(Citi) Global Asset Allocation - Citi house - March 2015

Global Asset Allocation
Citi House Views – March 2015
* Asset Allocation & Macro Overview
– Cautious optimism best characterizes investor sentiment in our view. We see few
signs of irrational exuberance. Our cross asset risk aversion indicators are still
quite elevated, whilst individual US investors seem restrained in their allocations
to stocks. We still think equities can rally and bond yields can fall to end-2015.
– We adopt a barbell approach to our medium term asset allocation: overweight
equities and government bonds (upgraded); underweight credit and cash; neutral
commodities (downgraded).
* Citi House Views by Asset Class Specialists
– Equities: We remain constructive on global equities. We think the bull market is
maturing but it is too early to call its end given where we are in the profits cycle.
– Credit: We see further spread tightening in Europe in particular, with HY to
outperform IG. In the US, it’s far more likely that spreads range trade.
– Rates: We forecast divergent yield paths for the major government bond markets
in 2015. European government bonds outperform, USTs underperform.
– Commodities: We expect further price weakness short term, and a recovery
further out. To end-2015, return forecasts are positive.
– Foreign Exchange: USD cycles are normally persistent and last 5-6 years in the
appreciation phase. We see further medium term USD gains.

>>> BOE's Broadbent: Likelihood for persistent deflation is low

BOE's Broadbent: Likelihood for persistent deflation is low - comments from London 
- Watching for signs that price falls hitting wage growth
- Sees 'good deflation' boosting both demand and output
- Risk that low inflation could last for longer than expected
- Inflation to receive a sizeable kick in coming years
- Natural real rate of interest more likely to rise
- CPI aim is for 2% and not 0%
- UK labor market continues to tighten

(Berenberg) Porsche - Important Legal Victory, compelling Value

Important legal victory, compelling value
● The plaintiffs’ appeal (claims of €1.18bn) against Porsche’s victory on 17
March 2014 was on Thursday rejected by the Higher Regional Court of
Stuttgart. It upheld the original ruling in Porsche’s favour and did not
allow the plaintiffs to appeal the case to the BGH (the German Federal
Court of Justice, effectively Germany’s Supreme Court). We expected the
appeal decision to go in Porsche’s favour (given the court’s comments on
26 February) but, importantly, we believe some investors may now make a
step-change and choose to remove the €1.18bn from the headline
outstanding claims of c€5.4bn. The €1.18bn represents c4.4% of Porsche’s
market capitalisation. The plaintiffs can complain that they are not allowed
to appeal but to do this they would have to go the highest court in Germany
(the BGH). It seems unlikely to us that this court would consider their case.
● On the 20 March 2015 we raised our Porsche one-year target from €100
to €125. We believe that a price of €150, 69% above the current price, is
feasible within two to three years. Our price target increase reflected a
2016 EPS rise of c3% at Porsche and Volkswagen (VW), and the rise in our
VW prefs target from €230 to €300 in our Structural winner plus FX: target
up to EUR300 note (9 March 2014). We believe VW is significantly
underrated (2016E/17E P/E of c7.6x/c6.8x and FCF yield of c10%) and
offers the most attractive risk-reward profile of the German and French
auto OEMs. We believe investors are overly focused on conservative 2015
EBIT guidance (hit by weakness in Brazil and Russia), whereas Chinese JV
earnings (below EBIT) are boosted by FX translation. As FX hedging rolls
off, the strong USD, RMB and GBP theoretically boost EBIT (especially
Porsche and Audi) by c35% from 2016.
● As of 26 March close, the total SOTP/legal discount is c27%, or c€10.1bn.
On top of an assumed 15% SOTP discount, the market implies a c€4.5bn
legal discount – c140% payout on €3.2bn of “live loss claims”. We exclude
“unrealised” gains of nearly €1bn and the €1.18bn appeal Porsche has won.
● Porsche has won all finalised legal cases. The rest are in Germany, where
precedent does not apply and awards tend to be lower. The six-year US
statute of limitations since the October 2008 short squeeze has ended.
● The next legal date is likely to be witness hearings on 7/8 May 2015 at
Hanover (€1.8bn Elliot case) and the criminal case is expected to be heard
this June/July. The Hanover court has approved c21 witnesses, but we only
expect six or seven to testify because Porsche’s former CEO and CFO have
been charged in a criminal case and the Supervisory Board is being
investigated – this means these witnesses can choose not to testify. On 14
October 2014, the Hanover Court Judge said that the plaintiffs’ claim of a
“cartel” between Porsche and its banks was a weak case and that it should
be resolved quickly.
● Our one-year €125 target is largely based on SOTP (VW ords at €300
implying a VW 2016E/17E P/E of 9.7x/8.7x) and assumes a Porsche
2016/17E P/E of 8.1x/7.4x. We assume a combined SOTP/legal discount of
c17%, or €8.6bn – a 15% SOTP discount (€7.1bn) and a further c4% from a
€1.5bn legal discount (unchanged). We raise our SOTP discount from 12.5%
to 15% due to lower dividends and the slow progress of investments. We
note investors’ reluctance to use a lower discount, but this could change.
● Porsche may be on many more investor watch lists within 6-12 months and
if VW shares reach what we view as a feasible price of €350 (10.1x 2017E
P/E) we think Porsche shares could rise c69% to €150 within three years.

WSJ : Growing Speculation BOJ Easing May Outlast Kuroda’s Tenure

The stalled growth in Japanese prices hasn’t just made it more difficult for the Bank of Japan to hit its 2% target inflation target, it has also made it harder for the central bank to eventually turn off the spigot to its massive monetary easing program.

While Gov. Haruhiko Kuroda has repeatedly said it’s too soon to debate any specifics of an “exit policy” to the program, former BOJ officials say Mr. Kuroda may not be able to find a way out by the time his tenure ends in April 2018.

“It seems fairly difficult,” says Miyako Suda, a former BOJ board member, given how the next increase in the consumption tax planned for April 2017 will likely interfere with the BOJ’s stated mission of “stably” attaining 2.0% inflation.

Based on the correlation between economic growth and inflation, the BOJ expects growth down the road to reduce slackness in the economy. That could lead to a situation where demand outweighs supply, putting upward pressure on prices. The government estimates demand in the economy is currently short by about annual Y12 trillion, or 2.3%, of the gross domestic product.

Kazumasa Iwata, a former BOJ deputy governor, says “lifting the inflation rate up to 2.0% could require a 5% to 7% change in the output gap, meaning it would take about five years from now on, even if the economy annually keeps growing at a pace of 2%.

He says additional stimulus would be necessary, provided that inflation expectations slide further. Making making matters more difficult, a further economic expansion isn’t as easy as they did were over the past two years.

“The BOJ’s JGB purchases are coming close to their limit, but there are a few other options left,” Mr. Iwata says.

Among the BOJ’s remaining options, buying of bonds issued by government agencies and municipal governments is still a possibility. But it’s uncertain whether the BOJ can secure securities worth as much as Y10 trillion, to match the pace of its annual monetary expansion. Other options include lowering interest rates paid on commercial banks’ excess cash deposited with the central bank and allowing interest rates to fall into negative territory like has been done in Europe. But again, it’s unclear whether it’s feasible because that “policy will mark a major shift in its policy regime,” he adds.

Ms. Suda said she objects to additional easing steps, including negative rates, as the central bank’s experiment to generate inflation by flooding the economy with trillions of yen hasn’t worked as intended.

“The experiment is over,” she says, adding that the BOJ should soon start slowing down its pace of its “excessive” asset purchases. Without such action, she warns that the continuation of the policy could cause various negative effects, including an asset bubble and disruptions in financial markets. Other potential problems: squeezing earnings at financial institutions and causing damage to the BOJ’s balance sheet that will eventually be passed on to taxpayers.

(BN) Novo Nordisk Soars on Plans to Resubmit Rejected Insulin to FDA

--> Stock should trade much higher this morning
Novo Nordisk Soars on Plans to Resubmit Rejected Insulin to FDA
2015-03-26 18:41:10.60 GMT


By Albertina Torsoli
(Bloomberg) -- Novo Nordisk A/S will resubmit its insulin
Tresiba to U.S. regulators based on an early analysis from a
study of the drug’s cardiovascular risks, putting the medicine a
step closer to approval in the the world’s biggest
pharmaceutical market.
Novo’s American depositary receipts rose 6.6 percent to
$53.60 at 2:25 p.m. in New York, the biggest intraday gain since
November 2012.
Novo plans to resubmit the long-acting insulin to the Food
and Drug Administration within the next month, the company said
in a statement. The treatment was rejected in 2013 over concerns
that it increased heart problems.
“Given Novo’s previous comments, this decision suggests
the data as it stands does not suggest a raised cardiovascular
risk,” said Sam Fazeli, an analyst with Bloomberg Intelligence.
“This means a possible launch in the U.S. in 2016.”
The FDA’s 2013 rejection was a setback to the Bagsvaerd,
Denmark-based company in its contest with Sanofi to dominate the
diabetes market. Tresiba is already sold in countries including
Denmark, the U.K., Switzerland, Sweden, Mexico and Japan. The
heart study, dubbed DEVOTE, is expected to be completed in the
second half of 2016, Novo said.
Sanofi’s American depositary receipts fell 3.2 percent to
$48.70.
“This takes out an element of uncertainty for Novo,”
Philippe Lanone, an analyst at Natixis Securities in Paris, said
in a telephone interview after the announcement. “Novo shares
will be rising on this piece of news,” which came after the
close of trading on Thursday.

Sanofi Competition

Novo needs Tresiba to wrest market share from Paris-based
Sanofi’s best-selling diabetes treatment, the Lantus insulin,
and its successor product Toujeo, soon to be introduced in the
U.S. Novo’s older product, Levemir, has trailed Lantus over the
years. The Sanofi product garnered 6.34 billion euros ($6.91
billion) in sales last year.
Long-acting insulins seek to replicate the steady stream of
the hormone that healthy people’s bodies produce over 24 hours.2
Novo’s stock has risen 29 percent this year, as of the
close in Copenhagen, for a market valuation of about 888 billion
kroner ($129 billion).

For Related News and Information:
Novo Sees U.S. Price Gains Even With New Sanofi Insulin
Sanofi Revamps Diabetes Operations to Regain Ground Against Novo
Most-read stories on the company: NOVOB DC <Equity> MCN <GO>
Top health news: HTOP <GO>

To contact the reporter on this story:
Albertina Torsoli in Geneva at +41-22-317-9202 or
atorsoli@bloomberg.net
To contact the editors responsible for this story:
Chitra Somayaji at +44-20-3525-9717 or
csomayaji@bloomberg.net
David Risser, Robert Valpuesta

>>> Bollore crosses 10% threshold of Vivendi's capital by acquiring shares worth

Bollore crosses 10% threshold of Vivendi's capital by acquiring shares worth EUR 632m
Story
The Bolloré Group announced it increased its stake from 8.15% to 10.20% of Vivendi‘s capital, by purchasing 27.7m additional shares at the price of EUR 22.85, for an investment of EUR 632m.

As a result of these purchases, the Bolloré Group holds 137.8m of Vivendi shares representing a EUR 3.2bn market value.

>>> Sika to acquire Construction Technologies Australia

Sika to acquire Construction Technologies Australia

Sika has agreed to acquire Construction Technologies Australia Pty Ltd (CTA), one of the leading suppliers of tile adhesives and associated mortar products in Australia. CTA generated sales of CHF 22m in 2014 and has 51 employees. The CTA plants bring Sika's mortar footprint to 79 factories worldwide.

Over the past couple of years CTA has experienced dynamic growth and has established itself as a key supplier to pro dealers with a wide product range comprising tile adhesives and associated mortar solutions.

By acquiring CTA, Sika will extend its manufacturing footprint and considerably leverage its core technology powders/mortars to become a leading supplier in Australia of surface preparation, adhesive and waterproofing products for tiling applications. Furthermore, the CTA range of products will give Sika the opportunity to increase its business in new and existing distribution channels and will provide excellent cross selling opportunities. Distribution of CTA's products in New Zealand will transfer to Sika (NZ) Ltd. Managing Director Troy Hogan, and other key members of the CTA team, will stay on with Sika to drive the continued success of the business.

The acquisition represents a further step in the expansion of Sika's mortar business. With 31% growth in 2014, mortar is Sika's strongest growing product area as well as one of the key elements of the Strategy 2018.

Heinz Gisel, Head of region Asia/Pacific: "With the acquisition of CTA we will expand and complement our mortar range in Australia as well as gain access to new market channels. We welcome the new employees on board and look forward to developing the business together."