Burberry kicks off earnings season on 13 July. We f’cast org growth for the luxury sector to be the slowest we have seen in the last 7 yrs. 1) comps are tougher than in previous quarters, mainly in Europe and Japan where tourism spending was strong in 2Q15. 2) geopolitical uncertainties and stock market volatility continued to impact the 'feel good factor'. 3) the renminbi depreciation against the euro and the yen has reduced tourism spending as regional price gaps got narrower. We cut earnings estimates for most of our coverage and reduce our target prices for LVMH, Tod's and Hugo Boss. We remain negative on the luxury sector.
Asian equity markets are sharply higher, tracking an impressive rally on Wall St following a very strong set of jobs numbers out of the US on Friday. After last month's surprisingly disappointing NFP report, this month should soothe worries over the health of the health of the US labor market for the time being. Coupled with the expectations of the Fed staying pat for the balance of the year, investors are cheering the "goldilocks" scenario with more buying, as US futures extend Friday gains above 2,130 - multi-month highs. In Asia, the risk-on sentiment is further aided by lifting political cloud of uncertainty in Japan and Australia as those markets are leading the regional rally. Among FX majors, USD/JPY is up about 60pips above 101, AUD/USD is up 30pips above 0.7570, though NZD/USD is in a 20pip range, supported at 0.7280.
Nikkei +4.58% Hang Seng +1.66% CSI +1.25% Shanghai +1.08%
Eur$ 1.1044 CNH 6.6987 CNY 6.6877 JPY 101.49 GBP 1.2953 CHF 0.9833 RUB$ 64.2156
S&P +0.41% EuroStoxx +0.74% Dax +0.86% SMI +0.72%
Macro :
- Kazakhstan Beats Soros After Dumping Pounds on Brexit’s Eve
- El-Erian Recommends U.K. Real Estate Wager, With Patience
- Europe Needs EU150 Billion Bank Bailout, Economist Tells Welt
- German Companies Have Record Goodwill in Balance Sheets: WiWo
- China Set to Invest EU2b in New EU Infrastructure Fund: Reuters
Keep an eye on :
- ABI BB : Investor unease about £77bn SABMiller takeover mounts http://bit.ly/29FsoTh
- ACS SM : ACS Wins Saudi Arabia Gas Pipeline Contract For $100 Million
- AIR FP : Airbus Is Running Out of Buyers for Its Enormous A380s
- AIR FP : Germania May Order 25 Airbus A320-Family Jets, Reuters Says
- AIR FP : Airbus Said to Be Poised to Win $7.5 Billion GoAir A320neo Order
- AIR FP : Boeing Said Close to Order for 20 737 Max Jets From Air Europa
- AIR FP : Boeing Said Set to Announce $1.3b Order From TUI for 11 Aircraft
- AIR FP : Boeing CEO ‘Extremely Confident’ on Lifting Output: Echos
- AF FP : Transavia Wants to Expand to Dutch Lelystad Airport: De Stentor
- AZN LN : AstraZeneca Considers Bid for Medivation, Sunday Times Says
- BMPS IM : State Move on Italy’s Paschi Last Resort: Undersec. in Corriere
- BN FP : Danone Cut to BBB+ by S&P, May Be Cut Further
- CSGN VX : Credit Suisse Is ‘Safer Than Ever’, CEO Thiam Tells NZZ
- BN FP : Pepsi sticks with soda after passing on milk company - NY Post - http://nyp.st/29qE0s2
- HPE LN : Hewlett Packard Enterprise Said to Mull Selling Software Assets
- HMB SS : H&M’s Persson Buys Debenhams’s Oxford St Store: Sunday Times
- JUN3 GY : Jungheinrich Confirms 2016 Forecast Amid Brexit, Euro Says
- LHN VX : LafargeHolcim to Divest Stake in Lafarge India for EV of $1.4b
- LAT FP : Latecoere Main Shareholders Want CEO Ousted: Tribune
- LLOY LN : Lloyds Said to Speed Cost-Cutting Plan, Boost Savings Goal: FT
- LSE LN : LSE/Deutsche Boerse: Tender offer prospects still bullish, sources say - MergerMarket
- LSE LN : Deutsche Boerse Said to Consider Lower LSE Approval Limit: WSJ
- MDVN US : AstraZeneca Considers Bid for Medivation, Sunday Times Says
- UG FP : France Has No Plan to ‘Exit’ PSA Shareholding in Near Future
- TPEIR GA : Piraeus Bank Agrees Sale of Piraeus Bank Cyprus: Statement
- PLND LN : Steinhoff to make new Poundland bid within days. Analysts had previously expected Steinhoff would need to increase its offer to between GBP 2.20 and GBP 2.30 per share.
- REP SM : Repsol 2Q Refining Margin $6.5/Barrel vs $9.1 Year Ago
- RCS IM : RCS Bid by International Media Holding Raised to EU1/Shr
- SAB LN : Investor unease about £77bn SABMiller takeover mounts http://bit.ly/29FsoTh
- SAN FP : AstraZeneca Considers Bid for Medivation, Sunday Times Says
- TEF SM : Telefonica Selling China Unicom Stake, Valued at $367 Mln: Terms
- TEF SM : Telefonica Sells 1.51% China Unicom Stake for About EU322M
- TLG GY : TLG Immobilien Portfolio Value May Reach EU2B Early, Welt Says
- UCG IM : Regulators Oppose UniCredit Bank Austria’s East Europe Split: WZ
- UTDI GY : United Internet Offers Fiber Optic Lines for SMEs: Handelsblatt
- DG FP : France to Hold Final Bid Round for Nice, Lyon Airports: Tribune
- VOW3 GY : German Prosecutor Starts Proceedings for Possible VW Fine: SZ
- VOW3 GY : Volkswagen Plans Procurement Savings, Automobilwoche Says
- VOW3 GY : Audi Strategy to Focus on Car Sharing, E-Cars: Automobilwoche
>>> Up
*8POINT3 ENERGY PARTNERS RAISED TO OVERWEIGHT AT BARCLAYS
*ADP RAISED TO OUTPERFORM AT BERNSTEIN
*BANKIA RAISED TO OUTPERFORM VS NEUTRAL AT CREDIT SUISSE
*BMW RAISED TO NEUTRAL AT EXANE
*RANDSTAD RAISED TO OUTPERFORM VS NEUTRAL AT CREDIT SUISSE
*RWE RAISED TO BUY VS HOLD AT JEFFERIES
*SCOR RAISED TO BUY AT HSBC
*SOGEFI RAISED TO NEUTRAL VS UNDERPERFORM AT MEDIOBANCA
*SUBSEA 7 RAISED TO OUTPERFORM VS NEUTRAL AT MACQUARIE
*SUEDZUCKER RAISED TO ADD VS REDUCE AT ALPHAVALUE
>>> Down
*BMW CUT TO NEUTRAL AT JPMORGAN
*DAIMLER CUT TO UNDERPERFORM AT EXANE
*DELEK CUT TO NEUTRAL AT JPMORGAN
*DIXONS CARPHONE CUT TO EQUALWEIGHT VS OVERWEIGHT AT BARCLAYS
*FAURECIA CUT TO NEUTRAL AT EXANE
*FRANK’S INTERNATIONAL CUT TO UNDERPERFORM VS HOLD AT JEFFERIES
*HANNOVER RUECK CUT TO HOLD AT HSBC
*HIKMA CUT TO HOLD AT HSBC
*IMI CUT TO SELL VS NEUTRAL AT UBS
*MUNICH RE CUT TO HOLD AT HSBC
*RENAULT CUT TO NEUTRAL AT EXANE
*SPIRAX-SARCO CUT TO NEUTRAL VS BUY AT UBS
>>> PT Change
>>> Initiaition
*COCA-COLA EUROPEAN PARTN RATED NEW BUY AT SANTANDER
*TENARIS, TOD’S SET AS NEW SHORTS AT MEDIOBANCA
>>> Call
>> Stock
*AENA ADDED TO EUROPEAN TOP PICKS AT BARCLAYS
*BOLIDEN ADDED TO EUROPEAN TOP PICKS AT BARCLAYS
*CREDEM, LEONARDO REMOVED FROM LONG STOCKS AT MEDIOBANCA
*IMPERIAL BRANDS ADDED TO EUROPEAN TOP PICKS AT BARCLAYS
*INTESA, TREVI REMOVED FROM SHORT STOCKS AT MEDIOBANCA
*INTESA, SAIPEM SET AS NEW LONGS AT MEDIOBANCA
*PERNOD ADDED TO DIRECTORS OF RESEARCH FOCUS LIST AT GOLDMAN
*PHILIPS LIGHTING ADDED TO DOR FOCUS LIST AT GOLDMAN
*REDROW ADDED TO EUROPEAN TOP PICKS AT BARCLAYS
*RYANAIR REMOVED FROM EUROPEAN TOP PICKS AT BARCLAYS
*SAIPEM ADDED TO DIRECTORS OF RESEARCH FOCUS LIST AT GOLDMAN
*SHIRE ADDED TO DIRECTORS OF RESEARCH FOCUS LIST AT GOLDMAN
*TENARIS, TOD’S SET AS NEW SHORTS AT MEDIOBANCA
*VINCI ADDED TO DIRECTORS OF RESEARCH FOCUS LIST AT GOLDMAN
>> Sector
*EUROPEAN BANKS CUT TO NEUTRAL VS OVERWEIGHT AT UBS
*EUROPEAN CHEMICALS RAISED TO NEUTRAL VS UNDERWEIGHT AT UBS
*EUROPEAN CAPITAL GOODS CUT TO NEUTRAL FROM OVERWEIGHT AT UBS
*EUROPEAN UTILITIES RAISED TO OVERWEIGHT VS NEUTRAL AT UBS
Asian Mid-session Market Update: Strong US jobs, expectations of more Japan stimulus after strong LDP showing sends USD/JPY higher; China inflation matches forecasts
***Economic Data***
- (CN) CHINA JUN CPI Y/Y: 1.9% V 1.9%E; 5-month low
- (CN) CHINA JUN PPI Y/Y: -2.6% V -2.5%E (52nd consecutive month of decline, smallest decline since Nov 2014)
- (JP) JAPAN JUNE M2 MONEY STOCK Y/Y: 3.4% V 3.4%E; M3 MONEY STOCK Y/Y: 2.9% V 2.8%E
- (JP) JAPAN MAY MACHINE ORDERS M/M: -1.4% (2nd straight decline) v +3.2%E; Y/Y: -11.7% (biggest decline in 18 months) V -8.7%E; Govt cuts Machine Orders assessment
- (AU) AUSTRALIA MAY HOME LOANS M/M: -1.0% V -2.0%E; biggest decline in 4 months
- (NZ) NEW ZEALAND JUNE CARD SPENDING M/M: 1.2% (biggest increase in 13 months) V 0.5%E; TOTAL M/M: +1.0% V -0.6% PRIOR
***Index Snapshot (as of 04:00 GMT)***
- Nikkei225 +3.6%, S&P/ASX +1.8%, Kospi +1.3%, Shanghai Composite +0.9%, Hang Seng +1.7%, Sep S&P500 +0.4% at 2,129
***Commodities/Fixed Income***
- Aug gold +0.9% at $1,370/oz, Aug crude oil -1.0% at $44.97/brl, Sep copper +1.7% at $2.15/lb
- (SA) Saudi Aramco to keep its full contractual oil supply to Asia customers in August - financial press
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.6843 V 6.6853 PRIOR
- (CN) PBOC to inject CNY30B in 7-day reverse repos
- (AU) Australia MoF (AOFM) sells A$500M in 3.75% 2037 Bonds; avg yield: 2.4196%; bid-to-cover: 2.29x
***Market Focal Points/FX***
- Asian equity markets are sharply higher, tracking an impressive rally on Wall St following a very strong set of jobs numbers out of the US on Friday. After last month's surprisingly disappointing NFP report, this month should soothe worries over the health of the health of the US labor market for the time being. Coupled with the expectations of the Fed staying pat for the balance of the year, investors are cheering the "goldilocks" scenario with more buying, as US futures extend Friday gains above 2,130 - multi-month highs. In Asia, the risk-on sentiment is further aided by lifting political cloud of uncertainty in Japan and Australia as those markets are leading the regional rally. Among FX majors, USD/JPY is up about 60pips above 101, AUD/USD is up 30pips above 0.7570, though NZD/USD is in a 20pip range, supported at 0.7280.
- Elections in Japan's upper house of Parliament delivered a 2/3rd "super-majority" to the ruling LDP party, which picked up a handful of seats despite the slow progress in PM Abe's economic agenda and the controversial govt push to revise the constitution to allow the country greater military involvement. Local press reports suggest PM Abe will also order a new round of fiscal stimulus as soon as this week that would include additional JGB issuance. Earlier, Cabinet Suga also replied to speculation of more fiscal stimulus by noting the govt will discuss the timing and content of economic package. More aggressive policy response in Japan remains justified by soft incoming economic data - today's forward-looking Machine Orders posted its biggest y/y decline in 18 months and sequential growth also slowed again, forcing the govt to cut its view on the sector.
- Over the weekend, China June CPI matched expectations of 1.9%, which was still a 5-month low. Food CPI slowed to 4.6% v 5.9% prior while non-food component was little changed at 1.2% v 1.1% prior. Annualized PPI decline continued to slow but remains in the red for 52nd straight month. Economists with HSBC said the latest inflation figures indicate that domestic demand has not fully recovered yet. Separately, the G20 communique delivered by China Commerce Min Gao warned that global investment is estimated to fall 10-15% this year, and the organization has already proposed actionable plans to boost trade. Deputy commerce min also warned that the fallout from Brexit will impact global trade and investment in the short term.
- One week after Australia went to the polls, PM Turnbull has claimed victory and opposition Labor leader Shorten has conceded. The govt is expected to be announced as soon as this week. In the meantime, Moody's followed last week's S&P's Outlook revision with a more benign assessment, noting that while political deadlock could be a credit negative in Australia, its economic momentum is robust amid low exchange rate and low interest rates supporting exports and consumption.
***Equities***
US equities / ADRs:
- LMT: Said to be near agreement with the Pentagon on a contract for as many as 160 fighter jets; Estimated contract value is over $14B - financial press
- HPE: Said to consider selling software assets; Discussions are in preliminary stages - financial press
Notable movers by sector:
- Consumer discretionary: Texhong Textile Group 2678.HK +12.5% (H1 guidance)
- Financials: Future Land Development Holdings 1030.HK +1.9% (H1 guidance); CITIC Securities 6030.HK +2.3% (June result); Onward Holdings Co 8016.JP +10.3% (Q1 result speculation)
- Consumer staples: Warrnambool Cheese & Butter WCB.AU +0.3% (guidance)
- Industrials: China Resource Cement 1313.HK -2.1% (H1 guidance); COSCO Shipping Co 600428.CN +0.9% (H1 result); AVIC Aviation Engine Corp 600893.CN +1.0% (H1 guidance); Taisei Corp 1801.JP +5.6%, Shimizu 1803.JP +5.3%, Obayashi Corp 1802.JP +5.3% (Japan PM Abe prepares stimulus package)
- Technology: Sun King Power Electronics Group 580.HK +6.4% (H1 guidance); Nintendo Co. 7974.JP +22.8% (new Pokemon game tops); NS Solutions Corp 2327.JP +10.6% (Q1 result speculation); Synnex Technology International Corp.2347.TW +7.1% (June result); Taiwan Semiconductor Manufacturing Co 2330.TW +3.3% (R&D expenditure target)
- Materials: Shandong Chenming Paper Holdings 1812.HK +6.7% (H1 guidance); Ausenco AAX.AU -1.3% (cuts guidance); Independence Group IGO.AU +8.5% (FY16 production results); Iluka Resources ILU.AU +10.5% (JPMorgan raises to Neutral)
- Healthcare: Primary Healthcare PRY.AU -2.2% (cuts guidance); Sirtex Medical SRX.AU +6.9% (worldwide dose sales)
- Telecom: Coolpad Group 2369.HK -3.6% (H1 guidance); Chunghwa Telecom Co. 2412.TW +3.8% (June result)
- Utilities: Kyushu Electric Power Co. Inc 9508.JP -7.7% (new gov to halt nuclear plant)
UBS lance une charge sans précédent contre l'entraide fiscale suisse
Le patron de la banque, Sergio Ermotti, se plaint du laxisme de autorités fédérales, qui seraient prêtes à livrer les données de milliers de clients à la France. Le cas promet un sévère affrontement juridique entre les plus hauts tribunaux suisses. Et pose des questions sur la sécurité informatique d'UBS
Jamais, ces dernières années, un grand banquier suisse n'avait ainsi attaqué la nouvelle politique de transparence fiscale. Dans une interview d'une rare virulence à la SonntagsZeitung – reprise partiellement dans le Matin Dimanche – le patron d'UBS Sergio Ermotti la juge «opaque», et fondée sur des «arrangements politiques» plus que sur des critères juridiques ou techniques.
Le fait que l'administration fédérale veuille remettre à la France des données concernant des milliers d'anciens clients d'UBS l'écoeure particulièrement. La demande française est fondée sur des «données lacunaires et sans indices concrets», déplore Sergio Ermotti. «Ce n'est pas juste, c'est pour nous un cas clair de partie de pêche non autorisée» – une fishing expedition prohibée par les traités d'entraide fiscale, qui exigent des demandes précises pour livrer des informations sur les clients.
Carlo Lombardini «ravi» de voir un dirigeant s'exprimer ouvertement
Bien introduit dans les étages supérieurs des banques suisses, l'avocat genevois Carlo Lombardini se dit «ravi» de voir un dirigeant «s'exprimer enfin ouvertement». Selon lui, «on s'est tu jusqu'à maintenant et c'était une erreur. Ce qui se passe n'est pas normal. La Suisse aurait très bien pu refuser cette demande française. On fait plus d'entraide que n'importe quel pays, maintenant il faut finalement se rendre compte que dire toujours oui n’est pas une politique.»
La semaine dernière, UBS avait révélé – de manière déjà inhabituelle – avoir «reçu une ordonnance de production de l’Administration fédérale des contributions (AFC) pour transférer des informations, basée sur une demande française d’assistance administrative internationale en matière fiscale».
A l'origine de cette demande, des données de clients saisies lors d'une perquisition chez UBS en Allemagne, en 2013. Le Temps avait révélé le 9 juin que la France avait commencé à envoyer des courriers automatisés à tous les contribuables français figurant dans ces données. Soit plus de 38000 détenteurs de comptes.
Mais au final, quelque 200'000 clients de diverses banques suisses pourraient être concernés, estime Bruno Richard de la société Ab Initio conseils. Tout simplement parce que les autorités fiscales françaises vont pouvoir remonter vers d'autres clients, qui ont reçu de l'argent ou on en transféré vers les comptes découverts en Allemagne. En comptant 4 transferts sur une période de 4 ans, l'estimation de 200'000 clients reste prudente, estime Bruno Richer. «Tout ce qui est parti ou est arrivé sur un compte UBS, depuis 2004, va être traqué», prévient-il.
Risque que la demande française créée un précédant
Face à cette menace, UBS demande à pouvoir être traitée comme partie lors des procédures d'entraide fiscale (seuls les clients ont ce statut aujourd'hui). Elle aimerait que les données ne soient pas transmises avant que les recours judiciaires en Suisse soient épuisés. Enfin, elle demande un règlement global de l'héritage d'évasion fiscale au sein des banques suisses. Car le demande française risque de faire école: grâce aux données allemandes, d'autres pays risquent de demander des informations à la Suisse, redoute Sergio Ermotti.
A Berne, la charge du patron d'UBS ne suscitait dimanche aucune réaction officielle. «Nous avons pris note», déclare simplement le porte-parole du Département fédéral des Finances Romand Meier, qui n'a «rien d'autre à ajouter». Mais la dimension politique de l'attaque lancée par UBS est évidente. Malgré l'arrivée d'Ueli Maurer aux Finances, la politique d'entraide fiscale suisse n'a que peu changé, regrette Sergio Ermotti, et le Conseil fédéral continue de suivre une ligne de centre-gauche malgré le coup de barre à droite donné par les citoyens aux élections fédérales d'octobre.
Différence de vision
La démarche d'UBS s'inscrit aussi dans un conflit entre les plus hautes autorités judiciaires de la Confédération. La banque a annoncé qu'elle contesterait la validité de la demande française par le Tribunal administratif fédéral (TAF). Celui-ci a déjà bloqué une autre demande, faite par les Pays-Bas et qu'il jugeait trop générale. «Je sens une certaine différence de vision entre le TAF et le Tribunal fédéral, note l'avocat genevois Xavier Oberson, spécialiste de la fiscalité. Le TAF est beaucoup plus restrictif, alors que le Tribunal fédéral» – juridiction suprême qui pourrait être saisie en dernier ressort – «risque d'être beaucoup plus favorable à l'entraide».
En France, UBS se dit victime d'une procédure «politisée» et faisant l'objet de nombreuses fuites. Dernière en date: Le Monde révélait vendredi que l'ancien numéro deux de la banque en France, Patrick de Fayet, avait décidé de plaider coupable de «complicité de démarchage illicite». UBS a aussi dû verser une colossale caution de 1,1 milliard d'euros dans cette affaire.
Reste un mystère, qui pourrait en partie expliquer la publicité donnée par UBS à ces différentes affaires. Comment les autorités allemandes ont-elles pu s'emparer d'autant de données de clients de la banque avant de les transmettre à la France?
«Les données étaient bien sécurisées», assure Sergio Ermotti. Mais le fait que les noms de clients d'UBS Suisse aient pu être saisies à Francfort ou d'autres villes allemandes lors de perquisitions montre que les données n'étaient pas suffisamment protégées, par cloisonnement ou par cryptage, estime un connaisseur du monde bancaire qui ne souhaite pas être cité nommément. Selon lui, la contre-offensive d'UBS sur le terrain médiatique serait destinée, entre autres, à faire oublier cette erreur initiale.
Weekly Update
Dow +1.21% S&P +1.48% NAsdaq +2.36% Russell +2.21% Brazil +1.74% Nikkei -3.67% Hang Seng -1.11% CSI +1.21% Shanghai +1.90% EuroStoxx -1.56% Dax -1.50% FTSE +0.19% CAC -1.95% Ibex -1% MIB -1.41% SMI -0.58%
Global financial markets remained volatile under the continuing influence of the UK Brexit vote two weeks ago. The 10-year UST yield sank to fresh record lows below 1.35%, and buyers of 50-year Swiss government bonds got ready to accept a negative yield this week as malaise settled over the entire global economy. The pound, which hit a 31-year low against the dollar of 1.2800 on July 6th, gave up recent gains and sank back below 1.3000, while the dollar and yen remained strong. Crude prices sank lower, with WTI back in the $45 handle and Brent back around $46. In the UK, various investment firms suspended redemptions in open-ended property funds as investors rushed to take out their cash, while investors eyed the Italian banking system with deepening concern. On Friday, the very strong June US jobs report lifted stocks broadly to flirt with all-time highs in the S&P. US Treasury yields stayed stubbornly low, as global demand for assets that offer any kind of relative yield remains unwavering. For the week, the DJIA +1.1%, the S&P500 +1.3% and the Nasdaq +1.9%.
Macro :
- Kazakhstan Beats Soros After Dumping Pounds on Brexit’s Eve
- El-Erian Recommends U.K. Real Estate Wager, With Patience
- Europe Needs EU150 Billion Bank Bailout, Economist Tells Welt
- German Companies Have Record Goodwill in Balance Sheets: WiWo
Keep an eye on :
- ABI BB : Investor unease about £77bn SABMiller takeover mounts http://bit.ly/29FsoTh
- AIR FP : Airbus Is Running Out of Buyers for Its Enormous A380s
- AIR FP : Germania May Order 25 Airbus A320-Family Jets, Reuters Says
- AIR FP : Airbus Said to Be Poised to Win $7.5 Billion GoAir A320neo Order
- AIR FP : Boeing Said Close to Order for 20 737 Max Jets From Air Europa
- AIR FP : Boeing Said Set to Announce $1.3b Order From TUI for 11 Aircraft
- AF FP : Transavia Wants to Expand to Dutch Lelystad Airport: De Stentor
- AZN LN : AstraZeneca Considers Bid for Medivation, Sunday Times Says
- BN FP : Danone Cut to BBB+ by S&P, May Be Cut Further
- CSGN VX : Credit Suisse Is ‘Safer Than Ever’, CEO Thiam Tells NZZ
- BN FP : Pepsi sticks with soda after passing on milk company - NY Post - http://nyp.st/29qE0s2
- HPE LN : Hewlett Packard Enterprise Said to Mull Selling Software Assets
- HMB SS : H&M’s Persson Buys Debenhams’s Oxford St Store: Sunday Times
- JUN3 GY : Jungheinrich Confirms 2016 Forecast Amid Brexit, Euro Says
- LAT FP : Latecoere Main Shareholders Want CEO Ousted: Tribune
- LLOY LN : Lloyds Said to Speed Cost-Cutting Plan, Boost Savings Goal: FT
- LSE LN : LSE/Deutsche Boerse: Tender offer prospects still bullish, sources say - MergerMarket
- LSE LN : Deutsche Boerse Said to Consider Lower LSE Approval Limit: WSJ
- MDVN US : AstraZeneca Considers Bid for Medivation, Sunday Times Says
- UG FP : France Has No Plan to ‘Exit’ PSA Shareholding in Near Future
- TPEIR GA : Piraeus Bank Agrees Sale of Piraeus Bank Cyprus: Statement
- PLND LN : Steinhoff to make new Poundland bid within days. Analysts had previously expected Steinhoff would need to increase its offer to between GBP 2.20 and GBP 2.30 per share.
- REP SM : Repsol 2Q Refining Margin $6.5/Barrel vs $9.1 Year Ago
- RCS IM : RCS Bid by International Media Holding Raised to EU1/Shr
- SAB LN : Investor unease about £77bn SABMiller takeover mounts http://bit.ly/29FsoTh
- SAN FP : AstraZeneca Considers Bid for Medivation, Sunday Times Says
- TEF SM : Telefonica Selling China Unicom Stake, Valued at $367 Mln: Terms
- TEF SM : Telefonica Sells 1.51% China Unicom Stake for About EU322M
- TLG GY : TLG Immobilien Portfolio Value May Reach EU2B Early, Welt Says
- UCG IM : Regulators Oppose UniCredit Bank Austria’s East Europe Split: WZ
- UTDI GY : United Internet Offers Fiber Optic Lines for SMEs: Handelsblatt
- DG FP : France to Hold Final Bid Round for Nice, Lyon Airports: Tribune
- VOW3 GY : German Prosecutor Starts Proceedings for Possible VW Fine: SZ
- VOW3 GY : Volkswagen Plans Procurement Savings, Automobilwoche Says
- VOW3 GY : Audi Strategy to Focus on Car Sharing, E-Cars: Automobilwoche
Morgan Stanley Lists The Ten Excuses Hedge Funds Give For Bad Performance
At two recent Morgan Stanley investor conferences, the question of poor hedge fund performance surfaced repeatedly. We surveyed a group of long/short fundamental equity hedge fund managers at one of the conferences, asking them for the primary reason for poor performance of their industry.
The answers were: 54% said “crowding”, 23% said “factor exposures”, 8% blamed “macro headwinds” and 8% said “poor liquidity”. The remaining group (also 8%) said “poor stock selection”.
In other words, when performance is bad, it is beta, when performance is good, it is alpha. The truth is that 100%, at some level, should have said “poor stock selection”, and what these data reveal is that 92% of respondents are blaming something other than their stock selection methodology for the current underperformance. Our portfolio has outperformed for five straight years, and is lagging this year. It is 100% stock selection.
The alpha from the HFRI long-short index was close to 14% per annum in the early 1990s, and has been slightly below zero for the past few years.
Why is this? We don’t claim to have some systematic rank ordering of reasons for the decay in performance, but here are ten thoughts.
1- First, there has been massive growth in the total number of hedge funds, with HFR estimating that there are 3,400 equity-focused hedge funds today (about as many as stocks under global coverage by the Morgan Stanley research department).
2- Second, low interest rates have removed the rebate that hedge funds received, a non-trivial driver of historical returns when rates were materially higher.
3- Third, hedge fund CIOs are increasingly cautious. Since 2003, FAS123R has made it illegal for hedge funds (and everyone) to know anything material and non-public in the US, at least, and the high-profile and frequent investigations of hedge funds have curtailed information-seeking at some level.
4- Fourth, the more rapid availability of information has materially shortened the time arbitrage that existed previously. The days when you ran to a pay phone to call a large portfolio manager in Boston when you learned something you thought mattered have been over for years. You have to publish something first that passes the smell test from nine different editors, compliance officers, control groups and stock selection committees.
5- Fifth, there increasingly appears to be a “group think”, as going to Omaha to hear what Warren Buffett says has transitioned to systematically tracking billionaire holdings and riding out the last bit of momentum from their ideas. Everyone attends or hears about the pitches made by successful hedge fund owners at industry conferences, dinners, charity events and presentations, making questions about “crowding”, well, crowded, to quote a friend.
6- Sixth, the quants have stolen some of the alpha. Everyone knows the quants are onto something, so they are hiring junior quants to analyze their “factor exposures”, even though they don’t know what to do with the information once they get it. The HFRI equity market neutral index has beaten the HFRI long-short by about 3% per year for the last ten years, so the “quant thing” isn’t new. In addition, liquidity quant trading, baskets and ETFs have potentially been “sucking” alpha out of the traditional long-short industry.
7- Seventh, the LPs don’t invest in hedge funds for as long as they used to, as their manager selection gets analyzed and evaluated, creating more fear of redemption today vs. yesteryear, and exacerbating short-termism among the hedge funds. We don’t remember anyone saying in 1995 that they were bullish on the market because hedge fund performance has been so bad that there may be redemptions and a ‘you might as well go for it’ melt-up. We hear that regularly now.
8- Eighth, macro explains a higher percentage of total returns today than in the past, and most hedge funds are set up for bottom-up security selection. This may have been prudent in a 1995 world where 80% of the average stock’s performance was idiosyncratic, but with macro now explaining well over half of the average stock’s returns, many classic hedge funds may be sub-optimally staffed for the current opportunity set. Macro explaining a higher percentage of returns has, in turn, impacted dispersion (which became low) and correlation (which became high), and the dollar, rates and oil exposures, among others, are material on many books.
9- Ninth, while all active management has suffered, long-only firms began to realize they could replicate some of the more successful hedge fund approaches, shifting some of the alpha away from the hedge fund industry over time.
10- Tenth, the capital markets have been less supportive, meaning, the ‘free money’ associated with IPOs in the 1990s has clearly slowed. Very few high-profile deals have been monster stocks this cycle.
While this surely isn’t a comprehensive or rank-ordered list of reasons for weak alpha generation, it hopefully touches on some of the issues. When will excess performance be likely again? Our suspicion is that much wider dispersion is required, and this isn’t likely until long-dated rates back up meaningfully or economic volatility grows materially. That said, dispersion is clearly wider than it was a year ago, and active management has yet to enjoy an improvement in performance. Here’s hoping that later this year we won’t need any excuses, due to good stock selection.
Deutsche Bank's Chief Economist Calls For €150 Billion Bailout Of European Banks
The cards have been tipped, and it appears Italy's Prime Minister may have been right.
In the aftermath of Brexit, much of the investing public's attention has turned to Italian banks which are in desperate need of a bailout as a result of €360 billion in bad loans growing worse by the day (and not a bail-in, as European regulations mandate, as that would lead to an immediate bank run) to avoid a freeze and/or collapse of Italy's banking sector. This has pushed stock prices - and default risk - on Italian banks to record levels. So far Italy's bailout requests have mostly fallen on deaf ears, as Germany's political leaders have resisted Renzi's recurring pleas for a taxpayer funded rescue. However, as we have alleged, and as the Italian Prime Minister admitted last week, the core risk for Europe is not just the Italian banking sector but the biggest bank of all in Europe: Deutsche Bank.
Recall last Thursday, when speaking at a joint news conference with Swedish Prime Minister Stefan Lofven, Matteo Renzi said other European banks had much bigger problems than their Italian counterparts.
"If this non-performing loan problem is worth one, the question of derivatives at other banks, at big banks, is worth one hundred. This is the ratio: one to one hundred," Renzi said.
He was, of course, referring to the tens of trillions of derivatives on Deutsche Bank's books.
Today, we got the most definitive confirmation yet that the noose is tightening not only around Italy, but Germany itself (where as we reported on Thursday, Europe's Bank Crisis Arrives In Germany as €29 Billion Bremen Landesbank On The Verge Of Failure) when none other than David Folkerts-Landau, the chief economist of Deutsche Bank, has called for a multi-billion dollar bailout for European banks.
Speaking to Germany's Welt am Sonntag, the economist said European institutions should get fresh capital for a recapitalization following a similar bailout in the US. What he didn't say is that the US bailout took place nearly a decade ago, in the meantime Europe's financial sector was supposed to be fixed courtesy of "prudent" fiscal and monetary policy. It wasn't.
As Landau says the US helped its banks with $475 billion dollars, and such a program is now needed in Europe, especially for Italian banks. In other words, just because the US did it, now it's Europe's turn to ask for more of the same.
"In Europe, the bailout does not need to be so large. A €150 billion program should be enough to help European banks recapitalize," said David Folkerts-Landau. He adds that the decline in bank stocks is only the symptom of a much larger problem, namely a fatal combination of low growth, high debt and a "dangerous" deflation.
"Europe is seriously ill and needs to address very quickly the existing problems, or face an accident," said the chief economist.
The Deutsche Bank expert said he is particularly worried about Italy and the condition of local banks, where the €40 billion in funding needs is said to be "conservative." He said that the bank bailout is so urgent that it should permit Europe to violate the bail-in rules of the new Banking Directive. The economist notes that such a bail-in is not doable and is politically unfeasible because it would hit people's savings and may cause a bank run in both Italy and elsewhere. We find it strange how nobody thought of this before the rules were implemented, or rather how impairing savings was only a problem when "second-rate" European citizens such as those in Cyprus and Greece were affected. Now that Italians and even Germans are in the cross hairs, suddenly "it is time to change the rules."
His conclusion: "Strictly adhering to the rules rules would cause greater harm than if they were suspended."
Our only question is whether Deutsche Bank's chief economist is more worried about the future of Italy's banks, or that of his own employer.
In the meantime, we look forward to the next pan-European bank bailout, now that even Germany's biggest bank has thrown in its support behind the proposal, which means Merkel and Schauble's resistance will promptly evaporate in the coming days as insolvent banks across Europe once again get rescued by taxpayers, in the process further escalating populist anger at the treatment of banks, leading to more Brexit-like events and the further fragmentation of Europe.
German Bank Chief Economist Calls 150 billion
Europe risks a new banking crisis. David Folkerts-Landau, chief economist at Deutsche Bank, therefore, a huge EU bailout program suggests. Private creditors should not participate.
The chief economist of Deutsche Bank calls a multibillion dollar bailout for European banks. The institutions should be equipped American-style with fresh capital. At that time the government had stepped in 475 billion dollars. "In Europe, the program must not be so large. With 150 billion euros can be European banks recapitalize," said David Folkerts-Landau of the "Welt am Sonntag".
In particular, Italy and the condition of local banks prepare the experts worried. The publicly rumored capital requirement of EUR 40 billion is expected to be calculated more conservatively, so Folkerts-Landau. The bank rescue it deems such urgency that it it also takes a possible break with the rules of the new Banking Directive in purchasing.
Folkerts-Landau: "Europe is seriously ill"
This prohibits State aids when previously have done their part to save not private creditors and shareholders. Such a bail-in is not politically feasible because it would take a lot of private savers in Italy and possibly even also could elsewhere trigger an onslaught of creditors and customers of the banks. "Strictly to keep yourself on the rules would cause greater harm than they suspend" said Folkerts-Landau.
The decline in bank stocks is only the symptom of a much larger problem, namely a fatal combination of low growth, high debt and a proximity to dangerous deflation. "Europe is seriously ill and needs to address very quickly the existing problems, or face an accident," said the chief economist.