0 UW 1
Technology 3.1 1.1 UW 2
Telecoms 4.3 0.9 OW 5
Travel 1.5 0.9 OW 2
Utilities 4.4 0.8 N 4
21/07/2014Neutral weight
in DJ-EuroStoxx (%)
2-year Beta Values
(vs DJ Euro-Stoxx)Tactical Sector rating Recommended Allocation (%)
Automobiles 6.4 1.3 OW 7
Banks 13.8 1.6 N 14
Basic Resources 1.1 1.2 N 1
Chemicals 8.8 0.9 UW 7
Construction & Mat. 3.4 1.2 OW 4
Financial Services 0.9 0.9 OW 2
Food & Beverages 6.2 0.5 N 6
Healthcare 5.2 0.7 N 5
Industrials 11.6 1.0 UW 10
Insurance 7.3 1.2 N 7
Media 2.8 0.7 UW 2
Oil & Gas 6.8 1.0 OW 8
Personal & HG 4.2 0.7 OW (N) 5
Real Estate 1.5 0.8 OW 2
Retail 2.8 0.9 UW 1
Technology 5.2 0.9 UW 4
Telecoms 4.6 1.0 OW 6
Travel 1.1 0.7 OW 2
Utilities 6.3 0.9 N 6
21/07/2014 Neutral weight in Stoxx (%)2-year Beta Values
(vs DJ Stoxx)Tactical Sector rating Recommended Allocation (%)
France 14.6 1.1 N (OW) 15
Germany 13.2 1.1 N 13
Italy 3.9 1.3 OW 5
Netherlands 6.2 0.9 N 6
Spain 5.4 1.3 OW 6
Switzerland 13.2 0.8 N 13
UK 30.9 0.9 N (UW) 31
Euroland 49.8 1.1 N (OW) 50
Nordic 9.4 1.0 N 9
Denmark 2.3 0.8 OW (N) 3
Finland 1.4 1.2 UW (N) 1
Sweden 4.4 1.1 UW 3
Norway 1.3 0.9 OW 2
Source: Kepler Cheuvreux
Weightings and asset allocation for the Europe's leading equity markets (DJ Stoxx)
Exposure to risk (beta value)
2%Liquidity ratio
Weightings and asset allocation for the DJ-Stoxx sectors
Liquidity ratio
1.02
1.03
Exposure to risk (beta value)
2%
Weightings and asset allocation for the DJ Euro-Stoxx sectors0000000000000000000
Economy & Strategy
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Chart 1 –The Bond-Equity Relationship in America and Germany
Source: Datastream
Chart 2 – It Does Move: the Slow Break-Down in Euro-US$
Source: Bloomberg
60
80
100
120
140
160
180
200
220
2009 2010 2011 2012 2013 2014 2015
Equity / Bonds (total return indices). MSCI country index / to 10y benchmark bondIndex: Jan. 1st 2009=100
Germany
USAequity out-performance
1.20
1.25
1.30
1.35
1.40
1.45
1.50
2011 2012 2013 2014 2015
EUR / USD
EUR / USD 200-day moving average
$1.35threshold
The controversy concerns European equity, and the EZ in particular, not its American counterpart. There is no good reason to change the “buy the pullback” playbook for US equity. The reporting season in America is sending familiar, reassuring signals. We have confirmation of the “slow sink” of the Euro against the US$. The point is that the forex influence does not begin to be positive for the earnings of the euro zone corporate sector relative to trend and relative to expectations until the euro trades below the US$1.35 threshold with its momentum firmly established on a downward trajectory. We expect to see the euro near US$1.30 in Q4.
Economy & Strategy
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Chart 3 – Nominal and Real, Inflation-Adjusted US-German Yield Spreads
Source: Datastream, Deutsche Bundesbank
Chart 4– Relative Unit Labour Costs and the Real, Effective Euro Exchange Rate
Source: ECB, Datastream
-600
-500
-400
-300
-200
-100
0
100
200
300
400
500
600
84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
10Y real yield spread - Germany vs US
10Y nominal yield spread - Germany vs US
bp
lowestsince 1993
lowestsince 1989
75
80
85
90
95
100
105
110
115
120
125
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Index: Q1-1999 = 100
Euro ULC-based REER
Euro NEER
Relative ULCs
lower relative labour costs
The spread between nominal yields at the long end of the yield curve between the USA and Germany is at its widest since 1989. In real, inflation-adjusted terms the spread is at its largest since 1993. Unit labour costs in the euro area as a whole continue to fall relative to the external world. Exchange rate adjustment is not required to restore a loss of international competitiveness due to rising internal costs. It is required to improve a competitiveness that is threatened by a rising nominal exchange rate.
Economy & Strategy
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Chart 5 – Consensus 12-Month Forward EPS Growth in Europe compared to France
Source: Thomson Reuters IBES, Datastream
Chart 6 – “Core” Consumer Price Inflation for Goods and Services in the Euro Zone
Source: Eurostat, Datastream
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
12-month forward EPS growth (% change y-o-y)MSCI Universe
Europe
France
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
HICP - Core
HICP - Core services
HICP - Core goods
% YOY, 3M average
stabilised
not yet stabilised
Earnings downgrades in the region should stabilise through the months ahead. Inflation in the region is stabilising. The forex market should bring relief, albeit slowly. Regional EPS growth will probably not be much more than 5% this year. However, it should not be much less. Prices of services in euroland have already stabilised. Prices of goods will also stabilise if we are correct in thinking that the external value of the Euro is sinking.
Economy & Strategy
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Chart 7 – The K-C Observed Risk Ratio*
* Kepler-Cheuvreux Observed Risk Ratio (ORR) = Sector-neutral, equal-weighted portfolio of higher risk stocks (high beta, high EPS volatility and high
EPS uncertainty) vs lower risk stocks (low beta, low EPS volatility and low EPS uncertainty).
Source: Datastream, Kepler Cheuvreux
Chart 8 – Lower versus Higher Quality Stocks in the DJ Stoxx 600 Universe
“Higher-Quality” = low debt/EBITDA, high EBIT margin, low EPS uncertainty
“Lower-Quality” = high debt/EBITDA, low EBIT margin, high EPS uncertainty Source: FactSet, Kepler Cheuvreux
90
100
110
120
130
140
150
160
170
2009 2010 2011 2012 2013 2014 2015
EuropeObserved Risk Ratio. Index: Jan. 1st 2009 = 100
Outperformance of Risk
Q3-2012 turn
85
90
95
100
105
110
01/12 07/12 01/13 07/13 01/14 07/14 01/15
Lower-Quality vs Higher QualityIndex: Jan. 1st 2012 = 100
16/10/2013
consolidation
Out-performance ofLower-Quality vs Higher Quality
The defensive bias in European equity has become more and more apparent since Q1. The bias is now mature. There are few signs of investor panic.
Economy & Strategy
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Chart 9 – The Participation Rate* in the Equity Markets of the USA and Europe (Market Breadth)
* Participation rate = Net Rises (weekly performances) as a % of total stocks Source: Datastream, Kepler Cheuvreux
Chart 10 – The Trans-Atlantic Differential in the Equity Participation Rate
* Participation rate = Net Rises (weekly performances) as a % of total stocks Source: Datastream, Kepler Cheuvreux
-15
-10
-5
0
5
10
15
2010 2011 2012 2013 2014 2015
Participation rate* (3-month moving average)
US
Europe
%
-10
-5
0
5
10
15
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Participation rate* (3-month moving average)
Differential US - Europe
The contrast in trans-Atlantic market breadth has reached its widest since the ends of 1992, due largely to the continued reduction of investor exposure to Europe’s smaller cap universe.
Economy & Strategy
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Chart 11 – Net Portfolio Capital Flows in the Euro Zone by Major Financial Asset
Source: ECB, Datastream, Kepler Cheuvreux
Chart 12 – Value versus Growth and the European Downgrade
Source: Datastream
-200
-100
0
100
200
300
400
500
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Net portfolio investment (inflows minus outflows)
Equities Bonds Money markets instruments Total
EURbn - 12-month cum.
65
70
75
80
85
90
95
100
105
2010 2011 2012 2013 2014 2015
Index: Jan. 1st 2010 = 100MSCI Universe
Europe: Value vs Growth
Europe vs US (local currency)
neutrality of growth / valuein Europe
European downgrade
The net inflows of portfolio capital to the EZ that have assisted the Euro since mid-2012 have begun to weaken. Our assumption is that European equity should no longer under-perform US equity in local currency terms once forex adjustment begins to be significant. We define the threshold of significance to be the level of US$1.35 for the euro.
Economy & Strategy
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Chart 13 – The Manufacturing PMI for EZ and Non-EZ Economies
Europe excluding Eurozone = UK, Switzerland, Sweden Source: Bloomberg, Kepler Cheuvreux calculations
Chart 14 – The Manufacturing New Orders-Inventories Ratio in the USA and China
Source: Bloomberg
30
35
40
45
50
55
60
65
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Manufacturing PMI
Eurozone
Europe excluding Eurozone
-3
-2
-1
0
1
2
3
4
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Manufacturing: New Orders / InventoriesStd dev. From long-term average (3m mov. av.)
China
US
The divergences between the indicators of the short-term growth of output within Europe have increased significantly this year. The indicators of the short-term outlook for the growth of output in America and China are positive.
Economy & Strategy
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Decision Time
This is decision time for European equity. The pronounced under-performance of
Europe’s equity markets through Q2 relative to America and relative to credit has
emphasised the growth problem. In particular, it seems that everyone has understood by
now that the French economy is in deep trouble. Even growth in Germany this year is
disappointing. The consequence has been the return of the “I told you so, euro zone does
not work” narrative. Those who never believed the European recovery story have
returned to their negative comfort zone. They have sold or they are short. European
equity has already gone defensive over the last few months. If Europe is not a sell at this
time it is an opportunity.
We recognise the significance of the conflict in the Ukraine (see below). We cannot
expect a recovery of European equity to be sustained at this point. However, our
interpretation has not changed. We do not think that this is a time to sell European
equity. America will tell us when to sell equity assets, not Europe. America is not yet
ready for the sell sign.
Our ideas are best verified in conditions of adversity. From this point of view we would
say that last week was defined by what did not happen. European equity did not fall. It did
not under-perform the American benchmark. Europe’s banks did not under-perform. The
US$ price of gold did not rise.
The point is that investors have been provided with good excuses to sell European equity
this month. Deflation anxiety has been on the rise for some time. Over the last two weeks
investors have been reminded about both credit risk and geopolitical risk. The media tells
us that the world is dangerous. We prefer to the listen to the message of market
behaviour.
We observe that there have been no signs of panic in Europe’s markets. The sellers of
European equity have not proved to be stronger than the buyers. We have a kind of
stalemate between the two at this point.
Our argument is that the earnings downgrades in the region should stabilise through the
months ahead. Inflation in the region is stabilising (see chart 6). The forex market should
bring relief, albeit slowly (see chart 2). The banks should behave better (see charts 21-23).
The growth of output should not weaken in the year’s second half. Regional EPS growth
will probably not be much more than 5% this year. However, it should not be much less. In
this case, European equity should deliver positive returns from this month of July through
to the autumn, until America is ready for the sell sign.
The controversy concerns European equity, not its American counterpart. There is no
good reason to change the “buy the pullback” playbook for US equity. The reporting
season is sending familiar, reassuring signals. The absence of volume on the down days on
Wall Street indicates that there is no reduction of exposure to equity at this time. The
disinflation shock in the major economies – in America in particular – is fading. The short-
term outlook for the growth of output in America and China is good (see chart 14).
Investors know the nature of the enemy. Precisely, they know that the phase of monetary
danger has not yet arrived.
Economy & Strategy
12 keplercheuvreux.com
The Ukraine and the German Question
In one sense the destruction of MH17 is already a turning point in the Ukrainian conflict.
It does mark the failure of the interpretation that conciliation and quiet diplomacy could
overcome Russian objections to a united Ukraine, even without the Crimea, under pro-EU
leadership. It was always our view that this interpretation was wishful thinking. By
supporting President Poroshenko the EU has closed the door to compromise with Russia
on the question of the territorial integrity of the Ukraine. At the same time the EU has
continued to pretend that the Ukrainian question is negotiable with Russia, if only to
placate the public opinion that is “neutralist” in its inclinations in large parts of Europe, in
Germany in particular.
Although the MH17 affair weakens Putin’s international position it is illusory to think that
Russia will relax its opposition to a pro-Western Ukraine. However, its tactics may
change. Within Europe those who have argued for conciliation are weakened. The
consequences of this conflict are reduced commercial and financial ties between Russia
and the West, the reassessment of European energy policy and the weakening of the
Russian economy to the point of recession through 2015.
A risk premium associated with the Ukrainian conflict is not new. We doubt that there will
be escalation of the conflict at this time because Putin’s diplomatic position has been
weakened. Nonetheless, the influence of this conflict is significant. It is not going away. It
creates a diffuse risk premium attached to all of Eastern Europe, including Germany. It
provides a part of the answer to the German enigma of 2014.
Germany’s economic and political leadership of Europe has never been more in evidence.
Angela Merkel appears to be unrivalled both within Germany and within Europe. Alone of
the major economies Germany has been able to eliminate the deficit of its public finances.
However, Germany is vulnerable. Its prosperity is excessively dependent upon external
markets. For this reason we think that a decade of out-performance within Europe by the
German stock market is coming to an end. Why is the German economy not stronger at
this time? Why are funds leaving German equity?
Last week provided evidence of two sources of support for European equity. In the first
place, the forex relief is arriving, albeit slowly. We have confirmation of the “slow sink” of
the Euro against the US$. We think that the resurgence of the perception of geopolitical
risk will take the euro through the US$1.35 threshold. Until now we had thought that a
significant depreciation of the Euro would not occur until we see higher yields of US
Treasuries. Risk of the geopolitical kind changes the equation. The point is that the forex
influence does not begin to be positive for the earnings of the euro zone corporate sector
relative to trend and relative to expectations until the euro trades below the US$1.35
threshold with its momentum firmly established on a downward trajectory (see chart 2).
We expect to see the euro near US$1.30 in Q4.
Economy & Strategy
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Chart 15 – The Relative Performance of Secure Growth Stocks in the USA and Europe
Secure Growth = Low Beta 2y, Low EPS Uncertainty, Low Volatility of the profit growth, High EPS growth Source: FactSet, Kepler Cheuvreux
Chart 16 – The Performance of Europe’s Growth-Defensive versus Growth-Risk Stocks
Growth = high EPS for 2014-2015-2016
Risk = high beta, high EPS uncertainty, high EPS volatility
Defensive = low beta, low EPS uncertainty, low EPS volatility Source: FactSet, Kepler Cheuvreux
90
95
100
105
110
115
90
100
110
120
130
140
150
160
2009 2010 2011 2012 2013 2014 2015
Index: Jan. 1st 2009=100
Secure Growth Europe / Europe (lhs) Secure Growth US / US (rhs)
Out-performance of Secure-Growth
Q3-2012 peak
90
95
100
105
110
115
120
125
01/13 07/13 01/14 07/14 01/15
Growth-Defensive / Growth-RiskIndex: Jan. 1st 2013 = 100
out-performance of Growth-Defensive stocks
The disparity between the relative performances of secure growth stocks on either side of the Atlantic has been entirely closed this year. The universe of more defensive growth stocks has out-performed quite dramatically those companies with higher risk growth in recent weeks. This is major growth scare in Europe.
Economy & Strategy
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Chart 17 – The K-C Reduced-Form Model of the Pricing of US Treasuries
The chart above compares the changes in the yield of the 10-year Treasury note over the last decade with that estimated by a simple model that
aggregates three conventional influences upon the pricing of government debt: the expected future level of Fed funds, long-term inflation expectations
and cyclical growth expectations as represented by the ISM business survey.
Source: Bloomberg, Kepler Cheuvreux
Chart 18 – The Relative Performance of Europe’s Domestic versus Global Stocks by Size Category
“Domestic” = high revenue exposure to Europe
“Global” = high revenue exposure to World excluding Europe Source: FactSet, Kepler Cheuvreux
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
US 10Y Treasury yield - Actual
US 10Y Treasury yield - Fitted
%
period of"growth psychosis"
discontinuity of 2008
60
70
80
90
100
110
120
130
140
2010 2011 2012 2013 2014 2015
Index: Jan. 1st 2010 = 100
Stoxx 600 Domestic / Stoxx 600 Global
SMID Domestic / SMID Global
SMID Domestic / Stoxx 600 Global
watershed
The conventional cyclical influences upon the pricing of US Treasuries have not validated the strength of longer-dates issues this year. The security premium that has emerged since Q1 is associated with the collapse of the cost of debt in Europe. Within the smaller cap universe there is little difference between the performance of domestic and globally-exposed stocks. However, the bid for defensive global stocks has strengthened decisively since Q1 in a context of smaller cap under-performance.
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In the second place, the reporting season is providing support for financials. Expectations
for US financials have been lowered too much, suggesting low earnings risk for major
international European banks. We have always thought that this investment cycle should
end with out-performance of US financials as credit growth accelerates (see chart 21).
We expect financials in both America and Europe to behave better in the year’s second
half.
We argued in last week’s note that the downward revision of expectations of nominal
growth in the euro zone is complete, largely because inflation in the region is stabilising.
Chart 6 shows that prices of services in euroland have already stabilised. Prices of goods
will also stabilise if we are correct in thinking that the external value of the Euro is sinking.
The barometer of nominal growth expectations is the pricing of the most secure debt in the
region. Accordingly, our presumption is that yields of longer-dated German bunds will not
fall below their historic lows of 2012-2013. This said, we recognise the significance of the
conflict in the Ukraine. It has already exerted a negative influence since the spring, notably
upon confidence in Germany and its hinterland. In current circumstances there will be few
sellers of these secure assets. However, we should point out that credit spreads within the
euro area are not widening at this time, either for corporate or sovereign debt. The effect of
the BES affair has been short-lived.
It is worth emphasising how extreme the trans-Atlantic divergence in the behaviour of
financial assets has become. The spread between nominal yields at the long end of the yield
curve between the USA and Germany is at its widest since 1989. In real, inflation-adjusted
terms the spread is at its largest since 1993 (see chart 3). Equity markets are showing
similar divergences. The contrast in trans-Atlantic market breadth has reached its widest
since the ends of 1992 (see charts 10 & 11). Our assumption is that European equity should
no longer under-perform US equity in local currency terms once forex adjustment begins to
be significant. We define the threshold of significance to be the level of US$1.35 for the
euro.
We are not suggesting that the equity market should suddenly begin to accord a premium
to stocks sensitive to a stronger US$. After all, a lower Euro-US$ exchange rate is
consensus. Our difference is that we think the movement will be more extended in time and
in scale than the consensus can conceive at the present time. We have already explained
the market response to the currency influence in previous notes. As demonstrated in chart
19, stocks sensitive to a stronger US$ with a lower risk profile, notably in the secure growth
category, have been out-performing strongly in recent weeks. Our portfolio of US$-
sensitive stocks excluding this lower risk compartment has registered a neutral
performance. It would seem that the US$’s influence has prevented the under-performance
of the more cyclical and financial stocks in this category.
Economy & Strategy
16 keplercheuvreux.com
The point is that the correlation between the US$ exchange rate and the behaviour of
different categories of European equity should change from this time. The strengthening of
the euro against the US$ from mid-2012 to the spring of this year was associated with the
decline of credit-financial stress in the euro system and with strong net inflows of portfolio
capital into euro-denominated financial assets (see chart 11). This period demonstrates
why the performance of financial stocks, relative to regional benchmarks and relative to
their US counterparts, has been positively correlated with the Euro-US$ exchange rate. The
relationship is illustrated in chart 20.
For similar reasons the relative behaviour of lower risk, globally-exposed stocks has tended to
be negatively correlated with the Euro exchange rate. In recent years the Healthcare sector
has shown the highest degree of negative correlation with the Euro-US$ parity.
The currency-equity correlations of the last few years are testimony to the influence of
credit-financial stress upon the behaviour of all trans-Atlantic financial markets. Precisely,
the euro zone’s deflation anxiety is no longer linked so directly with credit-financial stress
thanks to the collapse of the cost of debt in the region. It is the absence of inflation in the
euro zone, due in large part to declining import prices, that indicates that exchange rate
adjustment is required.
To the extent that a lower Euro exchange rate will reduce deflation anxiety in the euro
system euro depreciation should reduce the pressure upon both cyclical industrials and
financials, if only by weakening the attraction of more defensive categories of equity. In this
respect it should be remembered that exchange rate adjustment is not required to restore a
loss of international competitiveness due to rising internal costs but to improve a
competitiveness that is threatened by a rising nominal exchange rate. Chart 4
demonstrates that unit labour costs in the euro area as a whole continue to fall relative to
the external world.
It is too early for us to envisage a return to Europe’s industrial cyclicals and a
reinforcement of our position in Europe’s financials. The forex influence is just beginning
to be positive. Earnings revisions in Europe are still predominantly negative. We note in
this respect that the under-performance of equity segments most exposed to
competitors in the emerging world – in the segments of Capital Goods, cyclical
technology goods and certain consumer durables – is common to both the US and
European markets. We cannot remove the defensive bias to our recommended portfolio
until the most secure bond markets begin to weaken.
The category of European equity that should draw benefit from the current context is the
consumer universe, both Staples and Discretionary. This is a US$-sensitive category of
equity. It retains profit leadership in Europe. It is less exposed to profitability risk than is
the global growth category of stocks. In this respect we have seen that the price of
internationally-traded crude oil has derived little benefit from the resurgence of
geopolitical risk.
Economy & Strategy
17 keplercheuvreux.com
We want our recommended portfolio to respect the principle of valuation return-to-
mean within Europe at this time. We do not want to be increasing exposure to equity
compartments that are notably over-valued by reference to this criterion. Accordingly,
the consumer segment that has become more attractive is that of the cyclical and non-
cyclical lower risk consumer names grouped in the DJ Stoxx Personal & Household
sector. 1 Profit leadership remains apparent here but the overall valuation of this sector
has virtually completed its return to-mean within Europe, as indicated in chart 25. We are
prepared to give the sector the benefit of the doubt by moving it from neutral to over-
weight. In consequence, we are over-weight Europe’s consumer universe of stocks in
general, albeit modestly.
If we apply this same logic to Europe’s markets then the implication is that we should
remove our under-weight position in the UK. It is interesting that we see a configuration
for the UK market that is similar to that for the Personal & Household sector in the sense
that the valuation return-to-mean of the major UK indices is virtually complete. At the
same time the disadvantage of relatively slow earnings growth in the UK market has been
eliminated by the general slowdown in EPS growth in the region (see chart 24). And, of
course, the UK market has relatively high exposure to the positive effects of a stronger
US$. The upgrade to the UK market must be at the expense of the euro zone, which
means the “median” euro-market of France at this time. For similar reasons we are
moving to over-weight from neutral in the global-consumer Danish market to the
expense of Finland.
One last remark. An investment position long the US$ should be viewed as a natural
hedge against equity risk in general. We are moving into a context in which an
accentuation of the perception of global investment risk is likely to strengthen rather
than weaken the US$. An authentically stronger US$ would also expose the unresolved
structural problems in the emerging world. In this respect investors should be cautious
about what they wish for.
C.P./N.T./J.T./C.G.
1 Adidas, Amer Sports, Barratt Developments, Beiersdorf, Bellway, Berkeley Group Holdings, British American Tobacco,
Burberry, Christian Dior, Richemont, Electrolux, Henkel, Hermes, Hugo Boss, Husqvarna, Imperial Tobacco, L'Oreal, Luxottica, LVMH, OSRAM Licht, Pandora , Persimmon, Reckitt Benckiser, SEB, BIC, Svenska Cellulosa Aktiebolaget, Swatch, Swedish Match, Taylor Wimpey, Tod's
Economy & Strategy
18 keplercheuvreux.com
Chart 19 – The Performance of Europe’s US$-Sensitive Stocks
Secure Growth stocks = Stocks with low beta 2y, low EPS uncertainty, low volatility of the profit growth, high EPS growth
US$ sensitive stocks = Stocks which exhibit the strongest negative correlation (weekly relative performance) with the EUR/USD exchange rate
Source: Datastream, FactSet, Kepler Cheuvreux
Table 1 – Secure Growth & US$ sensitive stocks (19 stocks)
Source: Datastream, FactSet, Kepler Cheuvreux
Table 2 –US$ sensitive stocks (42 stocks)
Source: Datastream, FactSet, Kepler Cheuvreux
90
95
100
105
110
115
120
125
130
135
140
01/13 04/13 07/13 10/13 01/14 04/14 07/14 10/14 01/15
Index: Jan. 1st 2013=100Stoxx 600 Europe Universe
Secure Growth & US$ sensitive stocks / Stoxx 600
US$ sensitive stocks / Stoxx 600 US$-sensitivesecurity out-performing
neutral
Aryzta AG Close Brothers Group plc Gerresheimer AG Ryanair Holdings Plc
Babcock International Group PLC Drax Group plc Hargreaves Lansdown plc Shire PLC
Booker Group PLC Electrocomponents plc InterContinental Hotels Group PLC Sports Direct International plc
Britvic plc Essentra plc Luxottica Group S.p.A. Telecity Group plc
Chr. Hansen Holding A/S G4S plc Rightmove plc
Admiral Group plc Diageo plc HSBC Holdings plc Sports Direct International plc
Airbus Group NV Direct Line Insurance Group Plc Inmarsat plc STMicroelectronics NV
ARM Holdings plc easyJet plc Lancashire Holdings Limited TalkTalk Telecom Group PLC
Aryzta AG Eutelsat Communications SA MTU Aero Engines AG Telecity Group plc
AstraZeneca PLC Experian PLC OCI NV Tesco PLC
BP p.l.c. Friends Life Group Limited Polyus Gold International Limited Ultra Electronics Holdings plc
Britvic plc Genel Energy PLC Rightmove plc Vodafone Group PLC
Capital & Counties Properties PLC Gerresheimer AG Rolls-Royce Holdings plc Wm Morrison Supermarkets plc
Catlin Group Limited GlaxoSmithKline plc Royal Mail plc WPP Plc
Coca-Cola HBC AG Hargreaves Lansdown plc Sage Group plc
Compass Group Plc Hikma Pharmaceuticals Plc Serco Group plc
The equity market has begun to anticipate a lower Euro-US$ exchange rate. Stocks sensitive to a stronger US$ with a lower risk profile have been out-performing since June.
Economy & Strategy
19 keplercheuvreux.com
Chart 20 – Euro-US$ Parity and the Trans-Atlantic Banking Barometer
Source: Datastream
Chart 21 – Private Sector Credit Growth and the Relative Performance of US Financials
Source: Datastream
1.15
1.20
1.25
1.30
1.35
1.40
1.45
1.50
1.55
1.60
20
40
60
80
100
120
140
2009 2010 2011 2012 2013 2014
Banks Europe / Banks US (lhs. MSCI Universe. local currency)
EUR / USD (rhs)
Index: June 1st 2009 = 100
-14%
-10%
-6%
-2%
2%
6%
10%
14%
40
50
60
70
80
90
100
110
120
130
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
US
Financials US / US (lhs)
Private Sector Credit Growth y-o-y (rhs)
Base 100 = Jan. 1st 1998 y-o-y % change
The correlation between the US$ exchange rate and the behaviour of different categories of European equity should change from this time. The currency-equity correlations of the last few years are testimony to the influence of credit-financial stress upon the behaviour of all trans-Atlantic financial markets. We have always thought that this investment cycle should end with out-performance of US financials as credit growth accelerates.
Economy & Strategy
20 keplercheuvreux.com
Chart 22 – A Reduced-Form “Deflation Risk Premium” Model for the Pricing of the Banking
Sector
Model for EMU Banks = Rolling one-year linear regression model based on: JPM Global Composite PMI Index as Global Growth Expectations proxy,
Stoxx 600 Cyclicals relative to Defensives performance as cyclical barometer, and Kepler-Cheuvreux calculated Index for corporate default risk in
Europe as Europe "Deflation risk premium".
Source: Bloomberg, Datastream, Kepler Cheuvreux
Chart 23 – The Relative Composite Valuation of the Euro Zone Banks
Relative Composite Valuation = (Relative P/E + Relative P/B – Relative D/Y), number of standard deviations from the mean.
Source: FactSet, Kepler Cheuvreux
10
25
40
55
70
85
100
115
2007 2008 2009 2010 2011 2012 2013 2014 2015
Index = Jan. 1st 2007 = 100
Model for Eurozone Banks
MSCI Eurozone Banks
Banks not over-priced
-3
-2
-1
0
1
2
3
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Euro Stoxx BanksComposite Valuation relative to Euro StoxxZ-Scores = Standard Deviation from Mean
under-weight
neutral
over-weight
Std. deviations
Our model of Europe’s banks as a barometer of deflation risk does not suggest that the banking sector is expensive. The relative valuation of the euro zone‘s banks is becoming a source of support once again.
Economy & Strategy
21 keplercheuvreux.com
Chart 24 – The Relative EPS Growth and Composite Valuation of the UK Market within Europe
Relative Composite Valuation = (Relative P/E + Relative P/B – Relative D/Y), number of standard deviations from the mean.
Source: FactSet, Kepler Cheuvreux
Chart 25 – The Relative EPS Growth and Composite Valuation of the Personal & Household
Sector
Relative Composite Valuation = (Relative P/E + Relative P/B – Relative D/Y), number of standard deviations from the mean.
Source: FactSet, Kepler Cheuvreux
60
65
70
75
80
85
90
95
100
105
-4
-3
-2
-1
0
1
2
3
4
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
United Kingdom / Stoxx 600
Relative Composite Valuation (lhs) Relative 12-month forward EPS (rhs)
Base 100 = Jan. 1st 1995
valuation return-to-trend almost complete
relative EPS stabilised
Std. deviations
-3
-2
-1
0
1
2
3
0
20
40
60
80
100
120
140
160
180
200
95 97 99 01 03 05 07 09 11 13 15 17
Personal & Household Goods / Stoxx 600
Rel. 12m fwd EPS (lhs)
Rel. Composite valuation (rhs)
Base 100 = Jan. 1st 1995 Standard Deviation from mean
The valuation return-to-mean of the major UK indices is virtually complete. At the same time the disadvantage of relatively slow earnings growth in the UK market has been eliminated. Profit leadership of the P & H sector remains very apparent whilst the overall valuation of the sector has virtually completed its return to-mean within Europe this year.
Economy & Strategy
22 keplercheuvreux.com
The DJ Stoxx sector performance page
YTD performance DJ Stoxx (Level 2)
18/07/2014 1week 3 mos 12 mos
Utilities 0.0 2.3 12.2
Real Estate 0.4 4.3 2.0
Healthcare -0.6 6.5 3.7
Basic Resources 2.2 4.5 6.2
Oil & Gas -1.0 2.4 -1.3
Food & Beverage 0.2 2.8 -4.7
Construction -0.4 -6.0 9.9
Personal & HH -0.2 2.0 -5.2
Automobiles -1.1 -5.8 8.7
Travel 0.6 -0.9 -0.2
Financial Services 0.6 2.2 4.9
Insurance -0.1 1.0 1.9
Chemicals -0.4 1.8 -3.6
Telecom 0.3 -0.1 9.3
Banks 0.4 -6.5 -3.0
Technology 1.6 0.0 -2.9
Media 1.8 -1.2 -1.0
Industrial G&S -0.5 -4.3 -5.1
Retail 0.7 -1.2 -9.5
* Rank according to the YTD perf.
YTD performance: DJ Euro Stoxx (Level 2)
18/07/2014 1week 3 mos 12 mos
Utilities -0.3 1.6 21.6
Real Estate -0.3 5.1 -0.2
Oil & Gas -1.2 -1.2 3.8
Food & Beverage 0.1 1.9 -7.4
Construction -0.3 -8.6 12.0
Telecom -0.8 0.0 20.2
Automobiles -1.1 -5.9 9.3
Travel -0.2 -9.1 -5.2
Chemicals -0.8 2.9 -0.4
Banks -0.1 -9.7 19.6
Healthcare -0.5 0.9 -12.3
Financial Services 0.3 -3.4 3.9
Technology 0.9 1.4 0.3
Personal -0.4 -1.9 -11.5
Retail -0.4 -2.2 -5.7
Media 0.7 -5.2 -0.7
Insurance -0.7 -2.5 -1.1
Industrial G&S -1.0 -6.0 -2.2
Basic Resources 0.7 -1.9 2.9
* Rank according to the YTD perf.
Performance* relative to DJ Euro Stoxx (%)
Performance* relative to DJ Stoxx (%)
Source: Datastream
Source: Datastream
-3.6
-2.9
-2.8
-2.1
-2.0
-0.9
0.9
1.3
3.4
3.5
4.0
4.7
5.1
6.2
6.6
7.4
8.7
11.9
13.1
14.3
-20 -15 -10 -5 0 5 10 15 20
Retail
Industrial G&S
Media
Technology
Banks
Telecom
Chemicals
Insurance
Financial Services
DJ Stoxx
Travel
Automobiles
Personal & HH
Construction
Food & Beverage
Oil & Gas
Basic Resources
Healthcare
Real Estate
Utilities
-5.0
-4.5
-4.0
-3.3
-2.3
-1.9
-1.2
0.0
0.2
0.6
1.5
1.7
4.6
4.9
4.9
5.6
6.3
9.5
11.0
15.7
-25 -20 -15 -10 -5 0 5 10 15 20 25
Basic Resources
Industrial G&S
Insurance
Media
Retail
Personal & HH
Technology
Financial Services
Healthcare
Banks
Chemicals
DJ Euro-Stoxx
Travel
Automobiles
Telecom
Construction
Food & Beverage
Oil & Gas
Real Estate
Utilities
Economy & Strategy
23 keplercheuvreux.com
The MSCI sector performance page
YTD performance MSCI Europe (Level 1)
18/07/2014 1week 3 mos 12 mos
Utilities 0.0 2.6 13.3
Healthcare -0.7 5.9 3.5
Energy -1.0 3.4 0.3
Materials 0.7 2.0 2.6
Cons. Staples 0.1 2.3 -5.4
Cons. Discretionary 0.1 -1.8 -0.6
Financials 0.3 -3.4 -1.2
Telecoms Services 0.5 -0.9 8.8
Industrials -0.4 -5.0 -4.1
Information techno. 1.6 -0.7 -3.9
* Rank according to the YTD perf. Source: Datastream
YTD performance MSCI Europe (Level 2)
18/07/2014 1week 3 mos 12 mos
Utilities 0.0 2.6 13.3
Real Estate 0.5 4.9 2.5
Pharma. & Biotech. -0.7 6.0 4.5
Energy -1.0 3.4 0.3
Consumer Services 0.4 7.4 6.6
Food Bev. & Tobacco 0.0 3.1 -3.5
Materials 0.7 2.0 2.6
Auto. & Compo. -1.0 -6.0 8.1
Transportation -0.7 -3.2 13.2
Healthcare Equipt & Serv. -0.4 4.4 -6.6
Insurance 0.0 1.3 1.0
Household & Personal Pdct 0.0 2.2 -4.9
Consumer Dur. & App. -0.1 -1.6 -11.7
Media 2.0 1.6 0.7
Banks 0.3 -5.6 -0.2
Techno. & Hard. Eqpmt 5.1 -0.3 9.5
Telecoms Services 0.5 -0.9 8.8
Commercial Serv. & Sup. -0.5 -3.9 -11.2
Capital Goods -0.4 -5.4 -5.3
Software & Services 1.9 -1.0 -5.8
Diversified Financials 0.9 -5.7 -7.8
Retailing 0.3 -2.4 -4.3
Semiconductors -2.8 -0.9 -13.1
Food & Staples Retailing 1.0 -3.1 -17.7
* Rank according to the YTD perf. Source: Datastream
Performance* relative to MSCI Europe (%)
Performance* relative to MSCI Europe (%)
-3.3
-2.3
-1.4
-0.1
1.2
3.6
5.6
6.4
9.1
10.0
15.1
-15 -10 -5 0 5 10 15 20 25
Information techno.
Industrials
Telecoms Services
Financials
Cons. Discretionary
Europe
Cons. Staples
Materials
Energy
Healthcare
Utilities
-6.4
-5.8
-5.2
-3.7
-3.3
-3.0
-2.7
-1.4
-1.1
-1.0
-0.6
-0.2
1.1
1.9
2.8
3.2
3.6
4.2
6.4
8.2
8.2
9.1
10.8
13.4
15.1
-15 -5 5 15 25
Food & Staples Retailing
Semiconductors
Retailing
Diversified Financials
Software & Services
Capital Goods
Commercial Serv. & Sup.
Telecoms Services
Techno. & Hard. Eqpmt
Banks
Media
Consumer Dur. & App.
Household & Personal Pdct
Insurance
Healthcare Equipt & Serv.
Transportation
Europe
Auto. & Compo.
Materials
Consumer Services
Food Bev. & Tobacco
Energy
Pharma. & Biotech.
Real Estate
Utilities
Economy & Strategy
24 keplercheuvreux.com
Performances by market
YTD performance* (MSCI in %** ) Performance* (MSCI in %** )
18/07/2014 1week 3 mos 12 mos
World Dev. 0.6 4.6 13.7
World Em. 0.8 4.8 11.6
World AC 0.7 4.6 13.5
S&P 500 0.5 6.1 17.1
USA 0.5 6.1 17.4
Japan 0.7 7.4 2.2
DJ Stoxx 600 0.8 2.2 13.3
DJ Eurostoxx 0.4 -0.5 15.9
France 0.4 -2.1 11.9
Germany 0.6 1.0 13.2
Italy 0.5 -3.6 31.0
Netherlands -0.1 1.7 8.3
Spain -0.4 2.7 34.2
Sweden (EUR) 1.5 1.8 5.8
Switzerland (EUR) 0.6 2.0 10.8
UK (EUR) 1.4 5.6 10.9
* in Local currency
** Except otherwise indicated
Sector factor : excess return due to the singular sector composition of the country indexCountry factor : excess return due to company specific factors (in aggregate)Residual : excess return that can not be explained by sector and country factors
European "Country & Sector Factor": YTD performance
Source: Datastream
Source: Datastream
4.5
5.3
-0.2
6.9
1.4
11.2
-1.3
1.7
1.7
3.5
-3.8
7.0
7.0
4.7
5.1
4.7
-15 -5 5 15 25
DJ UK (€)
DJ Switzerland (€)
DJ Sweden (€)
DJ Spain
DJ Netherlands
DJ Italy
DJ Germany
DJ France
DJ Eurostoxx
DJ Stoxx 600
Japan
USA
S&P 500
World AC
World Em.
World Dev.
-5
0
5
10
15
France Germany Italy Netherlands Spain Sweden Switzerland UK
Country factor Sector Factor Residual (* including Currency Factor) Excess Return
Economy & Strategy
25 keplercheuvreux.com
DJ Stoxx Size & Style Indices
YTD performance
18/07/2014 1week 3 mos 12 mos
Small 200 -0.3 -3.2 2.0
Mid 200 0.4 -0.5 3.7
Large 200 -0.1 0.3 -0.7
Blue Chips 50 -0.1 0.8 -2.4
Growth * 0.1 0.1 -3.7
Growth-Small * -0.3 -1.2 0.8
Growth-Mid * 0.5 -1.7 -1.5
Growth-Large * 0.0 0.8 -4.9
Value * -0.1 0.4 3.2
Value-Small * 0.0 -2.7 5.8
Value-Mid * 0.5 -0.5 5.4
Value-Large * -0.3 0.9 2.8
* DJ Stoxx TM Universe Source: Datastream
Performance relative to DJ Stoxx (%)
4.7
6.4
4.5
4.8
2.9
2.8
1.6
2.8
3.0
3.4
5.1
1.6
3.5
0 2 4 6 8 10 12
Value-Large *
Value-Mid *
Value-Small *
Value *
Growth-Large *
Growth-Mid *
Growth-Small *
Growth *
Blue Chips 50
Large 200
Mid 200
Small 200
DJ Stoxx 600
Economy & Strategy
26 keplercheuvreux.com
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27 keplercheuvreux.com
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Germany: This report must not be distributed to persons who are retail clients in the meaning of Sec. 31a para. 3 of the German Securities Trading Act (Wertpapierhandelsgesetz – “WpHG”). This report may be amended, supplemented or updated in such manner and as frequently as the author deems.
Italy: This document is issued by Kepler Capital Markets, Milan branch and Crédit Agricole Cheuvreux S.A., branch di Milano, authorised in France by the Autorité des Marchés Financiers (AMF) and the Autorité de Contrôle Prudentiel (ACP) and registered in Italy by the Commissione Nazionale per le Società e la Borsa (CONSOB) and is distributed by Kepler Capital Markets S.A and Crédit Agricole Cheuvreux, Société Anonyme (S.A.), authorised in France by the AMF and the ACP and registered in Italy by CONSOB. This document is for Eligible Counterparties or Professional Clients only as defined by the CONSOB Regulation 16190/2007 (art. 26 and art. 58).Other classes of persons should not rely on this document. Reports on issuers of financial instruments listed by Article 180, paragraph 1, letter a) of the Italian Consolidated Act on Financial Services (Legislative Decree No. 58 of 24/2/1998, as amended from time to time) must comply with the requirements envisaged by articles 69 to 69-novies of CONSOB Regulation 11971/1999. According to these provisions Kepler Capital Markets S.A and Crédit Agricole Cheuvreux, Société Anonyme (S.A.)warns on the significant interests of Kepler Capital Markets S.A and Crédit Agricole Cheuvreux, Société Anonyme (S.A.)indicated in Annex 1 hereof, confirms that there are not significant financial interests of Kepler Capital Markets S.A and Crédit Agricole Cheuvreux, Société Anonyme (S.A.)in relation to the securities object of this report as well as other circumstance or relationship with the issuer of the securities object of this report (including but not limited to conflict of interest, significant shareholdings held in or by the issuer and other significant interests held by Kepler Capital Markets S.A and Crédit Agricole Cheuvreux, Société Anonyme (S.A.)or other entities controlling or subject to control by Kepler Capital Markets S.A and Crédit Agricole Cheuvreux, Société Anonyme (S.A.)in relation to the issuer) which may affect the impartiality of t his document]. Equities discussed herein are covered on a continuous basis with regular reports at results release. Reports are released on the date shown on cover and distributed via print and email. Kepler Capital Markets, Milan branch and Crédit Agricole Cheuvreux S.A., branch di Milano analysts are not affiliated with any professional groups or organisations. All estimates are by Kepler Capital Markets S.A and Crédit Agricole Cheuvreux, Société Anonyme (S.A.) unless otherwise stated.
Spain: This document is only intended for persons who are Eligible Counterparties or Professional Clients within the meaning of Article 78bis and Article 78ter of the Spanish Securities Market Act. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. This report has been issued by Kepler Capital Markets, Sucursal en España and Crédit Agricole Cheuvreux España S.V, registered in Spain by the Comisión Nacional del Mercado de Valores (CNMV) in the foreign investments firms registry and it has been distributed in Spain by it or by Kepler Capital Markets S.A and Crédit Agricole Cheuvreux, Société Anonyme (S.A.) authorised and regulated by both Autorité de Contrôle Prudentiel and Autorité des Marchés Financiers. There is no obligation to register neither file any report and any supplemental documentation or information with the CNMV. Neither verification nor authorisation or compliance revision by the CNMV regarding this document and related documentation or information needs to be fulfilled in accordance with the Spanish Securities Market Law (Ley del Mercado de Valores).
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