Foro XXIII : Perspectivas Economicas para el 2014 (Santander)

XXXII Foro: “Las perspectivas económicas para el 2014“

Lima – December, 2013

p.1

Section 1

The Macro Outlook

p.2 The Global Scenario: Muddling Through

US and Europe: GDP Growth

Source: Santander

Commodity Price Evolution

Tapering by the Federal Reserve China: GDP Growth

0

10

20

30

40

50

60

70

80

90

4Q13 2Q14 4Q14 2Q15 4Q15

Hawkish

Base case

Dovish

0.0

0.5

1.0

1.5

2.0

2.5

3.0

4Q13 2Q14 4Q14 2Q15 4Q15

Hawkish

Base case

Dovish

p.3

Weight of LatAm in Different Parameters (% of World)

Sources: IMF, World Bank, Bloomberg and Santander

7.2%

7.1%

4.7%

3.3%

2.6%

2.1%1.8%

GDP-PPP Population Market Capitalization

% in MSCI ACWI

Listed Companies

% of Global Funds AUM

Traded Volume

The Weight of Emerging Markets and LatAm in the World

Weight of EM in Different Parameters (% of World)

p.4



p.5



p.6



p.7

Source: IMF, World Bank, Bloomberg and Santander

Latin America: A Varied Group of Peculiar Emerging Economies

Private Consumption

34.8

52.0

56.5

57.3

57.3

58.0

60.0

60.5

60.9

63.0

64.7

68.6

0.0 20.0 40.0 60.0 80.0

China

Russia

India

Argentina

Chile

EU 27

Peru

Japan

Colombia

Brazil

Mexico

USA

p.8

Weight of LatAm in Different Parameters (% of World)


7.2%

7.1%

4.7%

3.3%

2.6%

2.1%1.8%

GDP-PPP Population Market Capitalization

% in MSCI ACWI

Listed Companies

% of Global Funds AUM

Traded Volume


Weight of EM in Different Parameters (% of World)

p.9

Source: Santander , Bloomberg as of December 6th, 2013

(1) Based on Santander rated universe of 217 LatAm companies

Country Mk cap

(MM USD)

Trading Volume ADTV (3M)

Local ADR Local ADR

Argentina 74,085 16.1 69 28.0 100.0

Brazil 717,588 2,930.0 1,580 3,003.0 1,776.0

Chile 183,966 123.0 98 149.4 98.6

Colombia 188,990 75.7 33 86.7 24.7

Mexico 351,237 956.0 484 946.5 476.5

Peru 41,900 7.0 140 10.4 121.0

Latin America market liquidity – country view

LatAm Market Liquidity

p.10

Gov. Spending

Source: IMF, World Bank, Bloomberg and Santander

Latin America: A Varied Group of Peculiar Emerging Economies

Private Consumption

34.8

52.0

56.5

57.3

57.3

58.0

60.0

60.5

60.9

63.0

64.7

68.6

0.0 20.0 40.0 60.0 80.0

China

Russia

India

Argentina

Chile

EU 27

Peru

Japan

Colombia

Brazil

Mexico

USA

13.2

19.0

19.2

14.9

13.1

21.7

10.2

20.4

16.2

20.0

11.8

18.8

0.0 10.0 20.0 30.0

China

Russia

India

Argentina

Chile

EU 27

Peru

Japan

Colombia

Brazil

Mexico

USA

47.7

19.0

30.4

23.9

23.5

19.2

25.4

20.0

22.2

17.0

23.8

15.7

0.0 50.0 100.0

China

Russia

India

Argentina

Chile

EU 27

Peru

Japan

Colombia

Brazil

Mexico

USA

26.7

28.0

14.1

18.4

32.9

16.4

23.1

15.0

14.2

11.0

28.9

13.4

0.0 20.0 40.0

China

Russia

India

Argentina

Chile

EU 27

Peru

Japan

Colombia

Brazil

Mexico

USA

22.4

18.0

20.2

14.5

26.8

15.2

18.7

15.9

13.5

11.0

29.2

16.5

0.0 20.0 40.0

China

Russia

India

Argentina

Chile

EU 27

Peru

Japan

Colombia

Brazil

Mexico

USA

Investments Exports Imports

4.3

10.0

-6.1

3.9

6.1

1.2

4.4

-0.9

0.7

0.0

-0.3

-3.1

-10.0 -5.0 0.0 5.0 10.0 15.0

China

Russia

India

Argentina

Chile

EU 27

Peru

Japan

Colombia

Brazil

Mexico

USA

Net Exports

p.11 LatAm Economies: Fundamentally Sound …

Source: Santander

Leverage, 2012 (as % GDP) Fiscal Deficit, 2013E(% GDP)

International Reserves (% Gov. Debt) Unemployment Rate, 2013E

p.12 LatAm, Under-Leveraged in a Deleveraging World

DM: Total Debt Evolution EM vs DM: Low Leverage Ratios

Source: Santander

p.13 LatAm Low Private Debt Levels Persist Despite Growth

13

Source: IMF, BIS, central banks, governmental entities and Santander estimates

Private Credit (% of GDP) Mortgages (% of GDP)

-20%

20%

60%

100%

140%

180%

Japan US Germany China Chile Brazil MexicoColombia Peru

Consumer

Mortgages

Corporates

3%

4%

5%

6%

7%

10%

15%

18%

20%

23%

40%

41%

47%

54%

64%

77%

85%

Russia

Peru

Colombia

Brazil

India

Mexico

China

EM Av.

Chile

Italy

Japan

France

Germany

DM Av.

Spain

US

UK

p.14 LatAm Economies: … But Some Concerns in the Horizon

Investments (as % of GDP)

Source: Santander

Real Wages vs Productivity

Inflation 2013E (%) Current Account 2013E (% GDP)

12%

15%

18%

21%

24%

27%

30%

33% AR BZ CH CO

MX PE UR

p.15 The Constantly Growing Middle Class

15

Source: IMF, SEDLAC and Santander estimates

Population Segmentation Population Segmentation Evolution

p.16 Financial Markets, Quick to Embrace but also to Exit

LatAm: Equity Markets

Source: Bloomberg, FactSet and Santander.

16

LatAm: Government Bonds

LatAm: Commodities vs Equity Markets LatAm: FX

0

100

200

300

400

500

600

0

200

400

600

800

1000

1200

1400

1600

1800

2000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

LatAm Equity/ World Commodity Index

p.17

Section 2

Equity Markets & Fund Flows

p.18

Source: Santander, EPFR Global and Bloomberg as of December 16th, 2013

(1) Data as of October 2013

Weekly Fund Flows to LatAm LTM (in US$ MM)

Main Global indices performance (in US$) Latin America main indices performance (in US$)

Fund Flows as % of AUM by Latam Market(1)

6% 8%

24%

11% 8%

-5% -2%

27%

9%

-2%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

Brazil Chile Colombia Mexico Peru

2012 2013YTD

5.5%

-6.1%

-14.0%

-19.1% -21.9%

7.3%

10.8%

16.5% 18.3%

5.4%

20.2%

9.5%

15.1%

-1.2%

-16.8%

Dow Jones FTSE EuroStoxx MSCI Asia MSCI LatAm

2011 2012 2013YTD

-27.1%

-14.7% -19.6% -13.1%

-23.6%

-2.0%

27.0% 27.0%

11.7% 11.6%

-28.2%

-4.2%

-17.4%

-31.8%

-23.0%

Brazil Mexican Colombia Peru Chile

2011 2012 2013YTD

LatAm: Underperforming and Outflows

-1,500

-1,000

-500

0

500

1,000

1,500

D-12 F-13 A-13 J-13 S-12 N-13

Fund Flows 4 per. Mov. Avg. (Fund Flows)

http://www.canstockphoto.com/brazil-flag-0267246.html

http://www.canstockphoto.com/chile-flag-0269066.html

http://www.canstockphoto.com/colombia-flag-0267248.html

http://www.canstockphoto.com/mexico-flag-0052157.html

p.19 QE Liquidity Benefited Most GEM Dedicated Funds

19

GEM Dedicated Funds (US$ millions and % of AUM)

Source: EPFR Global, MSCI, Bloomberg and Santander

LatAm Funds (US$ millions and % of AUM)

0%

20%

40%

60%

80%

100%

120%

140%

D-08 J-09 D-09 J-10 D-10 J-11 D-11 J-12 D-12 J-130

100,000

200,000

300,000

400,000

500,000

600,000

700,000

AUM (LHS) Cumulative Flows (RHS)

-80%

-60%

-40%

-20%

0%

20%

40%

60%

D-08 J-09 D-09 J-10 D-10 J-11 D-11 J-12 D-12 J-130

10,000

20,000

30,000

40,000

50,000

60,000

AUM (LHS) Cumulative Flows (RHS)

p.20

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

J-13 F-13 M-13 A-13 M-13 J-13 J-13 A-13 S-13

EM DM

Fund Flows: The ‘Big Rotation’ Has Started

20

US: Flow of Funds: Fixed Income vs Equity

Sources: ICI, Lipper, Fitch, EPFR Global, Bloomberg and Santander estimates..

18.1%

1.6%

0

0.5

1

1.5

2

2.5

3

3.5

16

17

18

19

20

21

22

23

24

25

26

J-05 O-05 J-06 A-07 J-08 O-08 J-09 A-10 J-11 O-11 J-12 A-13

Weight of LatAm in GEM Fund Weight of LatAm in Global Funds

Global: Flow of Funds in Credit

Weight of LatAm in Global and GEM Funds Cumulative Flows to EM vs. DM, 2013YTD

p.21 Fund Flows to Peru – emerging as an alternative to Brazil & Mexico

Weight of accumulated inflows by Country Fund Flows to Peru: Evolution since 2007 (Base 1)

p.22

LatAm ECM activity since 2007(1) (in US$ m)

7,062 13,062

8,486 8,248 11,162 12,240

17,065

15,757 17,980 21,313 11,787

17,257 772

1,057 7,158 1,789

1,261

548

26,467

24,898

29,876 31,350 24,210 30,045

2008 2009 2010 2011 2012 2013YTD

IPO Follow-On Convertibles Petrobras Offering Total

Souce: Dealogic, Santander as of December 16th, 2013

(1) Includes FOs > US$ 100 MM, IPOs > US$ 50 MM

55 Deals

Latam current pipeline for equity deals

22 Deals 35 Deals 60 Deals 62 Deals 51 Deals

Date Country Sector Issuer Type Size

($ MM)

Range / Sub.

Price (Local) Expected Date

19-Nov-13 Colombia Finance Banco de Bogota FO 514 63,000.00 16-Dec-13

25-Nov-13 Colombia Finance Bancolombia FO 1,414 - TBD

1-Nov-13 Colombia Finance Grupo Aval FO 1,250 - TBD

21-Oct-13 Mexico Real Estate/Property Fibra Prologis IPO - - TBD

23-Aug-12 Brazil Auto/Truck AutoBrasil Participacoes IPO - - TBD

23-Jan-13 Paraguay Oil & Gas Dahava Petroleos SAECA IPO 100 - TBD

17-May-13 Chile Retail Farmacias Ahumada FO 376 - TBD

20-Aug-13 Brazil Auto/Truck Sascar Participacoes IPO - - TBD

27-Aug-13 Argentina Computers & Elect Globant SA IPO 86 - TBD

LatAm Primary Markets: More Active than Last Year

p.23

Source: Bloomberg and Dealogic. Includes IPOs > 50 MM as of December 16th, 2013

LatAm - Priced IPOs > $50 MM (2013 YTD)

Mexico taking Brazil position in Primary Markets

Date Countr

y Sector Issuer Type

Size

($ MM)

Free Float

(%)

Offer Price

(Local) Range

Rel. to

Midpoint (%)

Aftermarket Performance (%)

1 Day 1 Week 1 Month Since Offer Rel. to MSCI

Latam

6-Dec-13 Brazil Professional

Services CVC Brasil Operadora IPO 226.87 26.02 16 18.00 - 22.00 -20 -3.13 -3.13 - -3.13 -1.95

25-Oct-13 Brazil Professional

Services Grupo Ser Educacional SA IPO 245.37 25.04 17.5 19.50 - 23.50 -18.6 -1.83 10.29 22.29 25.14 33.53

24-Oct-13 Brazil Professional

Services Gaec Educacao (Anima) IPO 215.06 31.27 18.5 16.50 - 22.00 -3.9 3.84 7.57 16.76 11.08 18.77

15-Oct-13 Mexico Food & Beverage Grupo Industrial Lala SA de

CV IPO 938.81 18.46 27.5 23.50 - 27.50 7.84 7.6 7.2 6.07 4.36 12.31

8-Oct-13 Mexico Real Estate/Property Fibra Danhos IPO 396.02 21 26 26.00 - 28.00 -3.7 -1.423076923

-

3.76923076

9

-5.54 -5.15 -0.01

17-Sep-13 Mexico Transportation Volaris SA IPO 398 33 12 12.00 - 14.00 -7.69 16.75 21.08 17 21.33 26.69

23-Jul-13 Mexico Real Estate/Property Fibra Shop IPO 378.97 76.78 17.5 17.50 - 19.50 -5.41 -0.74 -0.29 -0.06 -5.77 5.04

17-Jul-13 Brazil Utility & Energy CPFL Energias Renovaveis

SA IPO 403.94 16.34 12.51 12.51 - 15.01 -9.08 -3.916866507 -7.99 -0.08 3.84 -15.67

13-Jun-13 Mexico Dining & Lodging Hoteles City Express SAB

de CV IPO 208.2507 40 24 24.00 - 29.00 -9.43 -6.38 -8.46 -4.38 -10.5 -6.12

29-Apr-13 Brazil Auto/Truck Iochpe-Maxion CONV 159.2 - - - - - - - - 45.29

25-Apr-13 Brazil Insurance BB Seguridade

Participacoes SA IPO 5046.63 30 17 15.00 - 18.00 3.03 -2.35 4.41 7.94 42 38.94

25-Apr-13 Brazil Transportation Smiles SA IPO 497.92 39.85 21.7 20.70 - 25.80 -6.67 5.99 9.91 16.82 47.88 -9.73

22-Apr-13 Brazil Utility & Energy Alupar Investimento SA IPO 368.48 19.62 18.5 18.50 - 21.50 -7.5 -5.41 -2.22 1.03 -15.41 -33.13

15-Apr-13 Brazil Chemicals Biosev SA IPO 355.49 22.56 15 I 0.25 15 | 0.01 - 2.00 0 -14.3333 -12.67 -6.67 -35.8 -21.33

26-Mar-13 Mexico Construction/Building OHL SA (OHL Mexico

Underlying) CONV 388.98 - - - - - - - - 51.21

26-Mar-13 Mexico Utility & Energy Ienova (Sempra) IPO 519.6 16.85 34 30.00 - 34.00 6.25 16.53 15.71 27.41 61.38 -10.46

21-Mar-13 Mexico Real Estate/Property Fibra Terra IPO 663.4 77.61 28 28.00 - 32.00 -6.7 -2.21 -1.14 2.11 -16.21 -13.62

19-Mar-13 Mexico Real Estate/Property FIBRA INN IPO 316 92.5687536

6 18.5 17.25 - 19.75 - 2.76 1.57 10.92 -9.41 -3.57

12-Mar-13 Mexico Retail Grupo Sanborns IPO 831 16 28 27.00 - 32.00 -5.08 1.64 -0.21 0 -1.11 49.07

7-Feb-13 Brazil Computers &

Electronics Linx IPO 230 37.89 27 23.00 - 27.00 8 18.52 15 17.07 84.19 -4.92

Total $ 12,788

Average $ 639 36 (4.6) 1.8 2.9 7.6 11.0 8.0

Median $ 384 28 (5.4) (1.1) 0.7 6.1 1.4 (1.0)

p.24

Source: Bloomberg and Dealogic. Includes FOs > 100 MM as of December 16th, 2013 (1) Excludes Block Trades (2) Denotes Chilean Rights Offerings

LatAm - Priced Follow-On Offerings > $100 MM (2013YTD)(1)

Peru’s Graña y Montero Follow On

Date Country Sector Issuer Type Size

($ MM) % of Co. Sold Last Close

From Anncmt to

Offer

(%)

Aftermarket Performance (%)

1 Day 1 Week 1 Month Since Off. Rel. to MSCI

Latam

12-Dec-13 Brazil Retail Via Varejo SA FO 1066.58 25 25.60 - 33.60 -22.3 - - - - -

12-Dec-13 Mexico Finance Corporacion Actinver FO 62.88 10.06 14.6 -4.19 1.43 - - 1.43 1.24

22-Nov-13 Chile Finance Quinenco SA FO 670.29 23.66 1329.9 -13.39 - - - - -

6-Nov-13 Colombia Transportation Avianca Holdings SA FO 408.52 21.76 16.6 -18.92 -6.67 -1.67 -4.2 -4.33 1.52

16-Oct-13 Chile Food & Beverage Comp. Cervecerias Unidas -

CCU (2) FO 356.72 7.43 6702.6 - - - - - -

16-Oct-13 Mexico Finance Grupo Financiero

Interacciones FO 281.88 22.53 74 -17.57 0 0 -0.41 -4.54 4.25

16-Oct-13 Brazil Metal & Steel Tupy SA FO 208.68 18.53 18.59 -29.94 2.86 5.09 6.29 17.77 26.56

24-Sep-13 Chile Transportation CSAV (2) FO 329.64 43.64 0.05 - - - - - -

13-Sep-13 Chile Food & Beverage Comp. Cervecerias Unidas -

CCU FO 292.83 6.62 26.68 -5.93 1.54 3.46 5 -8.96 -4.92

26-Jul-13 Chile Finance Grupo Security (2) FO 113 9.47 194 - - - - - -

24-Jul-13 Peru Construction/Building Grana y Montero SAA FO 412.77 14.89 22.24 -1.72 0 -0.99 -5.3 -7.24 -5.10

16-Jul-13 Mexico Finance GF Banorte FO 2177.82 14.33 72.21 -12.32 11.51 15.55 17.08 32.07 32.07

9-Jul-13 Mexico Transportation OMA FO 185.16 15 41.68 -8.74 0.78 2.43 21.43 11.7 7.92

25-Jun-13 Mexico Finance GF Inbursa SAB de CV FO 824.31 6.35 26.32 -11.5 3.46 15.31 16.96 31.54 27.24

25-Jun-13 Mexico Real Estate/Property Vesta FO 186.63 22.57 23.67 -13.63 10.44 11.33 18 3.96 -0.34

20-Jun-13 Mexico Construction/Building OHL Mexico SAB de CV FO 470.99 12.32 29.82 -15.25 -1.34 5.1 21.69 15.45 11.53

12-Jun-13 Chile Forestry & Paper Empresas CMPC SA (2) FO 184.45 6.26 1695.4 - - - - - -

5-Jun-13 Brazil Real Estate/Property Iguatemi SA FO 176.7 7.41 24.02 -2.08 2.13 0.43 -5.23 -2.72 4.88

30-May-13 Mexico Real Estate/Property FibraHotel FO 335.26 36.62 26.5 -3.52 5.61 7.98 2.08 -19.56 -8.81

9-May-13 Colombia Construction/Building Cementos Argos SA FO 764.73 13.65 22.91 -9.29 5.974 4.52 3 9.46 25.99

24-Apr-13 Brazil Professional Services Abril Educacao SA FO 252.05 4.92 45.88 -8.07 -1.13 -4.44 0 -26.89 -12.02

18-Apr-13 Brazil Real Estate/Property BHG SA Brazil Hospitality

Group FO 165.01 30.61 18.21 -17.18 -4.74 -2.86 1.37 -18.29 -4.88

28-Mar-13 Chile Utility & Energy Enersis (2) FO 2375 16 182.41 - - - - - -

27-Mar-13 Brazil Real Estate/Property Multiplan FO 259.7 4.78 58.4 6.03 0 -2.79 -2.52 -16.22 0.52

15-Mar-13 Chile Retail Cencosud (2) FO 1634 11.83 2930.5 - - - - - -

21-Feb-13 Chile Finance Banco de Chile (2) FO 464 3.75 69.82 - - - - - -

30-Jan-13 Mexico Consumer Products Organizacion Cultiba FO 269 14 39.5 -6.67 0 0 0 -24.83 -5.54

30-Jan-13 Argentina Agribusiness Adecoagro FO 111 12 8.18 -11.11 6.25 6.25 0 -3.25 16.04

29-Jan-13 Mexico Real Estate/Property Fibra Uno FO 1732 38 38.32 4.52 8.49 8.14 8.19 12.76 32.95

23-Jan-13 Brazil Professional Services Estacio Participacoes FO 326 17 42.75 7.28 1.9 5.07 14.55 47.57 67.51

16-Jan-13 Chile Finance Corpbanca (2) FO 159 4 21.11 - - - - - -

26-Dec-12 Colombia Construction/Building Constructora Conconcreto FO 137 39 1340 4.65 0 -0.74 0.74 -0.74 15.93

Total $ 17,394

Average $ 544 16.7 (5.1) (8.8) 2.2 3.7 5.7 2.1 10.7

Median $ 309 14.2 (4.0) (9.0) 1.5 3.5 2.1 (1.7) 4.6

p.25

Section 3

2014 Perspectives

p.26 LatAm GDP Growth: Brazil Bucks the Trend

LatAm GDP Growth (YoY, %)

Source: Santander

1.9

0.9

5.6

4.0 3.8

6.3

3.0

2.3

4.2

3.7

1.2

5.3

0.5

1.7

3.9

4.5

3.0

5.7

1.6 1.5

4.5 4.2

4.0

5.5

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Argentina Brazil Chile Colombia Mexico Peru

2012 2013E 2014E 2015E

p.27

27

12-Month-Forward P/E vs. EPS CAGR 13-15E

Source: Companies, FactSet and Santander

LatAm Fairly Valued vs. Other Global Markets

S&P 500

STOXX 600

Nikkei 225

MSCI LatAm

MSCI EM Asia

MSCI EM Europe

4

6

8

10

12

14

16

18

7% 9% 11% 13% 15% 17% 19%

12

M F

orw

ard

P/E

EPS CAGR 13-15E

p.28

Recent upgrade of Peru to Overweight by Santander LatAm Sector recommendations

Highlights: Upgrading Peru to Overweight

p.29 Highlights: Upgrading Peru to Overweight

1. Peru to continue growing at the fastest pace in LatAm in 2014 (5.6%) and is the best vehicle to play the rebound in

global growth: i. Investments should continue to drive growth in the country, with 10.0% growth rates driven by mining and infrastructure sectors;

ii. Exports should rebound strongly from -2.6% in 2013 to 5.0% in 2014, given the stabilization in commodity prices and improving

global growth;

iii. We continue to see the inflation scenario remaining benign, at 2.5-3.0%;

iv. Although the country’s current account deficit remains elevated (4.9% of GDP) in current liquidity conditions, we believe this is

manageable due to Peru’s high international reserves (30.6% of GDP), long maturity of external debt (12 years), and

increased mining production that will place downward pressure in the upcoming years.

2. Concerns about the mining sector’s effect on GDP growth are overdone, as we see: i. the stabilization in metal prices;

ii. export revenue growth will increasingly come from volume increases vs. price increases (the country intends to double copper

output by 2016); and

iii. Peru remains one of the most cost-efficient global metal producers (92.7 cents/lb for copper)

3. Peru’s equity market currently trades at an excessive equity yield gap compared with the rest of LatAm, which more than

prices in the risk of a growth slowdown in China and lower commodity prices. Current valuations (12-month-forward P/E of

13.3x and equity yield gap of 3.2%) have been driven by risk aversion (QE tapering liquidity implication for EM and fears of

end of commodity super-cycle) vs. underlying fundamentals of the country’s equities. Companies in Peru have responded

aggressively to the lower global growth conditions by cutting costs to sustain profitability and growth moving forward. The most

notable examples have been Credicorp and Buenaventura.

4. Earnings expectation in the last 12 months have been revised downward quite significantly (by 34% vs. 17% for

LatAm), which could leave some room for surprises in upcoming quarters, with more stability in commodity prices and FX. We

currently expect a fall of 12% in earnings for 2013, with a rebound to 13% in 2014.

p.30 Peru: An Exports and Investments Story

Sources: Proinversion, SNM, Bloomberg and Santander estimates

Peru Copper Production, 2011-16E

1,235 1,2991,519

1,814

2,2042,474

2011 2012 2013 2014 2015 2016

Current Antamina Cerro Verde Antapaccay Toromocho Constancia Las Bambas

Sector Number of

Projects

Expected

Awarding Est. Amm.

Railroads 1 4Q13 6.5

Power and Gas 5 4Q13 4.1

Roads 3 2Q14 0.9

Agricultural 1 4Q13 0.6

Ariports 1 4Q13 0.6

Water and Sewerage 3 4Q13 0.5

Telecomm. 1 4Q13 0.3

Others 10 4Q14 3.5

Total 25 US$ 17 bn

Peru: Infrastructure Projects

p.31 Appetite for Peruvian assets

Commentary & Considerations

Source: Santander Equity Research based on feedback during recent Andean Trip

Wall street research analyst views and discussions with several buy-side accounts.

Positive about Peru and

its macro-economics

outlook

Particular interest in

stories related to

construction and

consumption to benefit

from dynamics in the

country

Offering size and

liquidity is key to

investors

“Appetite to gain exposure to the strong internal demand growth expected in

Peru. Positive macro environment , with the fastest GDP growth for 2013”

“Positive views on the outlook for commodities prices, specially copper,

although volatility is always a risk factor”

“In the past five years Peru has grown 7.2% on average, significantly better

than the average for Latin America, which was 4.1% in the same period”

“Peru is shifting to a consumption driven growth as authorities boost social

spending . He challenge is thus whether the current economic model will be

sustained in the medium term”

“Capital Inflows will continue to be strong during 2013 given attractive

investment opportunities and strong macro fundamentals (high growth,

controlled inflation, fiscal surplus)”

“We find Peru very attractive at the country level and Consumer Discretionary

at the sector level”

Press

and

other

feedback

from

investors

“Peru, in my opinion, is by far the most interesting country nowadays. […] The

challenge here is find liquid enough investable ideas”

Peru

Investors

Trip 2013

Foreign Perception:

- Peru is still the shining star of Latin America,

- Highest growth rate among major economies in the region

- Sound macro environment and room for maneuver: the government is doing the right things

Companies are quickly adapting to the new environment

- Capital “became” a scarce resource

- Focus changed from expansion to efficiency

- Growth opportunities still exist, but companies are becoming more selective in what they pursuit

Investment becomes even more important:

- Peru has sustained the highest rates of investment/GDP in Latin America

- Expected shift from private to public investment

- Mining investment should sustain growth despite lower commodity prices

- Peru is an efficient copper and gold producer, therefore major projects should be still profitable at current prices.

- Infrastructure will be key to sustain growth in the short term and increase productivity over the medium/long term

Concerns:

− Further deceleration in China and/or further decreases in commodity prices

- Delays in infrastructure projects

- Price of land in certain areas of Lima

- Too much efficiency can strangle growth

- Decreases in business and consumer confidence

p.32 Global Economic Forecast

Source: Santander estimates

p.33 LatAm Economic Forecast


p.34

Appendix

p.39 Effect of Liquidity Injections on LatAm

39

Relative Performance of LatAm vs. Global Equities

Source: EPFR Global, MSCI, Bloomberg and Santander

60

70

80

90

100

110

120

130

140

J-08 M-08 S-08 J-09 M-09 S-09 J-10 M-10 S-10 J-11 M-11 S-11 J-12 M-12 S-12 J-13 M-13 S-13

QE1 QE2

Twist

LTRO1

QE3

ABE LTRO2

OMT

Tapering Talks

p.40 Earnings Estimates Remain Too High…

Earnings Growth Expectations, 2013E and 2014E

17%

29%26% 26%

5%

-3%

-21%

16%

21% 19% 18%

11%

-3%

12%

LatAm Chile Brazil Argentina Mexico Colombia Peru

2013 2014

p.41

2013 Earnings Revisions in Last 3M, 6M and 12M

Source: Companies, FactSet and Santander

…Downward Revisions to Continue; Mostly for Brazil

-12%

-17%

-14%

-16%

-34%

-27%

-17%

-11%

-11%

-6%

-11%

-30%

-27%

-11%

-3%

-5%

-7%

-8%

-13%

-19%

-7%

Colombia

Mexico

Chile

Brazil

Peru

Argentina

LatAm

3M 6M 12M

p.42 Asset Classes: Fixed Income

Adjusted LatAm Rates

Source: Santander.

42

Normalized Policy Rates (last / 6-year average) EM Local Rates Spreads

Linkers vs. Nominal

0

50

100

150

200

250

300

Jun-06 Dec-07 Jun-09 Dec-10 Jun-12 Dec-13

0.5

1.5

2.5

3.5

4.5

5.5

6.5

7.5

8.5

9.5Mov e (UST v olatility ) index5Y EM - 5Y UST (%, RHS)*Fed's balance sheet (US$ tn, RHS)

Country 5Y Rate 5Y CDS Core CPI 5Y rate-CDS-

(%) (bps) (y/y%) Core CPI (%)

Brazil 12.40 186.7 5.81 4.73

Chile 4.86 79.7 1.60 2.46

China 4.48 65.5 1.60 2.23

Colombia 4.45 121.0 2.28 0.96

Hungary 4.82 270.7 3.50 (1.38)

Indonesia 8.03 211.8 4.80 1.12

Mexico 5.10 92.7 2.56 1.61

Peru 2.81 133.2 3.32 (1.84)

Phillipines 3.00 106.7 2.80 (0.87)

Poland 3.68 79.9 1.40 1.48

Russia 7.20 162.5 4.50 1.08

S. Africa 7.17 198.2 10.20 (5.01)

S.Korea 3.38 56.3 1.80 1.02

Thailand 3.56 123.0 0.85 1.48

Turkey* 9.09 196.3 7.22 (0.09) U.S. 1.53 29.1 1.11 0.14

Average 5.35 132.07 3.46 0.57

y = 2.77x - 4.11

R2 = 0.83

-1

0

1

2

3

4

5

- 1.0 2.0 3.0 4.0

10Y CDS + TIPS

10Y

rate

s -

12m

CP

I -

10Y

CD

S

B r a zilC h ileC o lo m b iaM e xic oP e r u

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

Jan-07 Jul-08 Jan-10 Jul-11 Jan-13

(%)

Brazil ChileColombiaMexicoPeru

loose

policy

tight

policy

p.43

p.43

Appendix 2

Peru

p.44

5.0%

6.8%

7.7%

8.9%

9.8%

0.9%

8.8%

7.0%

6.3%

5.4% 5.6%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E

Peru: A “5.5% Growth” Story

Sources: Bloomberg and Santander estimates.

Peru GDP Growth, 2004-14E

6.2

10.09.5

8.8 8.6

6.9 6.6 6.96.1 6.4 6.7

6.3

4.5

5.6 5.4 5.6

0

2

4

6

8

10

12

I II III IV I II III IV I II III IV I II IV(E)

2010 2011 2012 2013 2014 (E)

p.45 Peru: Credit Dollarization Remains High

Consumer Credit Dollarization (% of Total)

Sources: CNC, Banco Central do Brasil, governmental entities and Santander estimates.

Consumer Credit Composition (% of Total)

11% 10% 9% 9%

59%

54%50% 49%

2009 2010 2011 2012

Consumer Mortgages

Credit Cards23%

Other Consumer

31%

Mortgages46%

p.46 Peru: Earnings Expectations Reflect Bearish Sentiment


2013 Earnings Revisions, Last 12 Months

-34%

-27%

-17% -16%-14%

-12%

-17%

Peru Argentina Mexico Brazil Chile Colombia LatAm

p.47 Peru: Cheapest Valuations in LatAm


Peru 12 Month Forward P/E

-

3

6

9

12

15

18

21

24

'05 '06 '07 '08 '09 '10 '11 '12 '13

Last: 13.35

Avg: 14.51

High: 23.25

Low: 4.33

Foro XXIII : Perspectivas Economicas para el 2014 (Santander)

Economy & Finance

Transcript of Foro XXIII : Perspectivas Economicas para el 2014 (Santander)