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Transcript of Stanlib Group
Market Opportunities Vaughan Henkel
SENATE GROUP June 2016
• Asset allocation
• Key focus areas for STANLIB
– US Payrolls
– Low return world – risk is important
– China – Bank bad debts limit stimulus
– ZAR – structurally weak
– South African Consumer – tailwind is absent
• Opportunities
– Offshore Property
– Bonds – almost but not quite
Agenda
2
Strongly Dislike Dislike Neutral Favour
Offshore Bonds SA Listed Property Offshore Equities SA Cash
SA Equities Non commodity SA Rand Hedge Stocks
Offshore Listed Property
SA Bonds Offshore Cash
Asset view Q2 2016 Risk adjusted basis
US monthly payrolls report (6 month average) – trend slowing May payrolls at 38,000, Hourly wage growth - OK
Single digit return forecasts means more defensive positioning A poorer risk-return outlook
China: The elephant in the room RMB 10-15trn (US$1.6-2.5 trn.) in next 3-5 years
Banks’ asset quality is deteriorating
Figures for commercial banks (excluding policy banks and rural credit cooperatives)
Source: CEIC, Gavekal Data/Macrobond Source: CEIC, Wind, HSBC
Breakdown of China’s bad debt
2015 - RMBtrn
ZAR History: Currency deviation from REER STANLIB forecast: R15 2016E, R16 2017E
Source: I-Net
60
70
80
90
100
110
120
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
SA revealed real effective (trade-weighted) exchange rate
Index
Fair value = 100
Over-valued
Under-valued
Rand is currently 17% under-valued on a trade-weighted basis.
31% of SA Income comes from social grants, pensions and remittances
(46% of South Africans receive social grants)
SA Consumer
Source: StatsSA
Percentage distribution of main source of household income by province, 2015
Global Property Developed Markets
2016 Q1 Sector Total Returns (US)
Source: UBS, April 2016
Peak occupancy
Source: UBS, April 2016
Historical REIT Occupancy (US)
Historical REIT lfl NOI growth (US)
Still healthy NOI growth
Source: UBS, April 2016
Commercial Real Estate Delinquency (US)
Source: UBS, April 2016
Global Premium / (Discount) to NAV
Source: UBS, April 2016
Yield spread between Listed Property and Bonds Global Property still cheap relative to bonds
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15
Spre
ad (
%)
FTSE EPRA NAREIT Developed Index and JP Morgan Global Bond Index Spread
Spread
Spread = Global Developed Property Yields less Developed Bond Yields Source: BNP Paribus Cadiz, STANLIB Research 31 March 2016
Current 2.65%
Average 1.51%
Bonds – almost time
0
100
200
300
400
500
600
700
800
900
1000
10/7/05 10/7/06 10/7/07 10/7/08 10/7/09 10/7/10 10/7/11 10/7/12 10/7/13 10/7/14 10/7/15
SA 5 Year CDS Brazil Embi+ Spread BBB Countries Sov Avg
Sovereign Spreads
Source: Stanlib, Bloomberg
0
2
4
6
8
10
12
14
16
1860
70
80
90
100
110
120
2011/04/15 2012/04/15 2013/04/15 2014/04/15 2015/04/15
EM Currency Index ZAR
Rand tracking EM Currencies
Source: Stanlib, Bloomberg
4.5
5
5.5
6
6.5
7
7.5
8
8.5
7
7.5
8
8.5
9
9.5
10
2011/04/15 2012/04/15 2013/04/15 2014/04/15 2015/04/15
ALBI Yield EM Yield
ALBI Yield vs EMBIG Yield
Source: Stanlib, Bloomberg
0
1
2
3
4
5
6
6
6.5
7
7.5
8
8.5
9
9.5
10
10.5
11
RSA 10 Year Yields US 10 Year Yields
RSA vs US 10 year yield
Source: Stanlib, Bloomberg
Evolution of GDP per capita
Source: Standard & Poor’s
Downgrade priced in long before action
Source: Nedbank
0.9
1
1.1
1.2
1.3
1.4
1.5
Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16
ZAR AUD CAD TRY BRL IDR MXN
Rand comparatively weaker than other EM currencies
South Africa Turkey
Brazil Indonesia Mexico
India Argentina
Poland
Thailand
Russia
Hungary
-6.0
-3.0
0.0
3.0
6.0
9.0
12.0
-10.0 -8.0 -6.0 -4.0 -2.0 0.0
CA
bal
ance
(%
of
GD
P)
Fiscal balance (% of GDP)
EM twin deficits comparison (%)
Source: Standard Bank Research
Brazil
Bulgaria China
Chile
Colombia
Croatia
Czech Republic
Hungary
India Indonesia
Mexico
Panama
Peru
Philippines Romania
Russia
South Africa Thailand
Turkey
0
2
4
6
8
10
12
14
16
AA
- (s
tab
le)
BB
B+
(sta
ble
)
BB
B+
(neg
ativ
e)
BB
B (
po
sitv
e)
BB
B (
stab
le)
BB
B (
neg
ativ
e)
BB
B-
(po
siti
ve)
BB
B-
(sta
ble
)
BB
B-
(neg
ativ
e)
BB
+ (p
osi
tive
)
BB
+ (s
tab
le)
BB
+ (
neg
ativ
e)
BB
(p
osi
tve)
BB
(st
able
)
BB
(n
egat
ive)
%
EM yield comparison (%)
Source: Standard Bank Research
9% 10% 13% 14% 22%
29% 36% 36% 36% 32% 14%
16% 18% 18%
18% 17%
17% 15% 15% 18%
10% 13%
14% 12%
14% 12%
14% 9% 9% 8% 45%
46% 44% 40%
36% 33% 25%
29% 29% 31%
23% 14% 12% 16% 10% 10% 8% 11% 11% 11%
0%
20%
40%
60%
80%
100%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
% of total Foreign Banks Insurers Pension funds Other
Global search for yield due to low DM interest rates
Source: ABSA, Treasury
Foreign Holdings of Local Bonds Still Relatively High
Appendix
US 10-year real return is at its long-term average
Source: Bloomberg, STANLIB Research
-10%
-5%
0%
5%
10%
15%
-10%
-5%
0%
5%
10%
15%
1964 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014
S&P500 10yr Rolling Real Return
US S&P 500 Return – Q2 2016 in US$ Various methods: 10-20% overvalued on average
Source: I-Net Bridge, STANLIB Research
SA 10-year real return at average
-10%
-5%
0%
5%
10%
15%
-10%
-5%
0%
5%
10%
15%
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
ALSI 10yr Rolling Real Return
South African corrections: ZAR weakens 10% on average over 9.5 months
Source: STANLIB
Start Date End Date Comment Move ALSI PE
ALSI Capital
return - over the
prior year Recession
Yield Curve
(SA 10 year -
3m T bill)
01 Feb 1960 28 Apr 1961 March 1960 - Sharpeville -30.0% 11.76 -
30 Apr 1969 29 Oct 1971 Nifty fifty collapse and Bretton Woods -58.1% 25.64 66.5% 1.8
02 Jul 1973 30 Nov 1973 1973 Oil crisis -25.8% 15.63 35.8% 4.9
01 Apr 1974 30 Sep 1976 US Inflation post Oil crisis -37.6% 14.93 38.3% Yes 3.4
31 Oct 1980 30 Jun 1982 US Recession via Volcker -36.5% 9.09 82.4% Yes 5.7
31 Aug 1987 29 Feb 1988 Asian Crisis -42.6% 14.71 67.6% 6.2
02 Apr 1990 31 Jan 1991 Recession -19.0% 10.87 28.6% Yes -1.6
01 Jun 1992 30 Oct 1992 ERM crisis in European Monetary union -18.0% 13.89 19.8% Yes 1.9
07 Aug 1997 12 Jan 1998 Asian Crisis -27.9% 17.24 13.0% -0.6
20 Apr 1998 11 Sep 1998 Russian crisis -41.8% 17.24 6.0% -0.2
17 Jan 2000 17 Apr 2000 IT bubble bursts -27.6% 17.78 66.6% 3.2
22 May 2001 21 Sep 2001 911 and ZAR collapse -23.0% 11.97 22.8% 1.4
22 May 2002 25 Apr 2003 Unifer/ Consumer loan crisis -34.6% 13.25 23.6% 0.5
11 May 2006 13 Jun 2006 -16.7% 16.71 68.3% 0.8
11 Oct 2007 23 Jan 2008 GFC -20.0% 15.09 33.9% -1.4
22 May 2008 20 Nov 2008 GFC continued -45.4% 15.45 9.1% Yes -0.9
06 Jan 2009 03 Mar 2009 GFC continued -20.5% 9.45 -25.7% Yes -3.3
Current environment: PE is 22x, Yield curve is 2.6%, ALSI 12m return is 3%
Thank you