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| Mensuel : | Edition de avril 2010 |
| Rubrique : | Finance/Economie |
| Titre : | Une nouvelle revue des marchés |
| Article : | Daniel Van Hove, administrateur délégué de Bellatrix Investments, a accepté de faire bénéficier Agefi de l'excellente Revue des Marchés (Bellatrix Market Outlook) mensuelle de Bellatrix, en anglais: ceci permettra à nos lecteurs de saisir les tendances des marchés. Tous nos remerciements à Daniel Van Hove. (Ndlr.)
Equity Markets U.S. equities continued to rally with the S&P500 index rising +4.9% in Q1-10, the biggest advance to start a year since 1998. They have just recorded their highest close in 18 months with the S&P500 and the Dow Jones Industrial Average (DJIA) indexes almost touching their respective psychological levels of 1,200 and 11,000. The S&P500 index’s rebound from its 12-year low of 9 March 2009 reached +74% on 5 April 2010. After a reported annual rate of 2.2% in Q3-09 and 5.6% (third estimate) in Q4-09, the U.S. real GDP is expected to have grown by 2.8% in Q1-10 (median Bloomberg estimate from 83 economists). This is contrasting with the deep recession recorded in the preceding 18 months. The March 2010 employment data released in early April (+162,000, the most since March 2007 even if this figure includes 48,000 temporary workers hired by the U.S. government to conduct the census) also confirm a turning point for the U.S. labour market that will help broaden the U.S. economy. As Timothy Geithner, U.S. Treasury Secretary said: “It is a good and solid report. We have made a lot of progress. We’ve got some work to do still, and it is going to take some time to heal the damage”. For the market to stay at these levels or move higher, investors are going to need to see continuing evidence the world economy is gaining momentum and continuing to improve. And this seems to gradually be the case. Indeed, this good news on U.S. employment comes at a time when several manufacturing survey evidences around the world leave investors with assurance that government and central bank policies have worked their way through recovery. The factory index of the U.S. Institute for Supply Management (ISM) is up at 59.6 in March against 56.5 in February. Orders and production are rising at faster rates, and exports are accelerating. The U.S. consumer confidence index is also up at 52.5 in March from 46.4 in February. This pattern is also clearly noticeable in most countries (China, Japan, Brazil, and even the Euro zone) as explained below. Even service industries expanded in March at a fast pace. The ISM’s index of non-manufacturing businesses that make up almost 90% of the U.S. economy rose to 55.4 from 53 in the prior month, according to Bloomberg News. The mood is increasingly optimistic as evidenced by the VIX volatility index which has continued to fall recently. The S&P500 index is expected to reach 1,243 in average for 13 investment strategists having contributed to a recent Bloomberg survey. Birinyi Associates Inc. foresees the index at the level of 1,325 by the end of 2010 with expected rallies in major stocks such as GE, Citigroup, and Microsoft. Silvercrest Asset Management anticipates at least a 15% appreciation over the 12 months. “It won’t be a very strong upturn, but things are getting better”. Earnings of S&P500 companies are expected to increase by 30% in Q1-10 and it is very likely that analysts once again will be surprised by the better performance of many large companies. For the entire year 2010, earnings of S&P500 companies could even surge 50% to a record USD 93.86 a share. Manufacturing numbers will be pretty strong both in terms of surprises in operating leverage and overall cost control. If we have any kind of resilience in sales line, we are going to see better-than-expected corporate earnings. Among the sectors expected to perform, it looks like energy, materials, and information technology which have not delivered a strong performance in Q1-10 (compared to industrials, consumer discretionary and financials) will do so in Q2-10. In terms of style, while value stocks have systematically better performed than growth stocks in the recent years, we expect this to continue, but selected growth stocks could potentially surprise investors in the coming quarters. The S&P500 is valued at 15.2 times projected 2010 earnings of its companies, and 12.7 times 2011 profits, Bloomberg data show. This compares with an average ratio of 20.6 times reported earnings since 1991. Another factor supporting the market is the level of cash available in some companies which could trigger a renewed surge of stock buyback programs. According to Mizuho Financial, quoted on Bloomberg.com, the ratio of buybacks to operating profits dropped to 28% in 2009. The last time the ratio dropped to that level, the S&P500 index subsequently climbed for 4 years. It is expected that U.S. firms will almost double their spending on stock repurchases to USD 235 billion in 2010 as earnings surge. Canadian equities reached an 18-month high with energy and metal producers gaining on signs of faster economic growth. According to Bloomberg News, the S&P/TSX Composite index has gained 9.5% since its low of 29 January 2010. We think energy and metal producers such as Suncor Energy Ltd, Canadian Natural Resources Ltd, Tech Resources Ltd, Barrick Gold Corp, and Inmet Mining Corp will continue to be well supported by higher crude oil and metal prices and should not disappoint investors. European equities also benefited from better than expected manufacturing data. Eurozone manufacturing grew at its fastest pace in March for more than 3 years. In Germany manufacturing expanded the most in 14 years. Likewise, in Switzerland, the PMI came out notably robust with activity jumping in March to the highest in more than 3 years. Even in the U.K. manufacturing rose to a 15-year high. Equities advanced for a fifth straight week, the longest stretch of gains in almost a year. According to Bloomberg News, the Stoxx Europe 600 index at 267.62 was up for the fifth straight quarter. It is up 69% since March 2009. Even the FTSE 100 index reached a 21-month peak. Mining stocks were recently bolstered by broad gains for metal prices. We foresee a further price appreciation of stocks like BHP Billiton Ltd, Rio Tinto Group, Xstrata Plc, and Antofagasta Plc. The strength of the European economic recovery is seemingly under-estimated, and some analysts expect positive dynamics to be still under way, while it is still too early to be euphoric. Positives have nevertheless moved to the foreground. Many stocks all over Europe are starting to rise based on good corporate earnings (UBS, Bank of Ireland, Vodafone, Ryanair Holdings, BMW, Clariant, Cie Financière Richmont, etc.. just to name a few which have recently announced operating margin improvements or new potential merger and acquisition deals. The DAX index erased its decline following the bankruptcy of Lehman Brothers in September 2008. And other local indices will follow in all likelihood. Japanese equities have recently exhibited a strong momentum. The Nikkei 225 is now at 11,244.40. The index has gained 7.8% so far in 2010 against only 5.2% for the S&P500 and 3.9% for the Dow Jones Stoxx 600, for instance. The market is essentially propelled by the weakness of the JPY, but also the government efforts to prop up the economy. Since it reached a low of 7,054.98 on 10 March 2009, the index has risen 59%. Business sentiment has also risen to the highest since 2008. The most recent quarterly Tankan survey showed sentiment at big manufacturers reaching its highest level since September 2008. Analysts remain in general positive although the advance has been recently a bit too strong with technical indicators starting to exhibit some overheating conditions and market valuation far from being attractive with a P/E for the Nikkei of 39.8 times expected earnings for 2010. Emerging markets will probably continue to surprise positively after the relative pause recorded since the beginning of the year caused by some monetary measures implemented in particular in China and India aimed at avoiding a possible economic overheating environment. GRAPHIQUE VOIR JOURNAL Brazilian equities are recovering very nicely after their 11% decline following a peak level reached on 6 January 2010. The Bovespa stock index recently climbed to its highest level in 21 months but is still trading at a relatively attractive P/E of 13.7 times 2010 estimated earnings. Latest economic data are strong. Industrial outputs expanded in February at their fastest pace in 4 months. Interest rates are expected to rise as inflation is moving upward (currently at 4.83% versus a 4.5% central bank target). The Selic rate could increase on 28 April from 8.75% (a record low maintained over five straight meetings) to 9.25% and possibly later at 9.50% if GDP forecasts continue to improve. The $1.6 trillion economy should grow by 5.5% in 2010 with Goldman Sachs and the Brazilian government even forecasting 6.4% and 5.8% respectively. Brazilian companies are very much dependent on world industrial activity which is seen as rising in many countries, and not only rising but intensifying. Industrial groups such as Gerdau, Usiminas, Cia. Siderurgica Nacional SA, Vale SA, Petrobras, Duratex will benefit from these developments. Financial institutions such as Banco Santander Brazil, Banco Bradesco, Itau Unibanco Holding SA, and Banca ABC Brazil are also expected to perform well as they are currently taking advantage of declining yields to finance lending as growth picks up. Brazilian lenders have issued USD 6.3 billion of bonds during Q1-10. Russian equities have continued to rise substantially in spite of the deadliest terrorist attack on Moscow since 2004. The RTS index has recently recorded steepest gains among 93 benchmark equity indexes, as indicated by Bloomberg.com. The economic recovery is on its way as evidenced by the 5.5% GDP forecast made by the World Bank for 2010. Corporate earnings growth is also expected to reach 65% in 2010 versus an average of 30% in 22 MSCI Emerging Market countries. The RTS index which reached 1,608.39 on 2 April 2010 is still valued at 8.5 times 2010 earnings. For some analysts though, the economic recovery will still be quite slow and gradual. Indian equities should start performing well now that the expected interest rate hike has materialized. Some analysts are foreseeing a rebound of about 20% over the coming 12 months. Record spending on roads, power plants, ports will provide a nice tailwind for equipment makers of docks, cranes and wharves. Companies like Bharat Heavy Electricals, ABB Ltd, Siemens India Ltd will benefit from a government plan to double spending to $1 trillion in 5 years to March 2017. Chinese equities have not performed well during Q1-10 as shown by the Shanghai Composite index which lost 5.1%, the most among the world’s biggest stock markets. The Hang Seng China Enterprises index (Hong Kong listed stocks) lost 3.1% as well. But it is increasingly perceived that the Chinese authorities will not drastically tighten monetary policy and do not want to “kill the market”. They just want to normalise what were very loose conditions, according to Frederick Jiang of Waddell & Reed Financial Inc. Currently at 2.7%, inflation has increased at its fastest pace in 16 months as food and industrial product have surged in prices. It is therefore anticipated that interest rates will be raised at the end of April 2010, and “investors are waiting for this shoe to drop”, then Chinese stocks will rebound. Manufacturing grew for a 13th month. The PMI for China rose to 55.1 in March against 52 in the prior month. That helped driving a strong advance for commodity prices as investors took the view that demand from China would continue to provide the key driver for global growth. A separate China manufacturing PMI index released by HSBC Holdings Plc and Markit Economics show a similar development. Rather than waiting for the end of the month, it makes probably good sense to start buying Chinese companies and particularly Chinese banking stocks which are considered as really cheap and reflecting “overblown” concerns of widespread asset bubbles in property market and local government debt. Consumer stocks are also interesting to invest in, but this theme is a decade-long story linked to the willingness of the government to promote the development of the Chinese middle class and the acceleration of urbanization projects. Other emerging markets such as Philippines, Indonesia, Mexico, Chile and Argentina should perform nicely as well. Some stock markets in countries like Nigeria, Hungary, Ukraine, Estonia have exhibited a strong upturn in Q1-10 and, according to Mark Mobius of Templeton, this trend is certainly not over. Fixed-income markets U.S. Treasuries yields are pursuing their recent advance. On 5 April 2010, the 10-year benchmark yield touched for the first time since 11 June 2009 the level of 4% as reports on employment, manufacturing and service industries activity added signs the U.S. economic recovery is gaining traction. According to Bloomberg.com, bond dealers forecast the 10-year note yield will climb to 4.2% at the end of 2010, the highest since October 2008. That is certainly going to impact mortgage rates as well as borrowing rates, especially in a context in which the Fed has actually begun to ease supports of this market. The market is also starting to react to growing fiscal deficits. About $118 billion note and bond auctions are scheduled in the second week of April 2010 but issue supply such as the $8 billion of 10-year Treasury Inflation-Protected Securities (TIPS) and the $40 billion of 3-year securities should meet adequate demand. The $21 billion in 10-year and $13 billion in 30-year papers may begin to dampen investor interests. Corporate bonds in the U.S. seemingly still offer opportunities for additional gains even as economic growth may be hampered by the withdrawal of stimulus programs. They have rallied for the 4th straight quarter in Q1-10, the longest streak since 2004, as 72% of companies beat analysts’ earnings expectations. An improving global economy, recent gains in U.S. consumer confidence, and a decline in corporate defaults from record levels have helped companies to issue bonds up to $730 billion in Q1-10, a 25% increase from Q4-09. Some fixed-income fund managers continue to find good value in corporate bonds in selected areas such as banking (as shown with the recent issuances for International Lease Finance Corp, Citigroup, Lyondell). Junk bonds also remain apparently attractive. They have generated 60.6% in return in 2009 and 5.6% in Q1-10. According to Moody’s, the percentage of speculative-grade companies defaulting will continue to come down over the remaining part of 2010. Of course, let’s not forget the big picture. As Bill Gross of PIMCO recently indicated the 3-decade bull market in bonds is reaching an end, and we are most likely witnessing at this very moment such historical turning point. In the euro zone, the 10-year German bund continued to perform well. It was close to its lowest yield in 2010 as the EU’s recent rescue plan failed to quell concern Greece will struggle to cut its budget deficit. Bund paper remains supported by safe-haven flows, and there is, according to Bloomberg News, a nagging sense that there is more trouble to come. As shown in the table below, the yield on 10-year bund finished the quarter at 3.092% coming from 3.387% at the end of 2009. It is striking to see that during the same period U.S. Treasury bond yield moved up considerably. The gap is now close to 86bp. This can only be explained indeed by safe-haven cautiousness from European institutional investors. It is interesting to see how spreads versus 10-year bund have moved over the last 27 months. Except for Ireland, all spreads have continued to widen. The 10-year Greek bond is now offering 3.44% more than the 10-year bund, i.e. 6 times more than the 58bp average spread recorded over the last 10 years. A sensible spread widening is also seen in the cases of Spain and Portugal. The ECB will most probably leave its main refinancing rate at a record low for a 12th month. The Council is expected to keep the rate at 1% on 8 April 2010 according to all 58 economists included in the Bloomberg survey. Furthermore, policy makers will opt for an extension of emergency regulations beyond 2010, boosting the likelihood that the Greek debt would remain eligible for refinancing operations. GRAPHIQUE VOIR JOURNAL Commodity markets Crude oil prices briefly broke recently above $85 a barrel to hip an 18-month peak. While stockpiles have continued to increase and are now 6.5% above the 5-year average, it appears from some experts that there is a very good chance to see a further rise to $95, $100 and possibly $110 by the end of June 2010. Gold, currently at $1,125.28 an ounce, has recorded quarterly increase of +8.8% since the end of 2008 and these higher quarterly closes provide evidence that the momentum and the medium/long-term trend remain upward. Silver, platinum and palladium are currently at their highest prices since 2008, in line with signs of strength noticed throughout the world economy. Foreign exchange markets The USD touched its strongest level against the JPY in more than 7 months as labor market is showing signs of recovery. A strong job report is often associated to a strong USD against most currencies. This is currently the case with 13 of its 16 most-traded counterparts. It is interesting to note that the People’s Bank of China recently indicated that the USD will have only a limited rebound in 2010 because of the nation’s high fiscal deficit and low interest rate. For others, the USD is actually cheap as it is trading below fair-value models. U.S. labor costs are relatively cheaper compared to Europe, or maybe Japan or the UK, or even Switzerland. In addition the probability of a rate hike of 0.25% in November has increased from 45% to 60%, and this could continue to support the USD. It is also expected that China will make some sort of Yuan policy change at or before the end of the Bilateral Strategic and Economic Dialogue Meeting in late May 2010. The authorities want to move over time to a more flexible exchange rate but do not wish receiving any lesson from the rest of the world. We continue to be very positive for the Brazilian Real which after a 33% appreciation in 2009 and a slight 1.1% downward correction in Q1-10 could come back to last year’s high of 1.70 against the USD. We expect a relatively stable EUR/USD exchange rate over the months to come. Conclusions In summary, although the decline in global monetary aggregates remains puzzling, further advances for the majority of equity indices throughout the world seem plausible in the coming months. In this context, we tend to favour value stocks, high-dividend stocks and emerging market stocks in general. We would recommend to remain temporarily cautious in investing in bonds in general while we continue to see value in some corporate bonds, convertible securities, and emerging market debt. Daniel Van Hove, CFA Managing Director Bellatrix Investments S.A. http://www.bellatrix-investments.com DISCLAIMER: This document released on 6 April 2010 was prepared by Bellatrix Investments S.A.. Many data and comments came from Bloomberg News. Its purpose is to provide a relatively synthetic and analytical perception about the recent macro-economic and financial market developments. All the forecasts and statements should be treated as unbinding opinion. Bellatrix Investments S.A. or its members shall not be held accountable for any inaccuracy of those sources used or for any failure of opinion to prove accurate. There may be instances of information reproduction from certain sources, but in these cases we take all precautions to mention the name of the writer or related websites. Bellatrix Investments S.A. does not receive any compensation for mentioning any name, brand or investment funds in this document. Any investment decision should be made after obtaining a specific professional advice. |
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