Please find important legal information at the end of this document
FINANCIAL MARKET OUTLOOK Q2 2017
David Kohl, Chief Economist Germany & Head of Currency Research
Outlook Roadshow, 2nd quarter of 2017 7 March 2017 10:46 CET
2
AGENDA
Central Topic: Politics
• Europe: Policy risks and opportunities
• US: New political realities
• China: Leaning against the wind of
structural weaknesses
• The economy (p. 8)
• Currencies (p. 11)
• Fixed income (p. 15)
• Equities (p. 19)
• Commodities (p. 23 )
• Next Generation (p. 27 )
• Thematic & Cross Asset (p. 31)
• Technical Analysis (p. 34)
• Appendix (p. 37)
3
EUROZONE PEOPLE LIKE THE EURO Bond markets signal increasing nervousness about the upcoming elections in France.
Rising spreads will at a certain point curb anti-European rhetoric.
Source: Eurobarometer, Julius Baer Source: Datastream, Julius Baer
Weekly data as at: 24.02.2017
Opinion poll: Support for the euro 10-y government bond spreads against German Bunds
04 05 06 07 08 09 10 11 12 13 14 15 16 17
10
20
30
40
50
60
70
80
90
% for the euro
Italy FranceGermany SpainEurozone UK
0
20
40
60
80
100
120
140
160
2012 2013 2014 2015 2016 2017
50
100
150
200
250
300
350
400
450
500
550
BpsBps
Italy (left scale) France (right scale)
4
Source: Julius Baer
Fiscal laxness including tax cuts and infrastructure investment
‘Pragmatic’ protectionism pushing up import prices
Tighter immigration pushing up wages
Reflation
Disruption could become a burden for business and consumer confidence
Dirigisme towards businesses and ultimate monetary policy
Nationalism/rejection of supranational institutions could result in an international loss of trust
Unguided missile
POLITICAL REALITY – THE TRUMP FACTOR Trump’s policy is in the first place reflationary, with an emphasis on higher prices
(inflation) well before higher output (growth). The risk is an ‘unguided missile’.
GOOD TRUMP, BAD TRUMP The canaries in the coal mine: Disruption and dirigisme by Trump could at a certain
point undermine the safe-haven status of the USD and business confidence.
Source: : National Federation of Independent Business (NFIB), www.policyuncertainty.com, Julius Baer
Source: Datastream, www.policyuncertainty.com, Julius Baer; CDS: credit default swap; Data as at: 28.02.2017 16:00 CET
US business sentiment and policy stability* (* using the US policy uncertainty index at a reversed scale)
US policy uncertainty and trust in the US as a safe haven
5
0
10
20
30
40
50
60
70
80
90
0
50
100
150
200
250
300
350
03 05 07 09 11 13 15 17
IndexIndex
US policy uncertainty (left scale)
Treasury CDS (right scale)
75
80
85
90
95
100
105
110-100
-50
0
50
100
150
200
250
300
03 05 07 09 11 13 15 17
IndexIndex
US policy stability* (left scale)
US Small business optimism (right scale)
6
CHINA: SUCCESSFULLY LEANING AGAINST THE WIND Loosening credit conditions are used in 2017 to lean against the wind of slowing
economic growth. There are few constraints and a strong commitment to continue.
Source: People’s Bank of China, Julius Baer
Monthly data as at: 31.01.2017
Source: Datastream, Julius Baer
China real lending rates
(* average lending rate minus producer price inflation)
China real estate activity picking up
05 06 07 08 09 10 11 12 13 14 15 16 17
-20
-10
0
10
20
30
40
50
60
70
% Y/Y
Floor space sold (advanced by 6 mths)
Floor space started
05 06 07 08 09 10 11 12 13 14 15 16 17
-4
-2
0
2
4
6
8
10
12
14
% p.a.
Real bank lending rate*
7
CHINA’S CHALLENGES ARE SECULAR NOT CYCLICAL Credit boom had been used to address the global financial crisis
and the peaking of the working age population.
Source: Datastream, Julius Baer; GDP = gross domestic product Source: Oxford Economics, Julius Baer
China economic and credit activity China working age population and labour force dynamics
05 06 07 08 09 10 11 12 13 14 15 16 17
5
10
15
20
25
30
35
40
% Y/Y
Nominal GDP Total credit
00 05 10 15 20
-0.5
0.0
0.5
1.0
1.5
2.0
% Y/Y
Working age populat. forecast
Labour forces forecast
THE ECONOMY
8
9
ROBUST GROWTH BACKDROP TRUMPS EXPECTATIONS Global cyclical backdrop is strong with leading indicators pointing to further
acceleration. Positive surprises suggest only modest optimism.
Source: JP Morgan, Julius Baer; PMI = purchasing managers’ indices Source: Citi, Julius Baer
Global purchasing managers’ indices G10 economic surprise index
2012 2013 2014 2015 2016 2017
48
49
50
51
52
53
54
55
56
Index
Manufacturing PMI Services PMI
6m trend (+2.2) 6m trend (+2.8)
A O D F A J A O D F A J A O D F A J
2014 2015 2016 2017
-40
-30
-20
-10
0
10
20
30
40
50
Index
10
HIGHER INFLATION WITH DIVERGENCE Inflation is back. Stronger wage dynamics in the US point to a more persistent
reflation trend motivating divergence of monetary policy.
Source: Citi, Julius Baer Source: Datastream, Julius Baer
G10 inflation surprise index Wage dynamics in the US and the eurozone
09 10 11 12 13 14 15 16 17
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
% Y/Y
Eurozone USA
A O D F A J A O D F A J A O D F A J
2014 2015 2016 2017
-40
-30
-20
-10
0
10
20
30
Index
CURRENCIES
11
MORE UPSIDE FOR THE US DOLLAR Persisting policy divergence remains the major reason for the USD strength
despite fundamental overvaluation.
Source: Bloomberg, Julius Baer
Data as at: 28.2.2017 17:30 CET
Source: JP Morgan, Julius Baer
Data as at: 28.2.2017 17:30 CET
Implied US rate-hike probabilities and the US dollar
US dollar misalignment based on real effective exchange rates (REER)
12
94
96
98
100
102
104
106
O N D J F
2016 2017
0
10
20
30
40
50
Index%
Probability of 3 rate hikes in 2017 (left scale)
DXY (right)
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
95 97 99 01 03 05 07 09 11 13 15 17
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
z-scorez-score
+/- 1 std.dev. 95% confidence
USD misalignment +5% appreciation
(REER based)
GLOBAL COMPOSITE US DOLLAR LIQUIDITY Global USD liquidity tends to lead US dollar developments.
Source: Bloomberg, Fed, Julius Baer
Data as at: 28.2.2017 17:30 CET
Composite USD liquidity and real trade-weighted US dollar
13
70
80
90
100
110
120
130
140
80 85 90 95 00 05 10 15
-10
-5
0
5
10
15
20
25
30
Index% Y/Y
Composite USD liquidity (left scale) Broad real USD Major real USD (right scale)
SOME SUPPORT FOR THE EURO IN THE PIPELINE The euro could bottom after the first round of the French presidential elections on
April 23. Signs of repatriation are emerging.
Source: European Central Bank (ECB), Julius Baer Source: OpinionWay 7-9. Feb 17 survey, Julius Baer
Eurozone domestic portfolio flows Polls for 2nd-round constellations in the French presidential elections
14
35%
43%
65%
57%
Le Pen - Macron Le Pen - Fillon
30
35
40
45
50
55
60
65
%
Repatria-tion
Outflows
-800
-600
-400
-200
0
200
400
600
99 01 03 05 07 09 11 13 15 17
Net portfolio investments abroad
smoothed over 12 months
EUR bn
FIXED INCOME
15
16
EUROPEAN SUBORDINATED BANK DEBT Bank debt has not been on the shopping list of the ECB and is thus less distorted.
Better economic conditions (lower output gap) to restore banks’ asset quality.
Source: Merrill Lynch, Julius Baer; ECB = European Central Bank
Data as at 24.2.2017 15:00 CET
Source: Company data, Bloomberg Finance L.P., Organisation for Economic Co-operation and Development (OECD), Julius Baer
Subordinated bank debt yield is not as distorted as the segments the ECB buys
Better economic conditions to bring down ratio of non-performing loans, UK shows
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2013 2014 2015 2016 2017
Yield, %
Banks subordinated
BBB financials
BBB non-financials
Long-term AAA-AA sovereign
-10
-8
-6
-4
-2
0
2
40
2
4
6
8
10
12
14
16
00 02 04 06 08 10 12 14 16
Output gap, %NPL, %
Non-performing loans
Output gap, right
Periphery
UK
According to the Product Intervention (Contingent Convertible Instruments and Mutual Society Shares) Instrument 2015, enacted by the U.K. Financial Conduct Authority
(“FCA”), this/these product(s) must not be distributed to retail investors domiciled in the European Economic Area (“EEA” – EU, Liechtenstein, Norway and Iceland). Investors
who intend to buy this/these product(s) must have an annual income of at least GBP 100,000 (or equivalent) or net assets (excluding property, insurance and other benefits) of at least GBP 250,000 (or equivalent) at their disposal.
EUR billions Covered bonds
Govt. bonds
Non-financial bonds
Index 12/15 832.9 5,718.8 848.8
Index 01/17 835.6 5,830.3 1,006.6
Change 2.6 111.5 157.8
ECB holdings 12/15
14.3 39.4 0.0
ECB holdings 01/17
225.8 1326.0 59.5
Change 211.5 1,286.6 59.5
17
EUROPEAN SUBORDINATED BANK DEBT Bank debt has not been on the shopping list of the ECB and is thus less distorted.
Source: Bank of America Merrill Lynch, Julius Baer
Data as at 24.2.2017 15:00 CET
Source: Bank of America Merrill Lynch, ECB, Julius Baer
Everything the ECB is buying is low yield
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2013 2014 2015 2016 2017
Yield, %
FinancialsBanks subordinatedNon-financialsCovered bonds
ECB distortions
ECB has started its asset purchase programme (aka
Quantitative Easing) late but acts massively.
ECB plans to purchase more government bonds
than the member states will need to issue to finance
their revenue shortfalls. Situation also tight for
covered bonds, but also non-financial bonds.
Asset quality is a cyclical phenomenon
Asset quality of banks (shown with the ratio of
non-performing loans to total loans) is a
function of the output gap
• Positive output gap = full employment,
strong corporate profits = low loan losses
• Highly negative gap = default risk, ratio of
bad loans increases
Banks in periphery have room for
improvement
The output gap is set to become less negative,
which augurs well for a decline of the NPL
ratio.
Lower NPL ratio will translate into stronger
ratings and lower credit spreads.
Diversified instruments in subordinated debt
combine a decent return with limited risk.
18
ASSET QUALITY OF EUROPEAN BANKS TO IMPROVE Asset quality to improve thanks to lower jobless rates, better corporate profits.
Source: Bloomberg Finance L.P., Julius Baer
Non-performing loan (NPL) ratios and output gaps move in lockstep, as UK shows
-5
-4
-3
-2
-1
0
1
2
3
40
1
2
3
4
5
6
7
8
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
NPL, %
NPL UK Output gap UK
-10
-8
-6
-4
-2
0
2
4
60
2
4
6
8
10
12
14
16
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
NPL, %
NPL periphery Output gap periphery
Improvement of peripheral economies augurs well for a lower NPL ratio, better issuer ratings
EQUITIES
19
20
GLOBAL EARNINGS REVISIONS Earnings optimism and upside revisions continue to improve.
Source: Datastream, Julius Baer
Data as at 13.02.2017 10:00 CET
6-months revisions (since 1992) 1m earnings revisions
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
Jan 92 Jan 96 Jan 00 Jan 04 Jan 08 Jan 12 Jan 16
%
6m Earnings revisions Earnings optimism
-3.5
-3
-2.5
-2
-1.5
-1
-0.5
0
0.5
Dec 15 Apr 16 Aug 16 Dec 16
-35
-30
-25
-20
-15
-10
-5
0
5
%
1m Earnings revisions Earnings optimism
21
USA: EARNINGS GROWTH AND VALUATIONS Double-digit earnings growth expected for 2017
Source: Datastream, Julius Baer; Cons Discr = Consumer Discretionary
Data as at 24.02.2017 15:00 CET
Source: Datastream, Julius Baer; P/E = price/earnings ratio
Data as at 24.02.2017 15:00 CET
EPS growth expectations for 2017 (in %) S&P 500 Composite
0
5
10
15
20
25
30
0
500
1000
1500
2000
2500
Feb 87 Feb 93 Feb 99 Feb 05 Feb 11 Feb 17
Price 12m fwd P/E (r.h.s.)
Index Multiplier
2%
2%
6%
6%
7%
9%
10%
11%
12%
12%264%
0% 20%
Utilities
Telecom
Healthcare
Industrials
Cons Staples
Cons Discr
IT
MSCI USA
Materials
Financials
Energy
EPS Growth expectations for 2017
22
A BALANCED APPROACH WITH A CYCLICAL BIAS… …based on a constructive macro environment, rising earnings and more.
We have upgraded insurance and downgraded telecom recently.
Source: Datastream, Julius Baer; st.dev. = standard deviation; P/BV = price/book value; P/E = price/earnings ratio
Data as at 24.02.2017 15:00 CET
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
8
10
12
14
16
18
Feb 07 Feb 09 Feb 11 Feb 13 Feb 15 Feb 17
P/BP/E
Global telecom: 12m fwd P/E… …and P/B (r.h.s.)
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
Feb 07 Feb 09 Feb 11 Feb 13 Feb 15 Feb 17
st.dev.
Global Telecom - earnings indicator with range
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
Feb 07 Feb 09 Feb 11 Feb 13 Feb 15 Feb 17
st.dev.
Global Insurance - earnings indicator with range
0.5
0.6
0.7
0.8
0.9
1
1.1
1.2
Feb 87 Feb 92 Feb 97 Feb 02 Feb 07 Feb 12 Feb 17
valuation
Insuranve vs. World P/BV Average
Overweight insurance Underweight telecom
COMMODITIES
23
24
CHINA’S TRANSITION China’s transition and old economy risks have moved out of focus.
Source: Statistics of British Commerce, United States Geological Survey (USGS), World Steel Association, Julius Baer
Source: Bloomberg Finance L.P, Julius Baer (* see appendix for details and longer history)
Steel: Share of global consumption
China: Risk barometer (Real-time, market based inputs*)
China: Fixed asset investment
Source: National Bureau of Statistics, Julius Baer
0
5
10
15
20
25
30
35
40
45
50
1860 1900 1940 1980 2020
% of global consumption
0
5
10
15
20
25
30
35
40
2011 2013 2015 2017
Total Infrastructure
% year-on-year
-100
-80
-60
-40
-20
0
20
40
60
80
100
Jan 14 Jan 15 Jan 16 Jan 17
Optimism
Pessimism
25
CRUDE OIL Last year’s output excess and the shale boom revival question the supply narrative.
Shale oil activity (Example Permian basin)
Source: Energy Intelligence Group; OPEC = Organisation of the Petroleum Exporting Countries
Source: Baker Hughes, Energy Information Administration
OPEC oil production
US oil production
Source: Energy Information Administration
0
100
200
300
400
500
600
700
2012 2013 2014 2015 2016 2017 2018
Drilling rigs
Productivity
Rigs / barrels per day
0
1
2
3
4
5
6
7
8
9
10
11
2006 2008 2010 2012 2014 2016 2018
Million barrels per day
20
22
24
26
28
30
32
34
36
2005 2007 2009 2011 2013 2015 2017
Million barrels per day
Quota
26
GOLD Stagflation in the United States would be very bullish for prices.
For other countries, gold’s inflation hedge is primarily dollar-driven.
Source: Bloomberg Finance L.P., Julius Baer; TIPS = Treasury Inflation-Protected Securities; Data as at 21.2.2017 7:28 CET
Source: Bloomberg Finance L.P., Julius Baer
Gold and global inflation rates Gold and real US interest rates
-200
-150
-100
-50
0
50
100
150
200-40
-30
-20
-10
0
10
20
30
40
2011 2012 2013 2014 2015 2016 2017
Gold US 10-year TIPS yield (r.h.s.)
% (6-month change) Basispoints (6-month change)
Turkey
Russia
India
Iran
10
20
30
40
50
60
70
80
0 2 4 6 8 10 12 14 16 18 20
Gold performance related to currency depreciation (%)
Average annual inflation rate (%, 2007 - 2016)
Eurozone
UK
Argentina
NEXT GENERATION
27
28
CYBERSECURITY: THE TIMING IS RIGHT After the IT security spending boom in 2014/15 and consolidation in 2016
growth is stabilising. This points to an attractive entry point.
Source: Gartner, IDC, Forrester, Citigroup, Jefferies, Julius Baer; Note: market includes IT security services such as consulting. E=estimate
Source: Goldman Sachs, Morgan Stanley, Jefferies, Julius Baer
Cybersecurity growth is stabilising, which points to an attractive entry point
The most defensive spending area: Security ranks on top of IT spending priorities
65 67
73
79
86
92
99
106
114
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
50
60
70
80
90
100
110
120
2012 2014 2016E 2018E 2020E
% y/yUSD bn
Total IT Security Spending (l.h.s.)
Yearly growth (r.h.s.)
3%
3%
4%
4%
5%
5%
5%
5%
6%
11%
15%
0% 10% 20%
CRM software
Mobile applications
Data center
Storage software
Infrastructure hardware
Vertical app. software
Compliance software
Data analytics
Networking equipment
Cloud computing
Security software
% of respondents
Projects with largest spend increase for 2017
29
GROWTH DRIVERS FOR CYBERSECURITY SPENDING 1) Shift to cloud computing; 2) growing threat complexity
and connectivity; 3) regulation and public spending initiatives
Source: IDC, Julius Baer; E=estimate
Source: Ponemon Institute, Wall Street Journal, Julius Baer; Note: August 2015 Survey
Source: FISMA, Morgan Stanley, Julius Baer
13.3
15.6
10.3
12.712.7 14
19
0
2
4
6
8
10
12
14
16
18
20
2011 2013 2015 2017EUS federal spending incybersecurity
+ 35%
USD bn
36%
43%
52%
59%
66%
76%
97%
100%
0% 50% 100%
Denial-of-service attack
Maliciousinsiders
Malicious code
Phishing
Botnets
Web-basedattacks
Malware
Virus, worms,trojans
% of US companies experiencingcyberattacks types in 2015
57
75
97
119
141
166
195
0%
5%
10%
15%
20%
25%
30%
35%
0
20
40
60
80
100
120
140
160
180
200
14 16E 18E 20E
Public IT cloud market (l.h.s.)
Yearly growth (r.h.s.)
USD bn % y/y
1) Shift to the cloud lifts
cybersecurity spending
2) Corporates are constantly
under attack
3) Governments may lift
budgets for cybersecurity
30
CYBERSECURITY: TAKE A DIVERSIFIED APPROACH We recommend investors to take a diversified approach due
to considerable volatility, consolidation potential and technology risks.
Source: Bloomberg Finance L.P., Datastream, Julius Baer
Source: Bloomberg Finance L.P., Julius Baer
10%
12%
8%
13%
12%
6%
4%
7%
6% 6%
4%
5%
3%
5% 5%
0%
2%
4%
6%
8%
10%
12%
14%
2014 2015 2016E 2017E 2018E
Cybersecurity IT sector S&P 500
Median sales growth (%)
50
100
150
200
250
300
350
Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17
Index
Cybersecurity price index
Growth is stabilising at above-average levels: a good entry point for investors
Cybersecurity has rebounded from the lows in 2016 and the outlook has improved
THEMATIC & CROSS ASSET
31
• The US corporate income tax rate of 35% is
one of the highest in the developed world.
• That’s why US companies park huge
amounts of cash abroad.
• Trump has proposed allowing repatriation
of this cash at a one-off 10% tax rate to
create jobs and boost the economy.
• That was also the idea in 2004. US
companies had the chance to repatriate
their offshore earnings at a 5.25% tax rate.
• And indeed repatriated earnings increased
by 270% to USD 300 billion in 2005, but
corporations had a different game plan as
hoped for by lawmakers.
• A significant amount of the capital ended
up being given back to shareholders by
means of share buybacks and dividends,
which directly increased shareholder value.
Source: Goldman Sachs, Julius Baer
Repatriated foreign earnings by US companies
(rolling 4-quarter sum)
299
100
0
50
100
150
200
250
300
350
'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16
USD billions
Annual share buyback activity
BENEFICIARIES OF A 2017 TAX HOLIDAY Donald Trump has promised to bring back billions of dollars to the US.
-100%
-50%
0%
50%
100%
150%
'03 '04 '05 '06 '07 '08 '09
Authorised Executed
% Change y/y
• Chances of a tax holiday in 2017 are very high and we expect repatriation of a significant
amount of the USD 2.6 trillion believed to be held offshore.
• US companies are very likely to use many of the repatriated foreign earnings to enrich their
shareholders in the same way as in 2004.
• Trump’s tax plan would benefit large US corporations holding huge amounts of accumulated
earnings abroad, either absolute amounts or as a proportion of their total market
capitalisation.
33
BENEFICIARIES OF A 2017 TAX HOLIDAY Invest in companies set to benefit from a US ‘tax holiday’.
US companies with largest estimated offshore cash
(USD million)
US companies with largest estimated offshore cash in
% of market capitalisation Company Sector Price Taget Rating Offshore Cash
Apple Info Tech 135.72 135.00 Hold 186,900
Microsoft Info Tech 64.62 75.00 Buy 94,400
Cisco Systems Info Tech 33.74 30.00 Hold 56,500
Oracle Info Tech 42.06 43.50 Hold 45,300
Alphabet Info Tech 846.55 940.00 Buy 42,900
Johnson & Johnson Health Care 118.86 115.00 Hold 38,200
Amgen Health Care 173.29 165.00 Hold 29,000
QUALCOMM Info Tech 56.46 56.00 Hold 27,900
Coca-Cola Cons. Staples 41.23 47.00 Buy 17,900
Medtronic Health Care 78.88 88.00 Buy 17,700
Company Sector Price Taget Rating Offshore Cash
HP Info Tech 15.95 14.30 Hold 58%
Cisco Systems Info Tech 33.74 30.00 Hold 36%
Apple Info Tech 135.72 135.00 Hold 30%
Western Digital Info Tech 74.91 89.00 Buy 29%
Oracle Info Tech 42.06 43.50 Hold 28%
QUALCOMM Info Tech 56.46 56.00 Hold 28%
HP Enterprise Info Tech 24.40 25.20 Buy 24%
Amgen Health Care 173.29 165.00 Hold 23%
Microsoft Info Tech 64.62 75.00 Buy 21%
eBay Info Tech 33.76 29.90 Hold 19%
Source: Bloomberg Finance L.P., UBS, Julius Baer; note: Ex-Financials, Gross Cash
Data as at: 20/02/2017 15:17 CET
Source: Bloomberg Finance L.P., UBS, Julius Baer; note: Ex-Financials, Gross Cash
Data as at: 20/02/2017 15:17 CET
TECHNICAL ANALYSIS
34
1990 2000 2010 2020
0
20
40
60
80
1.0
1.5
2.0
2.5
3.0
3.5
35
STICK WITH THE WINNER Climbing the wall of worry
Source: Bloomberg Finance L.P., Julius Baer ; Data as at 27.2.2017 7:50 CET 08.03.2017
Comments
The winner climbing the wall of
worry is still the US equity
market.
Thus, we re-iterate our call for an
Overweight.
The S&P 500 is approaching our
target of 2,400, which we issued
on 13 July 2016 in our publication
with a title not to miss: “S&P 500
– 2,400 – Are you ready?”1
Thus, as next major resistance
we can identify 2,544 for the
S&P 500 but would stress that the
overall trend remains positive and
US equities continue to
outperform and therefore should
have an Overweight in a global
equity portfolio.
Momentum
MSCI USA rel. MSCI World ex. USA
1) Please note that the above-mentioned Research publication may have a different distribution scope.
x10
Index
2015 2016 2017
10
0.80
0.85
0.90
0.95
1.00
1.05
CURRENCIES: SELL MORE EUROS USD/EUR ready to leave range for good –
sell more euros.
36 08.03.2017 Source: Bloomberg Finance L.P., Julius Baer; Data as at 27.2.2017 7:50 CET
Comments
The trading range from 2015 is
finally coming to an end after a
false break-out in December.
We recommend investors to sell
more euros.
We recommend selling the euro
against high-yielding currencies
like the Russian ruble and
Australian dollar.
We are already short the euro vs.
Brazilian real, Mexican peso and
Turkish lira.
USD/EUR
Momentum
x10
Index
APPENDIX
37
38
EUROPEAN POLICY: FRENCH ELECTIONS The gap between anti-euro Le Pen and her possible contenders is comfortably wide in
favour of the latter. Justified hopes for France to get a business-friendly president.
Source: Various polling institutes, Julius Baer Source: Various polling institutes, Julius Baer
Polls for 2nd-round constellations in the French presidential elections
Polls for 2nd-round constellations in the French -residential elections
30
35
40
45
50
55
60
65
70
30
35
40
45
50
55
60
65
70
Jan '17 Feb '17 Mar '17
Macron (En Marche!)
Le Pen (Front National)
Poll %, 3-day avg. Poll %, 3-day avg.
30
35
40
45
50
55
60
65
70
30
35
40
45
50
55
60
65
70
Jan '17 Feb '17 Mar '17
Fillon (Les Républicains)
Le Pen (Front National)
Poll %, 3-day avg. Poll %, 3-day avg.
Dollar positioning
Treasuries positioning US small-cap positioning
THE REFLATION TRADE MONITOR Positive speculative positioning in the dollar and US small-cap equities
and negative positioning in Treasuries reveal the popularity of the reflation trade.
* of open interest
Source: Commodity Futures Trading Commission (CFTC), Julius Baer; Weekly data as at: 24.02.2017
39
13 14 15 16 17
-12
-10
-8
-6
-4
-2
0
2
4
6
8
%*
10th-90th range 10y Treasuries
50th percentile
13 14 15 16 17
-20
-15
-10
-5
0
5
10
15
%*
10th-90th range Russel 2000
50th percentile
13 14 15 16 17
-30
-20
-10
0
10
20
30
40
50
60
70
%*
10th-90th range Dollar index
50th percentile
US: SCENARIOS FOR THE TRUMP PRESIDENCY The Trump presidency is expected to accelerate supply constraints and at the end
raise inflation. As a consequence a tighter Fed will support the USD.
Source: Julius Baer
The “Reflation policy” stance by the Trump administration is our Baseline Scenario
40
Real GDP growth
CPI inflation
President Donald Trump
Reflation policy
2.5% 2.3% 2.4% 2.5%
„Unguided missile“
1.0% 1.0% 2.7% 2.9%
85%
2017 2018 2017 2018
15%
Probability
41
LONG-TERM PAIN FOR CHINA Quantitative (ordered) credit expansion seems to depress productivity and
profitability over the medium-to-longer term
Source: Oxford Economics, Julius Baer Source: MSCI, Julius Baer
Monthly data as at: 28.02.2017 17:45 CET
China productivity growth Return on equity
(MSCI price-to-book divided by price-to-earnings)
02 04 06 08 10 12 14 16
9
10
11
12
13
14
15
16
17
18
%
US 2y trend China 2y trend
00 05 10 15 20
2
3
4
5
6
7
8
9
10
11
% Y/Y
Credit injection Productivity forecast
42
CHINA’S LAST YEAR’S POLICIES Enormous fiscal impulse had been used 2016 to lean against the wind of weaker
growth. Consolidation of shadow banking has ended.
Source: Datastream, Julius Baer Source: People’s Bank of China, Julius Baer
Annual change of fiscal spending in China China’s credit dynamics
06 07 08 09 10 11 12 13 14 15 16 17
500
1000
1500
2000
2500
3000
CNY bn
Government spending impulse
05 06 07 08 09 10 11 12 13 14 15 16 17
0
10
20
30
40
50
60
70
% Y/Y
Bank loans Non-bank credit
Total social financing
Focus on variable rate instruments
We still like credit risk in an environment of
trend- or even above-trend growth in 2017.
Focus is shifting on variable-rate instruments
given our outlook for 3 rate hikes in 2017
followed by 3 rate hikes in 2018.
US senior loan funds combine the credit spread
of non-investment grade (risky) instruments
with the return profile of variable (loan)
instruments.
43
US CREDIT RISK: FOCUS ON LEVERAGED LOANS US growth outlook heralds a lower default rate.
US leveraged loan funds offer exposure to variable-rate instruments.
Source: Moody’s, Bank of America Merrill Lynch, Julius Baer
Data as at 24.2.2017 15:00 CET
US non-investment grade default rate and credit spread
0
200
400
600
800
1'000
1'200
1'400
1'600
1'800
2'000
0%
2%
4%
6%
8%
10%
12%
14%
16%
97 00 03 06 09 12 15 18
Credit spread
1-year trailing default rate
US default rate Spread, right hand
Massive inflows drive spread compression
Credit spreads (yield advantage versus US
Treasury bonds) have fallen to cyclical lows.
Taking into account the higher leverage of the
EM issuers than in the pre-Lehman period, we
must note that “adjusted spreads” are at all-
time lows.
Time for consolidation
The combination of our US rate outlook and
our moderate view on commodity prices
argues against a further outperformance of the
segment.
We wait for confirmation of the US trade policy
before extending the existing exposure.
44
EMERGING MARKET DEBT: CONSOLIDATION Credit spreads are at or even below their cyclical lows.
Source: J.P. Morgan, Julius Baer; EM = emerging markets
Data as at 24.2.2017 15:00 CET
Credit spreads (yield differential to US Treasury bonds) of EM corporate bonds
0
200
400
600
800
1'000
1'200
2010 2011 2012 2013 2014 2015 2016 2017
Spread, basis
points
EM corporate bonds
Non-investment grade
investment grade
45
TRUMP’S IMPACT ON HEALTHCARE SECTOR Affected area accounts for only 12% share of total healthcare costs.
Source: CMS, Julius Baer Research
Data as at 13.02.2017 10:00 CET
Source: CS, Julius Baer Research
Data as at 13.02.2017 10:00 CET
Healthcare spending by type of service or product
List prices US branded drugs
38%
24%
3%
4%
3%
6%
4%
6%
12%
Hospital Care Physician and clinical services
Other professional services Dental services
Home Health Care Nursing Care Facilities
Medical Equipment Other
Prescription Drugs
0
2
4
6
8
10
12
Jan 88 Jan 92 Jan 96 Jan 00 Jan 04 Jan 08 Jan 12
List Prices US Branded Drugs
US drug price inflation in %
46
US-BORDER-TAX FOR AUTOS Negative impact for everybody but slight relative advantage for US OEMs.
Source: Bank of America Merrill Lynch, LMC Automotive, Julius Baer Research; OEM = Original equipment manufacturers; FCA = Fiat Chrysler; GM = General Motors
Source: Bloomberg Finance, L.P., Julius Baer Research
*estimates with a majority from Nissan
US sales and local sourcing by OEM US sales and workforce, % of total
Imported
Outside NAFTA US sourced Mexico sourced Canada sourced
Volkswagen 55% 12% 32% 0%
BMW 72% 28% 0% 0%
Daimler 50% 50% 0% 0%
Renault- Nissan 24% 54% 22% 0%
FCA 7% 54% 18% 21%
GM 7% 65% 14% 15%
Ford 2% 79% 12% 7%
High impact
Medium impact
Low impact
0%
10%
20%
30%
40%
50%
60%
70%
80%
US-Umsatz in %
# US-Mitarbeiter in % der gesamten Belegschaft
• US sales in % of total
• # US employees in % of total staff
47
APPENDIX Rating overview
Source: Datastream, Julius Baer
Global sectors &
industry groups Rating
Developed
markets Rating
Investment
styles
Rating
USA
Rating
Europe
Energy overweight USA neutral Quality neutral neutral
Materials neutral Eurozone neutral Value neutral neutral
Industrials underweight UK neutral Growth neutral neutral
Capital Goods underweight Switzerland neutral Small caps overweight overweight
Commercial & Professional Services underweight Japan overweight Large caps underweight underweight
Transport overweight Emerging markets neutral High dividends neutral overweight
Consumer Discretionary overweight Dividend growers underweight neutral
Automobiles overweight
Consumer Durables overweight
Consumer Services neutral
Media neutral
Retailing neutral
Consumer Staples underweight
Food & Staples Retailing neutral
Food, Beverage & Tobacco underweight
Household & Personal Products underweight
Healthcare overweight
Healthcare Equipment & Services neutral
Pharma, Biotech & Life Science overweight
Financials overweight
Banks neutral
Diversified Financials neutral
Insurance overweight
Real Estate underweight
Info Tech overweight
Software overweight
Hardware overweight
Semiconductors overweight
Telecom underweight
Utilities underweight
48
EUROPE: EARNINGS GROWTH AND VALUATIONS Double-digit earnings growth expected for 2017
Source: Datastream, Julius Baer; Cons Discr = Consumer Discretionary
Data as at 13.02.2017 10:00 CET
Source: Datastream, Julius Baer; P/E = price/earnings ratio
Data as at 13.02.2017 10:00 CET
EPS growth expectations for 2017 (in %) MSCI Europe
0
5
10
15
20
25
30
0
500
1000
1500
2000
2500
Dec 87Dec 91Dec 95Dec 99Dec 03Dec 07Dec 11Dec 15
Price 12m fwd P/E (r.h.s.)
Index Multiplier
3%
9%
9%
9%
10%
11%
12%
12%
13%
20%
40%
0% 10% 20% 30%
Utilities
IT
Financials
Telecom
Cons Staples
Industrials
MSCI Europe
Cons Discr
Healthcare
Materials
Energy
EPS Growth expectations for 2017
49
COMMODITY VIEWS In a nutshell
Source: Bloomberg Finance L.P., Julius Baer
View Last price | Price up/downside 12m View Last price | Forecast 3m/12m
Commodities ●●○○○ - | ▼-7.5% Gold ●●○○○ 1235 | 1075/1150Bloomberg Commodity Index cautious Index | medium cautious USD/oz | ▼-10% | high
Silver ●●○○○ 18.0 | 15.5/15
Crude oil ●○○○○ 56.0 | 50/47.5 cautious USD/oz | ▼-15% | high
Brent bearish USD/bbl | ▼-15% | medium Gold miners ●●○○○ - | ▼-15%
Natural gas ●●●○○ 2.76 | 2.8/2.8 NYSE Arca Gold Bugs cautious Index | medium
Henry Hub neutral USD/mbtu | ►+/-15% | medium
Natural gas ●●○○○ 48.7 | 35/35 Agriculture ●●●○○ - | ►+/-7.5%National Balancing Point cautious GBp/th | ▼-15% | medium Bloomberg Commodity Index neutral Index | medium
Oil & Gas ●●○○○ - | ▼-15% Corn ●●●○○ 368 | 370/400S&P Oil & Gas Producers cautious Index | high neutral USc/bu | ►+/-10% | medium
Palm oil ●●●○○ 3112 | 2800/2800
Cyclical metals ●●○○○ - | ▼-7.5% neutral M YR/t | ►+/-10% | medium
Bloomberg Commodity Index cautious Index | medium Soybeans ●○○○○ 1033 | 900/900
Aluminium ●●○○○ 1871 | 1650/1450 bearish USc/bu | ▼-20% | high
cautious USD/t | ▼-10% | medium Sugar ●●●○○ 20.3 | 22/20
Copper ●○○○○ 5952 | 5200/4600 neutral USc/lb | ►+/-10% | medium
bearish USD/t | ▼-20% | high Wheat ●●●○○ 441 | 425/475
Iron ore ●●○○○ 90.4 | 75/60 neutral USc/bu | ►+/-10% | medium
cautious USD/t | ▼-15% | high Agribusiness ●●●○○ - | ►+/-10%
Platinum ●●●○○ 1003 | 1000/1050 S&P Agribusiness neutral Index | high
neutral USD/oz | ►+/-10% | high Unit | Uncertainty
Palladium ●●○○○ 776 | 650/700cautious USD/oz | ▼-10% | high
Metals & Mining ●●○○○ - | ▼-15%M SCI M etals & M ining cautious Index | high
Unit | Uncertainty
Data as of 20.02.2017. Price up/downside might deviate from forecast-implied up/downside due to underlying price volatility.
50
CHINA’S TRANSITION The market-based perception of China’s old-economy risks is benign.
Source: Bloomberg Finance L.P, Julius Baer (* Inputs: CNY/USD, 5-year CDS, Relative performance between high yield and investment grade bonds, Shanghai composite absolute performance, MSCI China Materials/MSCI China relative performance, London Metal Exchange index, Steel producers raw materials margin); Data as at 21.2.2017 7:28 CET
China Risk Barometer (Real-time, market based inputs*)
-100
-80
-60
-40
-20
0
20
40
60
80
100
2010 2011 2012 2013 2014 2015 2016 2017
Optimism
Pessimism
51
IMPORTANT LEGAL INFORMATION (1/10)
This publication constitutes investment research material and has been produced by Bank Julius Baer & Co. Ltd., Zurich, which is authorised and regulated by the Swiss Financial Market Supervisory Authority (FINMA). This publication series is issued regularly. Information on financial instruments and issuers is updated irregularly or in response to important events.
IMPRINT
Authors: David Kohl, [email protected] 1)
1) This analyst is employed by Bank Julius Bär Europe AG, which is authorised and regulated by the German Federal Supervisory Authority (BaFin).
APPENDIX
Analyst certification The analysts hereby certify that views about the companies discussed in this report accurately reflect their personal view about the companies and securities. They further certify that no part of their compensation was, is, or will be directly or indirectly linked to the specific recommendations or views in this report.
Methodology: Please refer to the following link for more information on the research methodology used by Julius Baer analysts: www.juliusbaer.com/research-methodology
Structure: References in this publication to Julius Baer include subsidiaries and affiliates. For additional information on our structure, please refer to the following link: www.juliusbaer.com/structure
Price information Unless otherwise stated, the price information reflects the closing price of the previous trading day.
Disclosure No specific disclosures
IMPORTANT LEGAL INFORMATION (2/10)
Equity research Frequently used abbreviations CAGR Compound annual growth
rate EPS Earnings per share P/B Price-to-book value
DCF Discounted cash flow EV Enterprise value P/E Price-to-earnings ratio
EBIT Earnings before interest and taxes FCF Free cash flow PEG P/E divided by year-on-year EPS growth
EBITDA Earnings before interest, taxes, depreciation and amortisation
MV Market value ROE Return on equity
Consensus rating
Consensus rating indicates the analysts' opinions on the security. It shows the number of analysts covering the security and the breakdown between Buy, Hold and Sell ratings.
Consensus target
The consensus target is the average price to which analysts expect the security to rise.
FY Fiscal year
Equity rating allocation as of 01/03/2017 Buy 31.4% Hold 65.7% Reduce 2.9%
Rating system for global equity research (stock rating)
Buy Expected to outperform the regional industry group by at least 5% in the coming 9-12 months, unless otherwise stated
Hold Expected to perform in line (±5%) with the regional industry group in the coming 9-12 months, unless otherwise stated.
Reduce Expected to underperform the regional industry group by at least 5% in the coming 9-12 months, unless otherwise stated.
Risk rating system for global equity research
The risk rating (High/Medium/Low) is a measure of a stock’s expected volatility and risk of losses in case of negative news flow. This non-quantitative rating is based on criteria such as historical volatility, industry, earnings risk, valuation and balance sheet strength.
Julius Baer does not provide investment banking services to the companies covered by Research.
52
Frequency of equity rating updates An update on Buy-rated equities will be provided on a quarterly basis. An update for Hold and Reduce-rated equities will be provided semi-annually or on an ad-hoc basis.
53
IMPORTANT LEGAL INFORMATION (3/10)
Equity rating history as of 28/02/2017 Company Rating History
Apple Hold Since 25/7/2014
Alphabet Buy Since 18/10/2010
Amgen Hold Since 29/10/2012
BMW Hold Since 20/3/2015
Cisco Systems Hold Since 10/7/2013
Coca-Cola Buy Since 17/7/2013
Daimler Buy Since 7/1072016
Hold Since 22/10/2015
eBay Hold Since 23/9/2015
Fiat Chrysler Reduce Since 3/2/2016
Hold Since 20/2/2015
Ford Hold Since 26/11/2014
General Motors Hold Since 26/11/2014
Hewlett Packard Enterprise Buy Since 30/3/2016
Hold Since 18/12/2015
HP Hold Since 27/11/2013
Johnson & Johnson Hold Since 18/7/2014
Medtronic Buy Since 8/9/2014
Microsoft Buy Since 29/4/2014
Oracle Hold Since 21/3/2013
Peugeot Hold Since 28/4/2016
Buy Since 5/8/2015
Renault Buy Since 5/3/2015
Qualcomm Hold Since 29/7/2014
Western Digital Buy Since 28/5/2015
Volkswagen Reduce Since 6/10/2015
54
IMPORTANT LEGAL INFORMATION (4/10)
Fixed income
Frequently used abbreviations FCF Free cash flow CFI Cash flow from investing EBIT Earnings before interest and taxes CFO Cash flow from operation FFO Funds from operation EBITDA Earnings before interest, taxes,
depreciation and amortisation CFF Cash flow from financing RCF Retained cash flow EM Emerging markets
Strategy research Countries, sectors and investment styles are rated “overweight”, “neutral” or “underweight”. These ratings are based on our expectations for relative performance versus regional and global benchmark indices.
Overweight Expected to outperform regional or global benchmark indices in the coming 9-12 months, unless otherwise stated.
Neutral Expected to perform in line with regional or global benchmark indices in the coming 9-12 months, unless otherwise stated.
Underweight Expected to underperform regional or global benchmark indices in the coming 9-12 months, unless otherwise stated.
Equity investments are divided into three different risk segments. Risk here is defined as the historical five-year volatility based on monthly returns in CHF. Based on the data of all segments considered (developed markets, emerging markets, global sectors, investment styles) the following distinction is made:
Conservative Investments whose historical volatility is in the bottom quartile of the universe described above.
Medium Investments whose historical volatility is in the middle two quartiles of the universe described above.
Opportunistic Investments whose historical volatility is in the top quartile of the universe described above.
55
IMPORTANT LEGAL INFORMATION (4/10)
Risk categories for fixed income research
Conservative Incorporates supranational issuers, top-rated sovereign issuers and bodies that are directly and fully guaranteed by these institutions. These issuers are most likely to preserve their top rating throughout the business cycle.
Quality Incorporates sovereigns and corporate issuers that are very likely to service and repay debt within a five-year credit scenario. They are likely to preserve their investment grade rating throughout a normal business cycle.
Opportunistic Incorporates issuers that are quite likely to service and repay debt within the five-year credit scenario. Such issuers have an attractive risk/return profile in the current credit scenario but are subject to rating downgrade risk and, thus, might be exchanged periodically.
Speculative Incorporates sub-investment-grade issuers in Europe and the USA as well as local issuers in emerging markets. Issuers are likely to service and repay debt in the current credit scenario. Investors must note that these issuers are subject to a higher downgrade and default frequency and that an active management of these positions is crucial.
Rating system for fixed income
Buy Within its risk category, the issuer is highly recommended due to its financial and business condition (strong balance sheet, income statement, cash flow and good position in the industry). Debt instruments of the issuer are regarded as an attractive investment from a risk/return perspective.
Hold Maintain position based on stable credit fundamentals and/or average expected return characteristics within peer group.
Sell The rating is changed to Sell, depending on a significant deterioration in the fundamental data of the issuer in relation to the industry peers. The investment is no longer justified from a risk/return perspective for the relevant category.
Julius Baer does not provide investment banking services to the issuers covered by Research.
Frequency of issuer rating updates An update on each issuer will be provided semi-annually, on a rating change or on an ad-hoc basis.
Issuer rating allocation as of 01/03/2017
Buy 53.4% Hold 42.7% Sell 3.9%
56
IMPORTANT LEGAL INFORMATION (5/10)
Credit rating definition Credit ratings used in our publications follow the definitions and systematic of Moody's (www.moodys.com).
Moody’s Standard & Poor's Fitch/IBCA Credit rating definition
Aaa AAA AAA Bonds rated Aaa are judged to be of the highest quality, with minimal credit risk.
Aa1 Aa2 Aa3
AA+ AA AA-
AA AA-
Bonds rated Aa are judged to be of high quality and are subject to very low credit risk.
Investment- grade
A1 A2 A3
A+ A A-
A+ A A-
Bonds rated A are considered upper-medium grade and are subject to low credit risk.
Baa1 Baa2 Baa3
BBB+ BBB BBB-
BBB+ BBB BBB-
Bonds rated Baa are subject to moderate credit risk. They are considered medium-grade and as such may possess certain speculative characteristics.
Ba1 Ba2 Ba3
BB+ BB BB-
BB+ BB BB-
Bonds rated Ba are judged to have speculative elements and are subject to substantial credit risk.
Non-
B1 B2 B3
B+ B B-
B+ B B-
Bonds rated B are considered speculative and are subject to high credit risk.
investment- grade
Caa1 Caa2 Caa3
CCC+ CCC CCC-
CCC+ CCC CCC-
Bonds rated Caa are judged to be of poor standing and are subject to very high credit risk.
Ca CC C
CC+ CC CC-
Bonds rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.
C D DDD Bonds rated C are the lowest rated class of bonds and are typically in default, with little prospect for recovery of principal or interest.
Fixed income market segment ratings
Attractive Segments that are expected to yield a return that is above the ten-year historical average.
Neutral Segments that are expected to yield a return that is in line with the ten-year historical average.
Unattractive Segments that are expected to yield a return that is below the ten-year historical average.
57
IMPORTANT LEGAL INFORMATION (6/10)
Technical analysis The information and opinions expressed were produced by Julius Baer Technical Analysis as of date of writing and are subject to change without notice. Julius Baer conducts primary technical analysis aimed at creating value through investment recommendations. Technical Analysis uses historic market prices in order to assess market conditions. The historic data is analysed by chart reading i.e. by following chart patterns and interpreting indicators calculated from historic price movements. Technical Analysis may be inconsistent with and reach different conclusions to fundamental analysis. It may vary at any time due to the different tools used to assess market conditions and recommendations. Besides individual investment recommendations, Technical Analysis also publishes technical indicator readings, which are mechanically calculated and only provide additional information to large sets of data, and are not intended as investment recommendations. These tables show current trends on an absolute price or relative basis using up, flat and downward pointing arrows. At the same time, support and resistance levels might be displayed which are calculated using Bollinger Bands.
Frequently used abbreviations C Closing price H High price L Low price
ST Short-term (2-8 weeks) MT Medium-term (8-26 weeks) LT Long-term (> 26 weeks)
MAV Moving average
Bollinger-band The middle Bollinger band is a 20 day simple moving average, the higher and lower bands are calculated as a 20-day simple moving average plus or minus two standard deviations on a 20-day period.
Momentum Momentum is derived from different rate of change calculations based on the underlying instrument.
RSI Relative strength index is a leading momentum indicator of prices, showing the strength of a stock by monitoring changes in closing prices in a 9-day period.
Rating system for global technical analysis (absolute) Buy Expected to advance by at least 10% in the coming 3-12 months, unless otherwise stated.
Hold Expected to perform in line (±5%) in the coming 3-12 months, unless otherwise stated.
Reduce Expected to decline by at least 10% in the coming 3-12 months, unless otherwise stated.
Rating system for global technical analysis (relative) Overweight Expected to outperform its benchmark by at least 5% in the coming 3-12 months, unless otherwise stated.
Neutral Expected to perform in line (±5%) against its benchmark in the coming 3-12 months, unless otherwise stated.
Underweight Expected to underperform its benchmark by at least 5% in the coming 3-12 months, unless otherwise stated.
For the history of Technical Analysis equity recommendations over the previous 12 months please view the document at: http://www.juliusbaer.com/tech-analysis-recom-history
58
IMPORTANT LEGAL INFORMATION (7/10)
DISCLAIMER
General: The information and opinions expressed in this publication were produced as of the date of writing and are subject to change without notice. This publication is intended for information purposes only and does not constitute an offer or an invitation by, or on behalf of, Julius Baer to buy or sell any securities or related financial instruments or to participate in any particular trading strategy in any jurisdiction. Opinions and comments of the authors reflect their current views, but not necessarily of other Julius Baer entities or any other third party. Other Julius Baer entities may have issued, and may in the future issue, other publications that are inconsistent with, and reach different conclusions from, the information presented in this publication. Julius Baer assumes no obligation to ensure that such other publications are brought to the attention of any recipient of this publication. Suitability: Investments in the asset classes mentioned in this publication may not be suitable for all recipients. This publication has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Before entering into any transaction, investors should consider the suitability of the transaction to individual circumstances and objectives. Any investment or trading or other decision should only be made by the client after a thorough reading of the relevant product term sheet, subscription agreement, information memorandum, prospectus or other offering document relating to the issue of the securities or other financial instruments. This publication should not be read in isolation without reference to the full research report (if available) which may be provided upon request. Nothing in this publication constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to individual circumstances, or otherwise constitutes a personal recommendation to any specific investor. Any references to a particular tax treatment depend on the individual circumstances of each investor and may be subject to change in the future. Julius Baer recommends that investors independently assess, with a professional advisor, the specific financial risks as well as legal, regulatory, credit, tax and accounting consequences. Information / forecasts referred to: Although the information and data herein are obtained from sources believed to be reliable, no representation is made that the information is accurate or complete. In particular, the information provided in this publication may not cover all material information on the financial instruments or issuers of such instruments. Bank Julius Baer & Co. Ltd., its subsidiaries and affiliated companies do not accept liability for any loss arising from the use of this publication. Important sources for the production of this publication are e.g. national and international media, information services (e.g. Thomson Reuters, Bloomberg Finance L.P.), publicly available databases, economic journals and newspapers (e.g. Financial Times, Wall Street Journal), publicly available company information, publications of rating agencies. Ratings and appraisals contained in this publication are clearly marked as such. All information and data used for this publication relate to past or present circumstances and may change at any time without prior notice. Statements contained in this publication regarding financial instruments or issuers of financial instruments relate to the time of the production of this publication. Such statements are based on a multitude of factors which are subject to continuous change. A statement contained in this publication may, thus, become inaccurate without this being published. Potential risk regarding statements and expectations expressed in this publication may result from issuer specific and general (e.g. political, economic, market, etc.) developments. Risk: The price and value of, and income from investments in any asset class mentioned in this publication may fall as well as rise and investors may not get back the amount invested. Risks involved in any asset class mentioned in this publication may include but are not necessarily limited to market risks, credit risks, currency risks, political risks and economic risks. Investments in emerging markets are speculative and may be considerably more volatile than investments in established markets. Past performance is not a reliable indicator of future results. Performance forecasts are not a reliable indicator of future performance. The Julius Baer fixed-income ratings apply exclusively to bonds of the specific issuer ranked senior unsecured or higher. They are therefore not valid for debentures junior to the mentioned ranking unless mentioned explicitly. Particular risks in connection with specific investments featured in this publication are disclosed prominently hereinabove in the text of this publication. Any investment should only be made after a thorough reading of the current prospectuses and/or other documentation/information available. Miscellaneous: We are required to disclose important information about our interests and potential conflicts. In order to prevent conflicts of interest from adversely affecting the interests of its clients, Julius Baer has implemented the necessary organisational and administrative arrangements to manage conflicts of interests. Julius Baer's arrangements include putting in place information barriers that ensure the separation of its research departments from other areas of the business so that no other area of the business will know the contents of any planned research until the research has been distributed to clients. Adherence to these procedures is monitored by the Julius Baer Compliance Department.
59
IMPORTANT LEGAL INFORMATION (8/10)
Unless explicitly stated in this publication, its information and analysis has not been disclosed to the issuer of the securities referred to herein or a Julius Baer entity before the publication has been published or disseminated. A Julius Baer entity may, to the extent permitted by law, participate or invest in other financing transactions with the issuer of the securities referred to herein, perform services or solicit business from such issuers, have a position or effect transactions in the securities or options thereof, have any other significant financial interest regarding the issuers of the securities referred to herein and/or may have done so in the past. For further information about our interest in the investments featured in this publication, see the company-specific disclosures above.
Important distribution information
This publication may only be distributed in countries where its distribution is legally permitted. This information is not directed to any person in any jurisdiction where (by reason of that person’s nationality, residence or otherwise) such publications are prohibited.
External Asset Managers/External Financial Advisors: In case this research publication is provided to an External Asset Manager or an External Financial Advisor, Julius Baer expressly prohibits that it is redistributed by the External Asset Manager or the External Financial Advisor and is made available to their clients and/or third parties. By receiving any research publication the External Asset Managers or the External Financial Advisors confirm that they will make their own independent analysis and investment decisions, if applicable.
Austria: Julius Baer Investment Advisory GesmbH, authorised and regulated by the Austrian Financial Market Authority (FMA), distributes research to its clients. Chile: This publication is for the intended recipient only. Dubai International Financial Centre: This publication has been distributed by Julius Baer (Middle East) Ltd. It may not be relied upon by or distributed to Retail Clients. Please note that Julius Baer (Middle East) Ltd. offers financial products or services only to Professional Clients who have sufficient financial experience and understanding of financial markets, products or transactions and any associated risks. The products or services mentioned will be available only to Professional Clients in line with the definition of the DFSA Conduct of Business Module. Julius Baer (Middle East) Ltd. is duly licensed and regulated by Dubai Financial Services Authority (DFSA). Germany: Bank Julius Bär Europe AG, authorised and regulated by the German Federal Financial Supervisory Authority (BaFin), disseminates research to its clients. Guernsey: This publication is distributed by Bank Julius Baer & Co Ltd., Guernsey Branch, which is licensed in Guernsey to provide banking and investment services and is regulated by the Guernsey Financial Services Commission. Hong Kong: This publication is distributed in Hong Kong by and on behalf of, and is attributable to, Bank Julius Baer & Co. Ltd., Hong Kong branch, which holds a full banking licence issued by the Hong Kong Monetary Authority under the Banking Ordinance (Chapter 155 of the Laws of Hong Kong SAR). The Bank is also a registered institution under the Securities and Futures Ordinance (SFO) (Chapter 571 of the Laws of Hong Kong SAR) to carry on Type 1 (dealing in securities), Type 4 (advising on securities) and Type 9 (asset management) regulated activities with Central Entity number AUR302. This document must not be issued, circulated or distributed in Hong Kong other than to ‘professional investors’ as defined in the SFO. The contents of this publication have not been reviewed by any regulatory authority. If you have any queries concerning this publication, please contact your Hong Kong relationship manager. Bank Julius Baer & Co. Ltd. is incorporated in Switzerland with limited liability. India: This is not a publication of Julius Baer Wealth Advisors (India) Private Limited (JBWA) (a group company of Julius Baer, Zurich) or any of its Indian subsidiaries under the SEBI Research Analyst Regulations, 2014. This publication has been produced by Bank Julius Baer & Co. Ltd. (Julius Baer), a company incorporated in Switzerland with limited liability and it does not have a banking license in India. This publication should not be construed in any manner as an offer, solicitation or recommendation by JBWA or any Julius Baer entity globally. Israel: This publication is distributed by Julius Baer Financial Services (Israel) Ltd. (JBFS), licensed by the Israel Securities Authority to provide investment marketing and portfolio management services. Pursuant to Israeli law, "Investment Marketing" is the provision of advice to clients concerning the merit of an investment, holding, purchase or sale of securities or financial instruments, when the provider of such advice has an affiliation to the security or financial instrument. Due to its affiliation to Bank Julius Baer & Co. Ltd., JBFS is considered to be affiliated to certain securities and financial instruments that may be connected to the services JBFS provides, and therefore any use of the term "investment advice" or any variation thereof, in this publication should be understood as Investment Marketing, as explained above. This
IMPORTANT LEGAL INFORMATION (9/10)
publication does not constitute investment advice and has been prepared by Bank Julius Baer & Co. Ltd. and distributed by JBFS for information purposes only, without taking into account the objectives, financial situation or needs of any particular client, and does not constitute an offer, a recommendation or an invitation by or on behalf of JBFS to make any investment. Kingdom of Bahrain: Julius Baer (Bahrain) B.S.C.(c), an investment business firm, which is licensed and regulated by the Central Bank of Bahrain (CBB), distributes this publication to its expert and accredited investor clients. Please note that Julius Baer (Bahrain) B.S.C.(c) offers financial products or services only to expert and accredited investor clients in line with the definition of the CBB’s rulebook that contains regulations, directives and rules pursuant to the CBB rulemaking powers under the CBB law. This publication may not be relied upon by or distributed to retail clients. The CBB does not take any responsibility for the accuracy of the statements and information contained in this publication nor shall it have any liability to any person for any damage or loss resulting from reliance on any statement or information contained herein. Lebanon: This publication has been distributed by Julius Baer (Lebanon) S.A.L., which is a duly licensed financial intermediation institution, supervised by the Lebanon Capital Markets Authority (CMA). It has not been approved or licensed by the Lebanon CMA or any other relevant authority in Lebanon. It is strictly private and confidential and is being issued to a limited number of individual and institutional investors upon their request and must not be provided to, or relied upon, by any other person. The information contained herein is as of the date referenced and Julius Baer (Lebanon) S.A.L. shall not be liable to periodically update said information. The quotes and values provided herein are for indicative purpose only and shall in no way refer to tradable levels. Luxembourg: This publication is distributed by Bank Julius Baer Luxembourg S.A., authorised and regulated by the Commission de Surveillance du Secteur Financier (CSSF) 283, route d’Arlon L-1150 Luxembourg. This publication has not been authorised or reviewed by the CSSF and it is not intended to file it with the CSSF. Monaco: Bank Julius Baer (Monaco) S.A.M., an institution approved by the Minister of State for Monaco and the Bank of France, is sending to its clients this publication. Julius Baer Wealth Management (Monaco) S.A.M., an asset management company authorised in Monaco, is distributing to its clients this publication. Netherlands: Julius Baer (Netherlands) B.V., authorised and regulated by the Netherlands Authority for the Financial Markets (AFM) and authorised to (i) receive and transfer orders from clients; and (ii) provide investment advice, disseminates this publication to its clients. Bank Julius Bär Europe AG is authorised and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and authorised to provide banking and certain investment services in the Netherlands on a passported basis. This publication has been produced by Bank Julius Baer & Co., which is not authorised to provide regulated services in the Netherlands. Requirements regarding (i) the independence of investment research and (ii) the prohibition of trading prior to the announcement of financial analysis are not applicable. Panama: The relevant services and/or products mentioned in this publication shall only be provided in Panama by a Julius Baer entity authorised to provide such services/products in Panama. This publication is for the intended recipient only. Financial instruments mentioned in this publication are neither registered with nor under the supervision of the Superintendence of the Securities Market (formerly the National Securities Commission). The exemption from registration is based on Article 129 of Decree Law 1 of 8 July 1999 as amended and organised into a single text by Title II of Law 67 of 2011 (the “Securities Law”). In consequence, the tax treatment established in Articles 334 to 336 of the Securities Law does not apply to them. Republic of Ireland: Julius Baer International Limited, Ireland branch, is authorised and regulated by the Financial Conduct Authority (FCA) in the UK and regulated by the Central Bank of Ireland (CBI) for conduct of business rules. Some of the services mentioned in this publication that are available to clients of the Ireland branch may be provided by members of the Julius Baer Group based in other EU jurisdictions. Rules made by the FCA and/or CBI for the protection of retail clients do not apply to such services and the Financial Services Ombudsman will not be able to resolve complaints in respect of such services. Singapore: This publication is available from Bank Julius Baer & Co. Ltd., Singapore branch, for accredited investors only. As Bank Julius Baer & Co. Ltd., Singapore branch, has a Unit exemption under Section 100(2) of the Financial Advisers Act, Cap. 110 of Singapore (the FAA), it is exempted from many of the requirements of the FAA, amongst others, the requirement to disclose any interest in, or any interest in the acquisition or disposal of, any securities or financial instruments that may be referred to in this publication. Further details of these exemptions are available on request. This publication has not been reviewed by and is not endorsed by the Monetary Authority of Singapore (MAS). Any document or material relating to the offer or sale, or invitation for subscription or purchase, of securities or investment funds (i.e. collective investment schemes) may not be circulated or distributed, nor may such securities or investment funds be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 or 304 respectively of the
60
61
IMPORTANT LEGAL INFORMATION (10/10)
Securities and Futures Act, Cap. 289 of Singapore (the SFA), (ii) to a relevant person (which includes an accredited investor), or any person pursuant to Section 275(1A) or 305(2) respectively, and in accordance with the conditions, specified in Section 275 or 305 respectively of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. In particular, for investment funds that are not authorised or recognised by the MAS, units in such funds are not allowed to be offered to the retail public; any written material issued to persons as aforementioned in connection with an offer is not a prospectus as defined in the SFA and, accordingly, statutory liability under the SFA in relation to the content of prospectuses does not apply, and investors should consider carefully whether the investment is suitable for them. Please contact a representative of Bank Julius Baer & Co. Ltd., Singapore branch, with respect to any inquiries concerning this publication. Bank Julius Baer & Co. Ltd. is incorporated in Switzerland. Spain: Julius Baer Agencia de Valores, S.A.U. and Julius Baer Gestión S.G.I.I.C, S.A., both authorised and regulated by the Comisión Nacional del Mercado de Valores (CNMV), disseminate research to their clients. Switzerland: This publication is distributed by Bank Julius Baer & Co. Ltd., Zurich, authorised and regulated by the Swiss Financial Market Supervisory Authority (FINMA). The Bahamas: This publication has been distributed by Julius Baer Bank & Trust (Bahamas) Ltd., an entity licensed by the Central Bank of The Bahamas and also regulated by the Securities Commission of The Bahamas. This publication does not constitute a prospectus or a communication for the purposes of the Securities Industry Act, 2011 or the Securities Industry Regulations, 2012. In addition, it is only intended for persons who are designated or who are deemed “non-resident” for the purposes of Bahamian Exchange Control Regulations and rules. United Arab Emirates: This publication has not been approved or licensed by the UAE Central Bank, the UAE Securities and Commodities Authority or any other relevant authority in the UAE. It is strictly private and confidential and is being issued to a limited number of sophisticated individual and institutional investors upon their request and must not be provided to, or relied upon, by any other person. Uruguay: In the case this publication is construed as an offer, recommendation or solicitation for the sale or purchase of any securities or other financial instruments, the same are being placed relying on a private placement exemption (“oferta privada”) pursuant to Section 2 of Law No°18,627 and are not and will not be registered with the Financial Services Superintendence of the Central Bank of Uruguay to be publicly offered in Uruguay. In the case of any closed-ended or private equity funds, the relevant securities are not investment funds regulated by Uruguayan Law No.°16,774 dated September 27, 1996, as amended. If you are located in Uruguay, you confirm that you fully understand the language in which this publication and all documents referred to herein are drafted and you have no need for any document whatsoever to be provided in Spanish or any other language.
United States: NEITHER THIS PUBLICATION NOR ANY COPY THEREOF MAY BE SENT, TAKEN INTO OR DISTRIBUTED IN THE UNITED STATES OR TO ANY US PERSON.
This publication may contain information obtained from third parties, including ratings from rating agencies such as Standard & Poor’s, Moody’s, Fitch and other similar rating agencies. Reproduction and distribution of third-party content in any form is prohibited except with the prior written permission of the related third party. Third-party content providers do not guarantee the accuracy, completeness, timeliness or availability of any information, including ratings, and are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such content. Third-party content providers give no express or implied warranties, including, but not limited to, any warranties of merchantability or fitness for a particular purpose or use. Third-party content providers shall not be liable for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees or losses (including lost income or profits and opportunity costs) in connection with any use of their content, including ratings. Credit ratings are statements of opinions and are not statements of fact or recommendations to purchase, hold or sell securities. They do not address the market value of securities or the suitability of securities for investment purposes and should not be relied on as investment advice.
© Julius Baer Group, 2017