AROUND THE WORLD IN 80 MINUTES European Cazenove Investment Management For professional advisers only.

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Presentation transcript:

AROUND THE WORLD IN 80 MINUTES European Cazenove Investment Management For professional advisers only

Europe's perfect storm Deflationary policy environment Constitutional crisis Deleveraging environment Low-growth world Growth at risk Perfect investment opportunity? 1

Investor confidence undermined net mutual outflows in Europe -€65bn Source: Lipper at 31/12/11

Professional opinion divided CPI actual between 2-3% in 2011 Only high forecasters achieved credibility Deflationary concerns avoided for now 3 Consensus of economists and bank advisers fragmented <2.5% experts were correct on €489bn funding LTRO success is deemed critical for illiquid markets Deep recession avoided? 2nd LTRO spread of forecasts* Source: *UBS Survey at 17/02/12, **Absolute Research Strategy at 01/02/12 Eurozone inflation forecasts** (%)

Crisis? What crisis? UK National debt more likely to exceed 100% GDP Eurozone debt looks stable relative US S&P AAA credit rating unlikely to restored in the medium term Confidence in European inter-bank lending increasing LTRO judged a success European currency crisis avoided for now 4 Gross debt as a % of GDP*Euribor-OIS spread (bps) Source: Thomson Datastream at February 2012, Bloomberg at 23/02/12

“Eurozone crisis putting pressure on EM equities” FT Adviser - 27 Feb 2012 “Europe Delays Debt Talks After Signs of Uncertain Support‎” New York Times – 29 Feb 2012 “Europe's financial crisis sparks protests ‎ ” Washington Post – 28 Feb 2012 “EU Crisis: Will Greece wreck the Eurozone?” Economic Times - 14 Feb 2012 Eurozone GDP proportionate to media hype? 5 Eurozone countries as a % of total GDP PIGS (less Italy) economies 17.6% of 2011 GDP Source: Thomson Datastream at 31/12/11

Budget deficits falling 2010: universal flouting of 3% budget deficit rule Austerity impacting debt Even Germany almost in surplus 2011: German economy grew by 3% Italy and Germany within deficit rule 6 Eurozone government budget deficits as a % GDP * Forecasts Source: Thomson Datastream at February 2012

Franco-German business optimism positive Private sector companies only Historic PMI rallies precede strong equity revisions February PMI forecasts a ‘soft’ landing in China Oil price risk would require a trend back to $140 7 PMIs rebounded in January Source: Thomson Datastream at February 2012

Eurozone power house resilient Exports GDP Growth vs business survey (%) 8 Germany Index of investor and analyst expectations 6 month outlook Largest confidence jump since 2009 Hopes of debt crisis resolution Economy proves resilience Investor confidence survey Source: Bloomberg at February 2012

German export-led recovery Strong demand from non-EU countries Diversified export market Weakening euro will boost industrial exports Underexposed to the US market 9 % of total exports Source: Thomson Datastream at 30/11/12

European export exposure Germany, UK and France < 20% exposure to PIIGS exports 10 European Union’s 3 largest economies export exposure Eurozone’s export exposure to the rest of the world Source: Thomson Datastream at 31/12/11 Eurozone exports well positioned for global economic recovery

Risk of European market rally? Price earnings a leading indicator for increasing equity returns History offers a ‘clue’ to correlated earnings recovery to undervalued assets 11 Europe vs price earnings Source: Thomson Datastream at 23/02/12

Trough to peak recoveries in European equities 12 FTSE World Europe (since inception maximum 2 year recovery periods) Source: Thomson Datastream at 23/02/12 “If past history was all there was to the game, the richest people would be librarians” - Warren Buffett

Are European equities good value? 13 Large international companies trade at a premium Active managers need to identify value Dividend records can inflate price relative to growth Beware of valuation traps just because a stock is cheap International demand is key. In 2010, 41% of UK market was owned by overseas investors* *Source: ONS at 28/02/12 **Source: Bloomberg at 23/02/12 ┼ Source: Mirabaud at 12/03/12 Combined Market Cap**24.2% 9.8x 12.7% 11.8x 14.1% 13.8x Average P/E UKEurope (ex-UK)US Market Trend P/E ┼ 16.2x 10.3x 17.6x

US recovery impact 14 Source: Thomson Datastream at 23/02/12 European business and investors responding to US recovery

Is the reverse yield gap back? 15 Source: Thomson Datastream at 23/02/12 Low equity growth outlook increases pressure for tangible returns - DIVIDENDS Yield

Low growth outlook encourages dividend opportunity 16 Source: Thomson Datastream at 23/02/ European stocks with yields higher than their P/E Yield

Cazenove European active weightings 17 Style GroupingFund %IndexKey Stocks Commodity Cyclicals12.5ENI Consumer Cyclicals7.0Publicis Groupe Financials20.5Allianz Growth10.6Bureau Veritas Growth Defensives19.5Bayer Industrial Cyclicals14.0Alstom Value Defensives16.1Sanofi Source: Cazenove Capital Management at 31/01/ UnderweightOverweight Neutral

Cazenove European Income Fund launch 18 Only 2nd European Fund launch to be managed by Chris Rice (OBSR AA rated) Dual objective* –Income (110% of the Index) –Capital growth (index +2% net of fees over 3 years rolling) Quarterly distribution Concentrated approach: stocks European Income funds limited strong reputational fund managers 1st May launch *Not guaranteed Subject to FSA approval

Disclaimer This document is issued by Cazenove Capital Management which is the name under which Cazenove Capital Management Limited and Cazenove Investment Fund Management Limited both authorised and regulated by the Financial Services Authority, provide investment products and services. It is for information purposes only and does not constitute an offer to enter into any contract/agreement nor a solicitation to buy or sell any investment or to provide any services referred to therein. This document is solely for the use of professional intermediaries and is not for general public distribution. The contents of this document are based upon sources of information believed to be reliable, however, save to the extent required by applicable law or regulations, no guarantee, warranty or representation (express or implied) is given as to its accuracy or completeness, and Cazenove Capital or connected companies, directors, officers and employees do not accept any liability or responsibility in respect of the information or any recommendations expressed herein which, moreover, are subject to change without notice. This document has been produced based on Cazenove Capital Management’s research and analysis and represents our house view. Unless otherwise stated all views are those of Cazenove Capital Management. It may not be reproduced in any form without the express permission of Cazenove Capital Management and to the extent that it is passed on, care must be taken to ensure this is in the form which accurately reflects the information given here. Unless otherwise indicated, the source for all data is Cazenove Capital. Past performance is not a guide to future performance. The value of investments and the income from them can go down as well as up and an investor may not get back the amount invested and may be affected by fluctuations in markets and exchange rates. Cazenove Capital Management is the name under which Cazenove Capital Management Limited (registered No ) and Cazenove Investment Fund Management Limited (registered No ) each authorised and regulated by the Financial Services Authority and of 12 Moorgate London EC2R 6DA provide investment products and services. 19 C12009_Around the World - Cazenove European 2012 Powerpoint Presentation.ppt