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Global Economy and Markets
John Woods
Regional Chief Investment Officer, APAC
Investment Strategy
INVESTMENT SOLUTIONS & PRODUCTS
Important Information: This report represents the views of the Investment Strategy Department of CS and has not been prepared in accordance with the legal requirements designed to promote the independence of investment research. It is not a product of the Credit Suisse Research Department even if it contains published research recommendations. CS has policies in place to manage conflicts of interest including policies relating to dealing ahead of the dissemination of investment research. These policies do not apply to the views of Investment Strategists contained in this report. Please find further important information at the end of this material. This material is not investment research or a research recommendation for regulatory purposes. Please refer to further important information at the end of this material. Hong Kong: For professional investors only. Singapore: For Accredited Investors only. This is intended for the recipients use and not for redistribution.
H1, 2017
2 February 2017
Conflict of Generations - Political uncertainty in 2016
“Brexit” “Trump” “Quitaly”
Source: Google, CNN, The Sun, Wall Street Journal
The disclaimer at the end of this material also applies to this page.
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance.
3 February 2017
Economic policy uncertainty highest since 1997
Last data point: 31.01.2017 Source: Bloomberg, Credit Suisse
The disclaimer at the end of this material also applies to this page.
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance.
0
50
100
150
200
250
300
350
'97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17
Global economic policy uncertainty with PPP adjusted GDP weights(r.h.s.)
February 2017 4
Who’s right? Policy uncertainty vs. US IG credit spreads
Last data point: 31.01.2017 Source: Bloomberg, Credit Suisse
The disclaimer at the end of this material also applies to this page.
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance.
0
50
100
150
200
250
300
350
0
100
200
300
400
500
600
700
'97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17
US Corporate BAA 10Y spread (l.h.s.) Global economic policy uncertainty with PPP adjusted GDP weights(r.h.s.)
basis points index level
5 February 2017
Complex profile: Total returns of key assets
Source: Bloomberg, Datastream, Credit Suisse
Asset class performance 2016 vs 2015, in local currency
Last data point: 31.12.2016
The disclaimer at the end of this material also applies to this page.
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance.
45%
19%
11%
10%
10%
9%
7%
5%
4%
2%
1%
-3%
-3%
-3% -16%
-20% 0% 20% 40% 60%
WTI oil
China H-shares
Japan Equities
FTSE 100
S&P 500
European Equities
Asia HY
US inflation linked
USD/CNY
Asia IG
Hedge Funds
USD/JPY
Gold
EUR/USD
GBP/USD
February 2017 6
Last data point: 30.12.2016 Source: PBBC, Credit Suisse
Flight to Safety: Asset Allocation, FY 2016
The disclaimer at the end of this material also applies to this page.
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance.
Client Preferences
South East Asia – Dec. 16 vs. Dec. 15
7 February 2017
Key Investment Views for 2017
The disclaimer at the end of this material also applies to this page.
Source: Credit Suisse
Fixed Income
• Investing in a Rising Interest Rate
Environment
• Asia USD investment grade, financials and
EM bonds
• Convertibles
Equities
• Stocks exposed to global infrastructure
investments
• China, Australia and Switzerland equities
• Global healthcare
FX
• Positive USD, JPY, GBP and NOK
• Weaker CNY and Asian currencies
• Prefer RUB, BRL, MXN and ZAR in EM
Alternative Investments
• Hedge funds – low beta strategies
• Private equity for illiquidity-tolerant investors
• Artificial Intelligence related investments
9 February 2017
Source: OECD, Bloomberg, Credit Suisse / IDC
Last data point: 30.12.2016
Note: Bloomberg consensus estimates World GDP growth 2016
Limits to Monetary Policy: Global GDP vs. Interest Rates
The disclaimer at the end of this material also applies to this page.
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance.
-1
0
1
2
3
4
5
6
7
2001 2003 2005 2007 2009 2011 2013 2015 2017
%
1M Euribor
1M USD Libor
World GDP growth
10 February 2017
Source: Bloomberg, Datastream, Credit Suisse Last data point: 07.12.2016
Fiscal Activism: OECD fiscal spending/GDP
US
Infrastructure
dividend
The disclaimer at the end of this material also applies to this page.
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance.
11 February 2017
Infrastructure needs to catch up considerably
Power
Roads
Water
Telecoms
Rail
Airports
Ports
0
10
20
30
40
50
60
70
Required Expected
Investment shortfall expected
of ~USD 20 trn
Money invested ~USD 40 trn
G20 infrastructure investment shortfalls until 2030 (USD trn)
Source: McKinsey Global Institute analysis
The disclaimer at the end of this material also applies to this page.
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance.
12 February 2017
Source: IMF, Credit Suisse
Note: 2016 figures are IMF and government estimates.
Asia infrastructure spending as % of GDP
The disclaimer at the end of this material also applies to this page.
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance.
13 February 2017
Source: The American Society of Civil Engineers as at June 2016
US Infrastructure: USD 3.4 trn funding shortfall
Funding
gap
The disclaimer at the end of this material also applies to this page.
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance.
14 February 2017
Source: Bloomberg, Datastream, Credit Suisse Last data point: 07.12.2016
Fiscal stimulus ?
Fiscal Activism: US, EU, Japan GDP
The disclaimer at the end of this material also applies to this page.
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance.
February 2017
Global macro momentum improved lately meaningfully
Source: Bloomberg, Credit Suisse / IDC Last data point: 02.02.2017
The disclaimer at the end of this material also applies to this page.
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance. 16
-0.8
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
Jun 11 Jun 12 Jun 13 Jun 14 Jun 15 Jun 16
Brazil China Germany India Japan Russia USA Others Total Macro Momentum
Index
February 2017
Inflation: Not a theme in Europe, but in the USA
Source: Datastream, Credit Suisse / IDC Last data point: 15.01.2017
Core inflation USA and Eurozone (% YoY)
The disclaimer at the end of this material also applies to this page.
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance. 17
-1.5
-1.0
-0.5
0
0.5
1.0
1.5
2.0
2.5
3.0
2004 2006 2008 2010 2012 2014 2016
USA
Eurozone
Switzerland
February 2017
Global Bonds Yields: US leading the Move Higher
Germany
Switzerland
USA
The disclaimer at the end of this material also applies to this page.
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance. 18
-1
0
1
2
3
4
5
6
2005 2007 2009 2011 2013 2015 2017
Germany Switzerland USA
10y government bond yields, %
Source: Bloomberg, Credit Suisse / IDC Last data point: 14.02.2017
February 2017
Trajectory: US Interest Rates Expectations, 2017-19
The disclaimer at the end of this material also applies to this page.
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance. 19
0.00
0.50
1.00
1.50
2.00
2.50
3.00
Feb 17 May 17 Aug 17 Nov 17 Feb 18 May 18 Aug 18 Nov 18
Fed funds futures Latest FOMC projections
%
Source: Datastream, Credit Suisse Last data point: 13.02.2017
February 2017
Source: Bloomberg, Credit Suisse / IDC
Premium: Asian USD bonds offer higher yields than US
equivalents
Last data point: 31.01.2017
Asian 5 year BBB rated bond premium over US equivalent (basis points)
The disclaimer at the end of this material also applies to this page.
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance. 20
0
100
200
300
400
500
600
700
800
Jan 07 Jan 09 Jan 11 Jan 13 Jan 15 Jan 17
Asian 5yr BBB rated bond premium over US equivalent
127 bps
73 bps
- - - 10 year average
22 February 2017
Source: Datastream, Credit Suisse / IDC
nach Update (+CH, DE, JP)
– no IDC, no update
- Quelldaten/IDC: wer?
Last data point: 25.11.2016
Foreign trade: Export dependency of the emerging economies
Share of exports in GDP (2014 or 2015, in %)
Export share commodities Export share others
The disclaimer at the end of this material also applies to this page.
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance.
23 February 2017
Fundamentals: No hard landing in China amid economic
rebalancing
Last data point: 15.11.2016 Source: Datastream, Credit Suisse / IDC
4
8
12
16
20
24
2000 2005 2010 2015
GDP
Industrial production Retail sales
Growth (% YoY, 12-month moving average)
The disclaimer at the end of this material also applies to this page.
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance.
February 2017
49
50
51
52
53
54
55
56
57
6
7
8
9
10
11
12
13
14
2009 2010 2011 2012 2013 2014 2015 2016
China GDP growth China PMI manufacturing( r.h.s.)
Fundamentals: Growing evidence of economic
stabilization...
Source: Bloomberg, Credit Suisse / IDC Last data point: 30.12.2016
The disclaimer at the end of this material also applies to this page.
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance. 24
PMI expansion
February 2017
35
40
45
50
55
60
65
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
China PPI YoY China PMI manufacturing (r.h.s.)
Fundamentals: Growing evidence of economic
stabilization...
Source: Bloomberg, PMIPremium, Credit Suisse / IDC Last data point: 15.01.2017
The disclaimer at the end of this material also applies to this page.
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance. 25
PPI reflation
February 2017
-15
-10
-5
0
5
10
15
0
5
10
15
20
25
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
China PPI YoY % (RHS)
MSCI China 12M Fwd EPS growth (LHS)
IDC
Last data point: 31.01.2017 Source: Datastream, Credit Suisse / IDC
Optimistic
Pessimistic
MSCI China 12M Fwd EPS growth vs. PPI yoy%
The disclaimer at the end of this material also applies to this page.
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance.
Valuations: Earnings expected to grow by ~15% in 2017
26
February 2017
6
8
10
12
14
16
18
20
22
24
26
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
MSCI China Index MSCI World Index
Valuations: Potential for market re-rating... 12M forward P/E – MSCI China and MSCI World Index
Source: Bloomberg, PMIPremium, Credit Suisse / IDC Last data point: 01.02.2017
MSCI China Index is trading at a
~30% discount to global equities
The disclaimer at the end of this material also applies to this page.
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance. 27
February 2017
Technicals: Liquidity to flow into H-shares
Stock connect southbound flow
China insurance overseas investments
Prefer Financials and Infrastructure sectors
Stock connect related themes
− CNY hedge
− Dividend yields
− Chinese insurers
− A-H premium
Source: Investment Strategy and Research
The disclaimer at the end of this material also applies to this page 28
February 2017
75
80
85
90
95
100
105
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
02/2014 08/2014 02/2015 08/2015 02/2016 08/2016 02/2017
USD: Increasingly supported by higher US yields Asian investors need to hedge against stronger USD risk
Source: Datastream, Credit Suisse / IDC Last data point: 10.02.2017
2-year swap spread (LHS)
(USD minus weighted DXY components)
DXY Index (RHS)
The disclaimer at the end of this material also applies to this page.
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance. 30
31 February 2017
60
70
80
90
100
110
120
130
140
2010 2011 2012 2013 2014 2015 2016
IDC
BIS CNY, EUR, JPY REER (indexed at 100 from start of
2010)
Source: Bloomberg, Credit Suisse / IDC Last data point: 31.12.2016
CNY
EUR
JPY
BIS CNY, EUR, JPY REER (indexed at 100 from start of 2010)
The disclaimer at the end of this material also applies to this page.
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance.
32 February 2017
Key Investment Views for 2017
The disclaimer at the end of this material also applies to this page.
Source: Credit Suisse
Fixed Income
• Investing in a Rising Interest Rate
Environment
• Asia USD investment grade, financials and
EM bonds
• Convertibles
Equities
• Stocks exposed to global infrastructure
investments
• China, Australia and Switzerland equities
• Global healthcare
FX
• Positive USD, JPY, GBP and NOK
• Weaker CNY and Asian currencies
• Prefer RUB, BRL, MXN and ZAR in EM
Alternative Investments
• Hedge funds – low beta strategies
• Private equity for illiquidity-tolerant investors
• Artificial Intelligence related investments
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance. The disclaimer at the end of the material also applies to this page. February 2017
CS House View (3–6-month horizon)
Summary
1 Hard & local currency.
Japan China
Australia
Switzerland
Asia USD IG Corp
Emerging markets1
Convertibles
Financials
Low beta
USD/JPY
EUR/USD
- Currencies +
- Hedge Funds +
- 0 +
- Fixed Income +
- Equities +
USD/CAD
USD/CHF
GBP/USD
USD/CNY
USD/Asia
34
Govt bonds
February 15, 2017 35 Historical performance indications and financial market scenarios are not reliable indicators of current or future performance.
FX Forecasts THB vs. Majors/Asia
Source: Bloomberg, Credit Suisse / IDC
THB
Thai authorities not keen for further THB strength: Negative vs. USD
Currency
vs THB 14.02.2017 3M* 12M*
USD/THB 35.04 36.00 37.00
EUR/THB 37.01 37.08 37.00
GBP/THB 43.72 46.80 48.10
CHF/THB 34.70 34.98 33.94
JPY/THB (x100) 30.65 34.29 37.00
NOK/THB 4.16 4.26 4.35
SEK/THB 3.92 3.94 4.02
CAD/THB 26.78 26.28 27.01
AUD/THB 26.83 26.64 27.38
NZD/THB 25.06 25.20 25.90
SGD/THB 24.65 24.83 25.00*Forecast date: 10.02.2017
THB shows temporary strength Thailand’s trade outlook improved but still at subdued levels
View summary
Last Aug, when THB was trading strongly near 34.50 to the USD, Thai authorities voiced
concerns over the negative impact on THB strength. Most recently, after leaving its overnight repo rate unchanged at 1.5% as widely expected, the Bank of Thailand resumed verbal intervention and warned that "THB strength is not good for economy". As a result of temporary weakness in the USD, the THB had strengthened from 36 to 35 across Jan. So far, Thailand's economy had a promising start for the year, with a
noticeable export rebound. However, it remains unlikely if Thailand's growth is able to rebound strongly above the 3% level. THB is likely to gradually weaken again when USD strength returns. Point forecasts for USD/THB remain at 36.00 in 3M and 37.00 in 12M.
34.4
34.6
34.8
35.0
35.2
35.4
35.6
35.8
36.0
36.2
Feb 16 Apr 16 Jun 16 Aug 16 Oct 16 Dec 16
USD/THB
USD/THB
Last data point: 14.02.2017 Source: Bloomberg, Credit Suisse / IDC
-40
-20
0
20
40
60
80
Feb 05 Feb 07 Feb 09 Feb 11 Feb 13 Feb 15
Exports Imports
3M MA, % YoY
Last data point: 31.12.2016 Source: Bloomberg, Credit Suisse / IDC
36 February 2017
Important Information This material has been prepared by Credit Suisse AG (“Credit Suisse”) as general information only. This document is not and does not purport to provide substantive research or analysis and, accordingly, is not investment research or a research recommendation for regulatory purposes. It does not take into account the financial objectives, situation or needs of any persons, which are necessary considerations before making any investment decision. The information provided is not intended to provide a sufficient basis on which to make an investment decision and is not a personal recommendation or investment advice. Credit Suisse makes no representation as to the suitability of the products or services specified in this document for any particular investor. It does not constitute an invitation or an offer to the public to subscribe for or purchase any of the products or services specified in this document. The only legally binding terms are to be found in the applicable product documentation or specific contracts and confirmations prepared by Credit Suisse. In connection with the products specified in this material, Credit Suisse or its affiliated entities may: (1) Have had a previous role in arranging or providing financing to the subject entities; (2) Be a counterparty in any subsequent transaction in connection with the subject entities; or (3) Pay, or may have paid, or receive, or may have received, one-time or recurring remuneration from the entities specified in this document, as part of its compensation. These payments may be paid to or received from affiliated entities or third parties. Credit Suisse or its affiliated entities, officers, directors and employees may be, or may have been, involved in other transactions with the subject entities specified in this document or other parties specified in this document which are not disclosed in this document. Credit Suisse, and on behalf of each of its affiliated entities, reserves the right to, provide and continue to provide services, and deal and continue to deal with the subject entities of the products specified in this document or other parties in connection with any product specified in this document. Credit Suisse or its affiliated entities may also hold, or may be holding, trading positions in the share capital of any of the subject entities specified in this material. A Credit Suisse Group company may have acted upon the information and analysis contained in this material before being made available to the recipient. A Credit Suisse Group company 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, or have a position or effect transactions in the securities or options thereof. To the fullest extent permitted by law, Credit Suisse, its directors, employees, affiliates and consultants do not accept any liability arising for an error or omission in this document or for any resulting loss or damage suffered by the recipient of this document or any other person. None of Credit Suisse, its directors, officers, employees or advisers makes any warranty or representation as to the accuracy of the information set out in this document. The information contained in this document has been provided as a general market commentary only and does not constitute any form of regulated financial advice, legal, tax or other regulated service. Observations and views contained in this document may be different from, or inconsistent with, the observations and views of Credit Suisse Research analysts, other divisions or the proprietary positions of Credit Suisse. Credit Suisse is under no obligation to update, notify or provide any additional information to any person if Credit Suisse becomes aware of any inaccuracy, incompleteness or change in the information contained in the document. To the extent that this document contains statements about future performance, such statements are forward looking and subject to a number of risks and uncertainties. Past performance is not a reliable indicator of future performance. This material is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of, or is located in, any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation, or which would subject Credit Suisse and/or its subsidiaries or affiliates to any registration or licensing requirement within such jurisdiction. Materials have been furnished to the recipient and should not be redistributed without the express written consent of Credit Suisse. For further information, please contact your Relationship Manager.
37 February 2017
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