2013 Capital Markets Outlook
June 16, 2017 | Author: Charity Shelton | Category: N/A
Short Description
1 Transaction Services 213 Capital Markets Outlook Michael Lavelle, Head of EMEA Capital Markets, Citi2 Table of Content...
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Transaction Services
2013 Capital Markets Outlook Michael Lavelle, Head of EMEA Capital Markets, Citi
Table of Contents
1. What are Citi’s Equity Strategists Saying? 2. What are Citi’s Debt Strategists Saying? 3. What has Happened to Issuance?
1. What are Citi’s Equity Strategists Saying?
Equity Market Outlook
● Macro — de-leveraging, lower growth, 0% & QE to continue ● Market — stay bullish in 2013-14, but reduce risk near-term ● Earnings — analysts on 10%+, strategists on 5% (2013E) ● Valuation — re-rated but never cheaper ● Risk appetite — cult of the bond, rising risk appetites in 2013E ● Themes — Champs, Growth, Income/De-eq, Restructuring ● Risks — Politics, Social Unrest, Re-rating/Re-leveraging
4
Record Low Funding, Discuss… Record low cost of debt funding for corporates; what do CEOs/CFOs do in 2013 (and asset allocators)?
10 IBOXX Euro BBB - Bond Yield Pan European Equities - Dividend YIeld 8
6
4
2
0 99
00
Source: Datastream & Citi Research 5
01
02
03
04
05
06
07
08
09
10
11
12
Market — Risk On in 2012, Further Gains in 2013 Policy actions reduced tail risks in 2012 to drive strong gains for risk assets; stay bullish for next 1-2 years
25
20
15
10
5
0
Source: Datastream 6
Ca sh US
od itie s Co mm
s Bo nd Go v
pA Co r US
S& P
uit ies Eq De v
Eq uit ies EM
eld Yi Hi gh
St ox
x
-5
Earnings — Modest Downgrades Still Ahead Hard to see big upgrades unless economic growth picks up sharply; downgrades to end in mid-13?
40
65
30
60
20 55 10 50
0
-10
45
-20 40 -30 US ISM Index - 6mth Lead (LHS)
35
European PMI - 6 Mth Lead (LHS) -40
12m Fwd Earn - YoY Growth % (RHS) 30 Nov-88
Nov-90
Source: Datastream & Citi Research 7
Nov-92
Nov-94
Nov-96
Nov-98
Nov-00
Nov-02
Nov-04
Nov-06
Nov-08
Nov-10
-50 Nov-12
Investor Flows — Cult of the Bond Bonds never so popular vs equities never so unpopular…we expect flow to return to equities in 2013
1,200
1,000
800
600
400
200
-
(200) 5-Year Rolling Annual Equity Net Inflows (US$bn) (400)
5-Year Rolling Annual Bond Net Inflows (US$bn)
(600) 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: ICI 8
2. What are Citi’s Debt Strategists Saying?
Tightening in the face of fundamentals Increasing leverage; falling spreads
Recession no longer priced in
European net debt to EBITDA* vs iBoxx € IG non-fin. Spread (bp)
iBoxx € non-fins. vs Eurozone eco. sentiment indicator, 2000-12
2.5x 2.2x
300 Leverage
IG spread
iBoxx 300
2
y = 0.11x - 25.0x + 1538 2 R = 0.74
250 250
200 1.9x 150
200
2012
150
1.6x 100 1.3x
50
1.0x
0 01
03
06
09
11
Source: Citi Research, Bloomberg, Markit. *: Based on a sample of 290 nonfinancial corporates in the EuroStoxx 600 index.
Current
100 50
Eco. sentiment
0 65
80
95
Source: Citi Research, Markit, Haver Analytics
How long can we go on defying reality? 10
110
125
How to ignore the macro backdrop Recession not reflected in HY defaults
Still upside if defaults stay low?
European HY default rate vs EuroCOIN GDP indicator
European HY default rate vs iTraxx Crossover spread (bp)
European HY EuroCOIN default rate GDP indicator
18% 15%
-1.5 -1.0
European HY default rate
12%
iTraxx Crossover
1200 1000
9%
12% -0.5 9%
800 6%
0.0
600
6% 0.5
3%
1.0
0% 99
02
05
Source: Citi Research, Moody’s, Haver Analytics
08
11
3%
400
0%
200 04
07
10
Source: Citi Research, Moody’s, Markit
Take comfort in the low level of defaults! 11
13
But why are defaults so low? Refinancing has been pushed out
Interest expense remains very low
European lev. loan & HY bond maturity profile, € bn
Interest expense, % of EBITDA*
40 35
Bonds Loans
22% 20%
30
18%
25
16%
20 14%
15
12%
10 5
10%
0
8% 2013 2014 2015 2016 2017 2018 2019
Source: Citi Research, S&P LCD Report Q2 2012, Markit
07
08
10
11
12
Source: Citi Research, Bloomberg. *: Based on a sample of 150 European non-financials (mostly IG) in the EuroStoxx 600 index
A rolled loan gathers no loss 12
09
Investment in decline Profits no longer invested in the business
“Corporate margin improvement”
Borrowing and use of capital, US non-fin corp, % profits, 5y avg
Margins vs sales/assets
120
Investment
'95
13%
Asia ex Japan
100
'10
'10
11% EU + US
80
'95
Capital returned
60
9%
7% 40
'10
5%
20
Japan
Borrowing
0
'95 3%
60
70
80
90
Source: Federal Reserve Flow of Funds, Haver Analytics.
00
10
0.6
0.7
0.8
0.9
Source: Citi Research. See Margins Migrate West, Sales Migrate East, H. Tevfik & R. Buckland, Mar 2012. See also Asset-light over capex-heavy, A. Cattley, Apr 2012.
Cash is being returned to shareholders at a record rate 13
1
Meanwhile, the political balancing act continues Policy inconsistencies are obvious
Systemic risks linger
Key policy questions for 2013
Rating transitions, 2011-2012
● Austerity vs. growth
1 AAA
● Direct ESM bank recaps?
MDY S&P Fitch
AA-4
● SSM – how fast, how comprehensive? A- 7
● Greek OSI? ● OMT purchases ● OMT pari passu vs ‘no monetary financing’ ● Growth assumptions in Spanish budget ● Regional fracturing
Source: Citi Research
10 BBB13 BB16
Jan '11 Now Spain
Jan '11 Now Italy
Source: Citi Research
Any missteps prone to cause a fall in markets 14
As voter patience runs thin … People want growth!
Austerity doesn’t get you re-elected
2011 growth vs “trust in government” polls
Incumbent approval ratings, %
10%
80 China Argentina
India
Indonesia
Hong Kong
Russia
4% 2% 0%
Kenny
60
6%
Singapore S. Korea Malaysia Poland Sweden Mexico UAE Brazil Canada Germany Australia U.S. France Spain Netherlands Italy U.K. Ireland
-2% 20%
30%
40%
Source:Edelman Trust Barometer, Haver Analytics.
50%
60%
70%
80%
40 30
Sarkozy Samaras
Zapatero
20
0 Jun-09
Cowen
Jun-10
Socrates
Jun-11
Source: Citi Research, national press, polling agencies
… political room to manoeuvre dwindles 15
Hollande
Berlusconi
10
Japan 10%
50
Monti
Papandreou
70
8%
Papademos
Rajoy Coelho
Jun-12
From QE to asset prices – the “demand effect” The lower the yield, the more we crave it…
… in Europe and in the US
Net US mutual fund inflows, annual, $bn
US weekly mutual fund inflows into corp. credit ($ bn) vs reported inflows among € investors in Citi’s credit survey
120
7 HY IG
100
1.2
6
Govt
80
3.0
Avg corp yield
5
Europe 2.0
0.8
1.0
0.4
60 4 40 3 20 2
0 -20
1
-40
0
0.0
0.0 US
-1.0 2008
2009
2010
Source: ICI, Haver Analytics. “Govt” excludes MBS.
2011
-0.4 06
07
08
09
2012YTD Source: Citi Research, EPFR
Money being forced into risky assets 16
10
11
12
From QE to asset prices – the “supply effect” CBs constraining supply of new securities
€ credit market is still shrinking
Net iss. of new securities vs CB* interventions, 12m rolling, $ tr
Outstanding in € IG corp. credit, € tr
5
3.0
Fin. bonds
4
2.5
3
Shares
Net
2 1
Non-fin bonds
2.0
Govt.
1.5
Non-financials Financials
0 1.0
-1 -2
0.5 CB interventions
-3 06
08
10
Source: Citi Research, Haver. *: Federal Reserve & ECB
12
0.0 1999
2002
2005
2008
Source: Citi Research, Dealogic. For more details see More bonds, please, J. Faith, 2 Jan 2013.
Central banks shrinking the investible universe 17
2011
Hey presto! QE is still propping up US markets
CB liquidity propping up global markets
Fed’s holdings of securities (5yr+ maturity) vs S&P 500
MSCI World vs CB liquidity injections ($bn), 3m chg.
2500
1500
1200
40% CB liquidity
Fed security holdings (5yr+)
2000
MSCI Global 30%
1300
800 20%
1500 1100
400
10%
1000 S&P 500
0% 900
500
+37%
+10% +15% -3% -11%
-10%
0
700 09
Source: Citi Research, Haver
10
0
11
12
13
-400
-20% 09
10
11
13
Source: Citi Research, Haver. Note: Global liquidity captures the sum of Fed, ECB, BoJ and BoE asset purchase schemes and the LTROs for the ECB
Artificially boosted asset prices 18
12
Yields to Grind Tighter Still Modest tightening on more stimulus… Citi Credit modal forecasts for 2013
Current
Total return
iBoxx € Corp
145bp
125bp
2.5%
iBoxx € HY
480bp
415bp
5.0%
iTraxx Main
103bp
105bp
iTraxx Xover
424bp
430bp
Source: Citi Research
19
End-'13F
3. What Has Happened To Issuance?
What to Expect in the Corporate Bond Market in 2013 Key Issuance Themes for 2013
Corporate Bond Yields Remain Near All-Time Lows 17
15
13
Yield (%)
11
9
7
5
3
1 2003
2005
2007
2009
2011
iBoxx € Non-Financials AA iBoxx € Non-Financials A iBoxx € Non-Financials BBB iBoxx € High Yield Non-Financials BB Source: Markit as of 11 March 2013
21
2013
DCM Corporate, FIG and SAS Issuance 2012 IGD European Corporate Bond Issuance 70
55 45
43 37
40
37
35 30
30
30
28 19
20
Total 2012: ~€500bn equiv.
92
90
13
10
Issuance EURbn equivalent
Issuance EURbn equivalent
100
Total 2012: ~€380bn equiv.
60 50
2012 European FIG Bond Issuance
10
75
80
Covered Bonds
73
Sub/Senior
Other*
70 60
50
49
50 40 26
30
25
29
30
30
29
15
20 10
0
123 Issuance EURbn equivalent
93 75
80
68 61
60
Dec12
Nov12
Oct-12
Sep12
Aug12
Jul-12
Jun-12
May12
Apr-12
Mar-12
•
As in 2012, Euro corporate issuance is likely to remain relatively strong with a slight decline forecasted in 2013 to €185bn
•
Citi’s forecast is for Corporate US$ Yankee bond volumes to increase by 10% to $218bn in 2013
•
Niche and local currently funding is also expected to grow, as issuers may increasingly look to fund projects locally in order to minimize the costs of cross currency swaps
•
FIG forecast volumes for 2013 are €480m across the spectrum of security types
•
SAS issuance in 2013 is likely to stay approximately in line with 2012 levels of roughly €690bn equivalent
51
50
48
Feb-12
In 2012, the corporate market saw the highest overall volume for Euro and Sterling gross issuance since the record in 2009
Total 2012: ~€690bn equiv.
120 100
•
Corporates
140
FIG
Forecast Issuance for 2013
SAS
2012 IGD SAS Bond Issuance
Jan-12
Dec-12
Nov-12
Oct-12
Sep-12
Aug-12
Jul-12
Jun-12
May-12
Apr-12
Mar-12
Feb-12
Jan-12
0
43 34
40
33
20
10
Note: SAS Bond Issuance excludes US Agencies *Other includes ABS, RMBS, Money Market, Short Term debt, Non-US Agency Source: Dealogic , Citi Research
Dec12
Nov12
Oct12
Sep12
Aug12
Jul-12
Jun12
May12
Apr12
Mar12
Feb12
Jan12
0
EMEA Loan Volumes 2012 After the pressures of late 2010 and 2011 a degree of stabilisation occurred in 2012 amongst European banks with capital, asset and dollar funding strains easing. EMEA Volumes (2007 – 2012) Western Europe
(bn) $2,500
2,797
CEEMEA
Other 13%
3,000
2,664 2,406
2,500 2,000
$1,472
$422
$1,080
$263
$1,354
$1,051
$786
$966
1,500
$287 $933
$294
$1,758
$500
$1,229
$222
1,000
$712
500
$1,067
$0
Telecoms 6%
2008
2009
2010
2011
Industrials 7% Construction 7%
2012
GCP/Refinancing Volumes and Maturities by Year1
Consumer 8%
M&M 7%
Food & Beverage 7%
Volume ($m)
1
UK
142,747
2
Germany
110,092
3
France
93,004
4
Switzerland
66,365
5
Spain
56,501
6
Russia
52,407
7
Netherlands
41,788
8
Italy
39,197
9
Belgium
28,731
10
Turkey
23,898
Market Outlook for 2013
Volume in US$bn 900
• Despite ongoing macroeconomic uncertainty in the Eurozone we expect refinancing to pick up in 2013
800
• Event driven volumes are recovering but remain subdued compared to the peaks of 2007 and 2008
700 600 500
• Broadly pricing has stabilised and even softened for GIIPS. Overall, Basel III pressure means banks will be challenged on non-investment grade and longer tenor deals
400 300 200
• Banks are focussed on conserving capital in the face of a changing regulatory environment resulting in continued rationalisation of credit
100 0 2007
2008
2009
2010
2011 Signed
2012
2013
2014
2015
Maturing
Source: Dealogic Note1: Does not take into account deals refinanced / taken out early
23
Utilities 9%
Transport 7%
0
2007 Source: Dealogic
Country
Oil & Gas 9%
Healthcare 4%
1,950
Top 10 Country Volumes (2012)
Finance 13%
Chemicals 3%
2,381
$369
$1,500 $1,000
Number of Deals
2,651
$2,127
$2,000
Industry Split (2012)
2016
2017
2018
• The secondary market remains well bid due to a lack of primary issuance. The hunt for yield has pushed buyers towards second tier banks and in to emerging markets
Current & Historical Yield Environment Historical High Yield Secondary Trading Levels (Yield to Worst %) CCC Index 20-Yr. Avg: Current: High: Low:
35%
14.58% 9.16% 29.49% 8.99%
B Index 20-Yr. Avg: Current: High: Low:
10.07% 5.69% 20.93% 5.57%
BB Index 20-Yr. Avg: Current: High: Low:
8.13% 4.37% 14.61% 4.22%
30%
25%
20%
15%
10%
5%
0% 1992
1993
1994
1995
1996
1997
1998
1999
Yield to Worst, All BB Rated
Source: Citi Yield Book 24
2000
2001
2002
2003
2004
Yield to Worst, All B Rated
2005
2006
2007
2008
2009
Yield to Worst, All CCC Rated
2010
2011
2012
2013
25
$3.1
1996
20
Source: Citi, LCD Note: Volumes include European companies issuing in the US Dollar market
2013
$26.6
$79.3
(USD equivalent, split by currency)
2012
$67.6
$66.1
70
2011
$41.1
80
2010
2009
2008 $0.0
$26.4
$38.6
Non $ Denominated
2007
$21.3
50
2006
2005
$24.8
$17.3
40
2004
$4.1
$6.7
$13.5
Mar-13
Feb-13
Jan-13
Dec-12
Nov-12
Oct-12
Sep-12
Aug-12
Jul-12
Jun-12
May-12
$ 1.3
$ 3.7
$ 3.7
$ 2.9
$ 3.1
$ 1.3
3
2003
2002
2001
2000
$17.7
1999
30
$15.6
$ 3.3
6
1998
60 Apr-12
Mar-12
Feb-12
$ 7.2
$ 8.0
$ 12.3
$ 13.8
$ 11.5
$ 10.7
$ 12.5
$ 10.4
12
$6.2
$3.3
1995
Jan-12
15
1997
$1.0
0 1994
10 $0.5
US Dollars in billions 9
1993
US Dollars in billions
2012 & Historical High Yield Issuance 2012 European Market High Yield Issuance
(USD equivalent)
0
Historical European Market High Yield Issuance
Dollar Denominated
EMEA Equity Issuance Evolution In the first half of 2012, EMEA equity issuance was driven by follow-ons. Since H2 2012, we have seen a resurgence of IPOs and converts with FIG leading the issuances as the positive sentiment returns to the equity markets. Others 17%
Others Consumer 10% 4% Metals & Mining 4%
FIG 28%
Consumer 9% Metals & Mining 5% Industrials 10%
Telecom 10% IT 9%
14.0
49
IT 2% Energy 9%
Energy 12%
H1 2012 0.1
Telecom 11%
Energy 11%
1.2 4.4
60
50
46
2.2
4.5 39
1.0 40 5.2
29 8.0 2.9
30 0.2
30 7.1
7.5
10.8
0.6
9.4 20
0.1
0.2 7.8
8.4
14
12
6.0
12 5.6
31 30
26
13.4 22
23
8.9
4.4
5.0
2.0
5.0 12 0.4 10
4.5
0.3 2.2
0.0
IT 10%
H1 2013
32
4.0
Telecom 9%
0.2
0.2
Jan-12
Feb-12
Mar-12
0.5
0.6
1.7 0.1
Apr-12
May-12
Jun-12 IPOs
Source: Dealogic.
3.2 2.0 0.3
0.2
0.4
Jul-12
Aug-12
Sep-12
Follow-on
Converts
Oct-12 No. of Deals
Nov-12
1.4
1.2
Dec-12
Jan-13
2.0 0.1 Feb-13
Mar-13
0
No. of Deals
Total Issuance (€bn)
Metals & Mining 17% Industrials 5%
10.0
6.0
FIG 24%
Consumer 4%
H2 2012
0.3
26
FIG 39%
Industrials 21%
16.0
12.0
Others 20%
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