Weekly Markets

Perspectives

For important disclosures, refer to the Disclosure Section, located at the end of this report.

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Equity markets traded on a risk-on mode over the

last week. The Shanghai composite rose more than

4%, but remains one of the worst performing markets

since the beginning of the year.

At last week’s ECB press conference, President Draghi

said that the ECB had a discussion on rates which

included the topic of negative deposit rates.

Moreover, the ECB cut 2013 GDP growth forecasts to -

0.3% (from +0.5% previously).

The ECOFIN meeting ended without much progress

on EU bank supervision. Spain will receive €39.5bn in

bank recap funds from the EU by mid-December. The

much-awaited details of Greece’s buyback were also

announced.

The Bundesbank cut German 2013 GDP growth

forecast from 1.6% to 0.4%. 2012 GDP is expected to

grow 0.7%. Both the RBA (Australia) and the PNB

(Poland) cut interest rates over the last week.

Weekly SummaryIn the US, fiscal cliff negotiations are ongoing. In

terms of data, the week started with a

disappointing US ISM number (49.5 vs. 51.4

expected) and ended with the unemployment

rate falling to a near five-year low of 7.7%.

This week's two-day FOMC meeting, which

concludes on Wednesday, will probably dominate

the markets. Investors expect the Fed to replace

its expiring Operation Twist with an expansion of

its QE purchases.

However, US advanced retail sales, flash

manufacturing PMI for China, and Euro area flash

PMIs should also be closely watched.

In Portugal, Jerónimo Martins will hold

tomorrow its Investor’s Day. Given the GDP

slowdown in Poland and the tough macro

environment in Portugal, investors will look for

further visibility and an update on targets.

Portugal: Q3 2012 GDP fall 3.5%

y/y• The Portuguese real GDP fell 3.5% y/y in Q3

2012, a downward revision of 0.1 p.p. when

compared with the flash estimate;

• Domestic demand recorded a less negative

contribution for the y/y change rate of GDP (-

7.4% vs. -8.7% in Q2 2012);

• The positive contribution of net external

demand decreased to 3.9 p.p. (5.6 p.p. in the

previous quarter), reflecting a lower reduction

of Imports and a deceleration of Exports.

Portugal: Exports up 3.4% and

imports down by 0.6%• Exports of goods increased by 3.4% and imports

of goods decreased by 0.6% in the quarter ended

in October 2012, when compared with the same

period last year;

• The deficit of the trade balance decreased by

€441.4mn. The coverage rate stood at 76.9%, a 3

p.p improvement, when compared with the

coverage ratio of the period August to October

2011.

Source: Statistical Office of Portugal

Decomposition of GDP change rate (volume)

Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012

Domestic Demand -5.2 -9.9 -6.8 -8.3 -7.1

Exports 6.1 6.2 8.2 3.7 1.7

Imports -4.4 -13.4 -5.4 -10.8 -8.2

GDP -1.8 -3.1 -2.3 -3.1 -3.5

Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012

Domestic Demand -5.6 -10.7 -7.2 -8.7 -7.4

External Demand 3.8 7.7 4.9 5.6 3.9

GDP -1.8 -3.1 -2.3 -3.1 -3.5

Source: Statistical Office of Portugal

Year-on-Year change rate (%)

Contributes to GDP change rate (p.p.)

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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Greek GDP and Economic Sentiment

EC Economic Sentiment

Indicator (LHS)

GDP (% y/y, RHS)

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Components of GDP (%, y/y)

Gross Fixed Capital Formation

Household Consumption

Exports (RHS)

Euro-zone: Domestic Demand

vs. Net Trade

Source: Eurostat

• The detailed Q3 2012 GDP release confirmed

that the Euro-zone economy contracted by

0.1% q/q;

• Having fallen in the previous three quarters (-

0.4% q/q, -0.3% q/q and -0.5% q/q, in Q2 2012,

Q1 2012 and Q4 2012 respectively), household

consumption was stable in Q3 2012. Investment

showed a smaller contraction (-0.7% q/q) than

in Q2 2012 (-1.8% q/q) and Q1 2012 (-1.2%

q/q);

• Net trade made a positive contribution of 0.3%.

Greece’s debt buyback allows

some debt relief• €10bn of six-month EFSF notes will be used for the

debt buyback. A Dutch auction process was

concluded Friday for each of the 20 series of

outstanding new GGBs, with the average price of all

bonds being between €32.12 and €34.1;

• If successful, this could allow outstanding Greek

debt to fall by a net €20bn;

• German Chancellor hinted that Germany might one

day consider forgiving some of its outstanding loans

to Greece, if there is a substantial improvement in

the country’s fiscal performance.

Source: National Statistical Service of Greece and European Commission

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2005 2006 2007 2008 2009 2010 2011 2012 2013

German Industrial Production and manufacturing PMI

Industrial Production (% y/y, RHS)

Manufacturing PMI (Adv. 2 months, LHS)

Source: European Central Bank

• President Draghi repeated that the ECB is ready

to start buying bonds through its Outright

Monetary Transactions programme;

• He did not mention additional forms of policy

support such as quantitative easing. But, a

further interest rate cut as been discussed;

• The bank has become gloomier about the growth

outlook. The mid–points of its latest staff

forecasts imply that GDP will fall by 0.5% in 2012

and a further 0.3% in 2013, before rising by 1.4%

in 2014;

ECB reduces again its 2013 GDP

growth forecast

Bundesbank cuts German growth

forecast• The Bundesbank cut 2013 GDP growth forecast

from 1.6% to 0.4%. 2012 GDP is expected to

grow 0.7%;

• The bank is also forecasting lower inflation.

Inflation is expected to fall from 2.1% this year

to 1.5% in 2013. Unemployment should rise

slightly to 7.2% in 2013, from 6.8% this year;

• German industrial production fell 2.6% m/m in

October, much weaker than the consensus

forecast of -0.5%.

Source: Bloomberg

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2011 2012 2013 2014 2015 2016 2017

Office for Budget Responsibility's latest GDP

Forecast (%)

Source: OBR’s Economic and Fiscal Outlook, December 2012

• The UK Autumn Fiscal Statement was released.

Public Sector Net Debt is now expected to peak

at 77.9% of GDP in 2015/16, a year later than the

previous prediction that it would peak at 76.3%

of GDP in 2014/15;

• The Office for Budget Responsibility's GDP

forecasts were revised down to -0.1% in 2012

(from 0.8%), 1.2% in 2013 (from 2%), 2% in 2014

(from 2.7%), 2.3% in 2015 (from 3%) and 2.7% in

2016 (from 3%);

• The UK Debt Management Office intends to

start issuing new super-long dated (50-60 year)

Gilts from next year.

UK fiscal watchdog revises down

GDP growth forecast

US unemployment rate declines

to 7.7%• Non-farm payroll employment increased by

146,000 in November. However, the gains in

September and October were revised down by a

total of 49,000;

• The unemployment rate declined to a near five-

year low of 7.7%, from 7.9%;

• The monthly gains in payroll employment have

been increasing since the middle of the year;

• The BLS reported that there was no significant

impact from Hurricane Sandy on the jobs

report.

US Employment Report

Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12

Unemployment rate (%) 8.1 8.2 8.2 8.3 8.1 7.8 7.9 7.7

Change in Non-Farm Payrolls (000s) 68 87 45 181 192 132 138 146

Average Hourly Earnings (%, y/y) 1.9 1.8 2 1.7 1.7 1.9 1.6 1.7

Average Weekly Hours Worked 34.5 34.4 34.5 34.4 34.4 34.4 34.4 34.4

Source: Bureau of Labor Statistics

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ISM Manufacturing Index and GDP Growth

ISM Manufacturing

Index (Adv 1qtr, LHS)

GDP (% y/y, RHS)

US: ISM data for November -

Industry down… Services up…

Source: ISM Institute; Bureau of Economic Analysis

• The ISM manufacturing headline index fell from

51.7 in October to a three-year low of 49.5 in

November. Was the fall explained by the

temporary effects of storm Sandy?

• Both the new orders index (50.3 vs. 54.2) and

the employment index (48.4 vs. 52.1) fell;

• The US ISM non-manufacturing index rose in

November to an eight-month high of 54.7. It

seems to suggest that activity in the services

sector has not been hit by fiscal cliff concerns.

US consumer sentiment drops in

December• The University of Michigan consumer sentiment

index’s headline fell to 74.5 in the preliminary

December report;

• It appears that concerns and uncertainty related to

the fiscal cliff weighed on consumer sentiment

during the month;

• Sentiment regarding government economic policy,

expectations for unemployment, and income

expectations all weakened;

• The survey also reported increases in consumer

inflation expectations.

University of Michigan sentiment index

Prelim.

May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12

Consumer sentiment 79.3 73.2 72.3 74.3 78.3 82.6 82.7 74.5

Current conditions 87.2 81.5 82.7 88.7 85.7 88.1 90.7 89.9

Expectations 74.3 67.8 65.6 65.1 73.5 79.0 77.6 64.6

Median 1-year-ahead inflation expectations 3.0 3.1 3.0 3.6 3.3 3.1 3.1 3.3

Median 5-year-ahead inflation expectations 2.7 2.8 2.7 3.0 2.8 2.7 2.8 2.9

Home buying conditions 160 159 157 157 165 155 162 158

Source: University of Michigan

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2009 2010 2011 2012 2013

NBP base rate (%)

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2008 2009 2010 2011 2012

RBA Overnight Cash Rate Target

Australia: RBA cuts 25bp.

Further cuts are possible

Source: Bloomberg

• The RBA cut the cash rate by 25bp to 3%;

• The statement attached to the decision

doesn’t seem to signal that the RBA's easing

cycle is complete. It mentions that

“commodity prices for Australia remain

significantly lower than earlier in the year“

and “inflation remains relatively benign and

consistent with target”;

• The next meeting will be held in February

2013. RBA will probably follow closely

indicators in the non-mining economy.

Poland: a 25bp cut was announced.

Another cut in January is possible• The Polish MPC cut rates again by 25bp, as expected

by the market;

• The reasons for the cut were expectations of growth

remaining below potential in the medium term, the

risk that inflation may fall below the target in the

medium term, slowing credit growth, and worries

about a sharp slowdown in domestic consumption

dynamics;

• The statement repeated that the MPC will cut more

if the incoming data confirms a growth slowdown

and the risk of inflation pressures stays limited.

Source: National Bank of Poland

• ZON (ZON PL) and Sonaecom (SNC PL) rose 6.15% and

2.97%, respectively, amid further speculation that both

companies could merge. We continue to believe that a

merger could allow material cost sinergies and provide a

more credible competitor to Portugal Telecom (PTC PL);

• EDP Renovaveis (EDPR PL) and Energias de Portugal

(EDP) rose 5.66% and 8.12% over last week, respectively.

EDP Renovaveis has commissioned its first wind farm in

Italy. China Three Gorges, EDP's largest shareholder with

a 21.35% stake, reaffirmed its interest in reinforcing its

current stake by acquiring the 4.14% that the Portuguese

state still owns in EDP. EDP Renováveis expects the first

deal with CTG until year-end;

• Galp (GALP PL) fell 0.38%, underperforming the

Portuguese Benchmark PSI 20 (3.42%). The company

announced new natural gas discoveries in Mozambique,

which represents another resource upgrade for Area4;

• Portugal Telecom (PTC PL) rose 0.36% over the week.

Societe General (GLE FP) now holds a long position of

more than 2% of the company. The stake is the result of

the transaction of a cash settled equity linked swap.

PSI20 weekly review

Source: Bloomberg

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Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12

Freeport McMoRan Share Price ($)

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GDF Suez Share Price (€)• GDF Suez (GSZ FP) provided a strategic update. The

company reiterated its policy to maintain or grow the

dividend (2012 dividend at €1.5/share was confirmed).

However, GDF Suez said that earnings will fall 17% in

2013 and remain flat in 2014. In order to strenghten its

balance sheet, the company intends to make further

asset sales (c. €2.5bn), cut annual capex and implement a

cost reduction programme. More visibility on earnings

growth post 2014 will probably be needed for the stock

to perform;

• Deutsche Telekom (DTE GY) presented a new set of

2013-15 targets. Higher levels of investment in the

German and US markets were announced. In order to

protect the balance sheet, 2013 and 2014 dividends will

be cut to €0.50 and an option for investors to take the

dividend in stock rather than cash will be introduced;

• Freeport McMoRan (FCX US) fell 18.5% over last week.

The company has signed merger agreements under

which it will acquire Plains Exploration (PXP US) for

$6.9bn in cash and stock and McMoRan Exploration

(MMR US) for $3.4bn in cash.

Last week’s market highlights

Source: Bloomberg

What we are watching this week:• In Europe, the key developments

this week are likely to be politically

focused. On Thursday and Friday

(Dec 13th, 14th), EU leaders will

meet to discuss a roadmap to

gradually set up a better

functioning economic and

monetary union. On Wednesday

(Dec 12th), EU finance ministers

meet to discuss the single

supervisory mechanism, and on

Thursday (Dec 13th), euro area

finance ministers will discuss the

results of the Greek buy back;

• In terms of data, the focus will be

on the flash PMIs for December;

• In the US, this week's two-day

FOMC meeting will probably

dominate the markets;

• HSBC Flash Manufacturing PMI for

China will be released Friday.

CALENDAR - Event Country Date Hour (GMT) Survey Prior

China CPI and PPI (Nov) China 9-Dec n.a. n.a. n.a.

China ind prod and retail sales (Nov) China 9-Dec n.a. n.a. n.a.

Exports y/y (Nov) China 10-Dec n.a. 9.0% 11.6%

Imports y/y (Nov) China 10-Dec n.a. 2.0% 2.4%

CBR monetary policy meeting Russia 10-Dec n.a. n.a. n.a.

Bank of England's Mervyn King speech UK 10-Dec n.a. n.a. n.a.

Bank of France Bus. Sentiment France 10-Dec 07:45 92 92

Industrial Production y/y France 10-Dec 07:45 -2.3% -2.5%

ZEW Survey (Current Situation) (Dec) Germany 11-Dec 10:00 6.0 5.4

ZEW Survey (Econ. Sentiment) (Dec) Germany 11-Dec 10:00 -11.5 -15.7

Trade Balance (Nov) US 11-Dec 13:30 -$42.7B -$41.5B

Machinery Orders y/y (Oct) Japan 11-Dec 23:50 -5.0% -7.8%

Consumer Price Index y/y Germany 12-Dec 07:00 1.9% 1.9%

Consumer Price Index y/y France 12-Dec 07:45 1.6% 1.9%

ILO Unemployment Rate (Nov) UK 12-Dec 09:30 7.8% 7.8%

Euro-Zone Ind. Prod. y/y Euro-Zone 12-Dec 10:00 -2.4% -2.3%

EU finance ministers meet on Banking Supervision Europe 12-Dec n.a. n.a. n.a.

FOMC Rate Decision US 12-Dec 17:30 0.3% 0.3%

Bank of Korea Monetary Policy Committee Meeting South Korea 13-Dec 01:00 2.75% 2.75%

Consumer Price Index y/y Spain 13-Dec 08:00 2.9% 2.9%

Eurogroup finance ministers meet for talks on Greece and Cyprus Euro-Zone 13-Dec n.a. n.a. n.a.

Advance Retail Sales (Nov) US 13-Dec 13:30 0.4% -0.3%

Retail Sales Less Autos (Nov) US 13-Dec 13:30 0.0% 0.0%

Producer Price Index (YoY) US 13-Dec 13:30 1.8% 2.3%

PPI Ex Food & Energy (YoY) US 13-Dec 13:30 2.2% 2.1%

EU summnit (two days) Europe 13-Dec n.a. n.a. n.a.

Initial Jobless Claims US 13-Dec 13:30 370K 370K

Continuing Claims US 13-Dec 13:30 3215K 3205K

SNB policy Decision Switzerland 13-Dec n.a. n.a. n.a.

HSBC Flash Manufacturing PMI China 14-Dec 01:45 n.a. 50.5

PMI Manufacturing (Dec) France 14-Dec 08:00 44.9 44.5

PMI Services (Dec) France 14-Dec 08:00 46.0 45.8

PMI Manufacturing (Dec) Germany 14-Dec 08:30 47.3 46.8

PMI Services (Dec) Germany 14-Dec 08:30 50.0 49.7

PMI Manufacturing (Dec) Euro-Zone 14-Dec 09:00 46.6 46.2

PMI Composite (Dec) Euro-Zone 14-Dec 09:00 46.9 46.5

PMI Services (Dec) Euro-Zone 14-Dec 09:00 47.0 46.7

WPI Inflation (Nov) India 14-Dec n.a. n.a. n.a.

Tankan business conditions DI (Dec) Japan 14-Dec n.a. n.a. n.a.

Euro-Zone CPI y/y Euro-Zone 14-Dec 10:00 2.2% n.a.

Consumer Price Index y/y (Nov) US 14-Dec 13:30 1.9% 2.2%

CPI Ex Food & Energy y/y (Nov) US 14-Dec 13:30 2.0% 2.0%

Markit US PMI Preliminary US 14-Dec 13:58 52.0 52.4

Industrial Production US 14-Dec 14:15 0.2% -0.4%

Capacity Utilization US 14-Dec 14:15 78.0% 77.8%

Japanese general elections Japan 16-Dec n.a. n.a. n.a.

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Jun-12 Jul-12 Aug-12 Sep-12 Oct-12

US Retail Sales (% m/m)

Retail Sales Core Retail Sales (Less Autos)

Next Week Preview: Economics

Source: Bloomberg

• US retail sales for November will be released

Thursday, 13th December (13:00 GMT). In October,

retail sales were depressed by Hurricane Sandy. A

bounce back will now probably occur, driven by a

rebound in auto and building materials;

• US consumer prices are due Friday, 12th December

(13:30 GMT). The recent fall in gasoline prices will

probably keep headline CPI inflation rate below the

Fed’s 2% target. However, the housing cost

components are expected to continue rising,

reflecting the strengh of recovery in real estate;

• UK labor statistics will be released Wednesday, 12th

December (9:30 GMT). After the 10k increase in the

claimant count in October, the November data will

be important to see if we have reached a turning

point in labor market momentum;

• Euro area flash PMIs are due Friday, 14th December

(8:58 GMT). Given the stabilization of economic

indicators outside Europe, Euro area PMIs could

advance a bit in December.

Source: Bloomberg

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2010 2011 2012 2013

Euro-zone PMI Surveys

Manufacturing

Composite

Services

Source: Federal Reserve

• The Fed doesn´t seem to have much more short-

term Treasury securities to sell. The Fed is likely to

announce the replacement of its expiring

Operation Twist at the end of the FOMC meeting

that concludes on Wednesday;

• The focus will also be in a possible announcement

that the Fed will adopt numerical thresholds for

its guidance on how long its short-term rates will

remain at current low levels. Fed officials will also

disclose an update on their economic forecasts.

Next Week Preview: FOMC Meeting and EU leaders meetingFED: More QE on the way?

• EU leaders will meet on Dec 13th and Dec 14th to

discuss a roadmap (with three stages of

integration) towards a better functioning financial,

budgetary and economic policy framework.

However, there is a difficult road ahead. Solidarity

and control mechanisms will probably require

changes to the EU treaties. With the German

federal election next year, bold moves are not

expected and tough decisions will likely take place

later on;

• On Dec 12th, EU finance ministers will discuss the

legal framework on the single supervisory

mechanism, an important step towards a full

banking union;

• On Dec 13th, euro area finance ministers will

discuss the results of the Greek debt buyback,

which will determine if the tranches of aid can be

released. The aid package to Cyprus could also be

discussed, as the audit to the local banking sector

will reveal how much money the country needs.

Euro politics are back on the agenda

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Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12

Jerónimo Martins vs. DJ STOXX 600 Retail Index

Jerónimo Martins Share Price

DJ STOXX 600 Retail Index

1 Jan 2012 = 100

Next Week Preview: Jerónimo Martins Investor’s Day

Will it be a trigger for the stock

price ?• Jerónimo Martins will hold its Investor’s Day on

December 11st;

• This should be an interesting event for investors.

Given the GDP slowdown in Poland and the tough

macro environment in Portugal, investors will look

for further visibility and an update on targets;

• JM’s “LfL” performance in Poland and possible

new targets in terms of new stores post-2015

could be an important part of the Q&A session;

• Management could also give an update on the

“Hebe” drugstore trials in Poland;

• Investors are also willing to ear more specific

information on JM’s venture in Colombia. The

company has already announced that 30 to 40

stores should be opened in 2013. Will the

company provide further targets?

• A clarification on the company’s strategy in

Portugal will also be closely watched. Declining

disposable income is pressuring retail sales

evolution. How is the company seeing the

competition in the Portuguese retail market? Does

the company expect its “LfL” to remain above that

of the market? What impact on profitability should

be expected from this positioning?

Source: Bloomberg

P/E 13 Est. DY 13 Est. EPS CAGR

11/13 Est.

Jerónimo Martins 19.5 2.7 17.4%

Metro 8.6 6.7 3.3%

Ahold 9.7 4.8 5.6%

Dia 14.9 3.1 46.5%

Carrefour 13.6 3.1 0.46%

Sainsbury (*) 10.9 5.1 5.9%

Morrison (*) 9.5 4.8 5.1%

Tesco (*) 10.0 4.6 1.5%

(*) P/E 14 Est., DY 14 Est., and EPS CAGR 12/14 Est. were used

Source: Bloomberg

Next Week Preview: European corporate events and Idea of the week

Inditex to release Q3 results• Inditex will report Q3 results Wednesday. The

main driver should be “LFL”, after positive

comments at the Q2 stage on current trading;

• ThyssenKrupp will release FY Results and hold an

analyst meeting on Tuesday.

Company Sector Event

December 10th

Air France - KLm Airlines Investor Day

December 11th

Diageo Beverage North America Presentation

ThyssenKrupp Mining & Metals FY Results

Lufthansa Airlines Traffic Statistics

Jerónimo Martins Retail Investor Day

Whitbread Leisure Goods & services Q3 Trading Statement

Metso Industrial Equipment Capital Markets Day

Serco Group General industrial Services Capital Markets Day

December 12th

Inditex Retail Q3 Results

Fraport Industrial Transportation Traffic Statistics

Imagination Tech Semiconductors H1 Results

Carillion Heavy Construction Q4 Trading Statement

Travis Perkins Retail Trading Statement

December 13th

Pernod Ricard Beverage Americas Seminar

Wood Group Energy Trading Statement

December 14th

Fresenius Healthcare Providers Update on plans for biotech business

Is a weaker JPY still possible?• The LDP, led by former prime minister Shinzo

Abe, appears to be the front-runner in the early

stages of the current general election campaign.

The LDP-led coalition (with coalition partner

Komeito) could control the lower house;

• Japan’s December 16th election could result in a

significant shift in BoJ policies;

• A formal inflation target of 2-3% would be an

important step towards weakening the yen, but

the target’s credibility depends on the size of

asset purchases;

• As part of its election platform, the LDP wants

to establish a public-private investment fund for

purchasing of foreign bonds that would help to

bring the currency down. The adoption of a

negative interest rate is also being discussed;

• Yen short positioning has built up considerably

in recent weeks. Nevertheless, a move on the

USDJPY and EURUSD towards 84 and 110,

respectively, seems possible.

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Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12

Sonae (SON PL) Share Price (€)

0.664

Source: Bloomberg

Charts we are watching (I)• According to the Portuguese Statistical Office,

adjusted by seasonality and calendar effects, food

retail sales dropped by 2.6% y/y in October at current

prices (-1.7% ytd) and non-food retail sales (ex-fuel)

dropped by 12.1% yoy (-11.0% ytd). Nevertheless,

Sonae (SON PL) rose 13.7% over last week and was the

best performer stock in the PSI 20 benchmark index.

Notwithstanding the weak macro backdrop, the

company has been able to show a resilient

performance in its food retail division. Moreover,

Sonae would also benefit in a M&A scenario

involving Sonaecom and ZON.

• Repsol (REP SM) filed a US lawsuit to block Chevron

(CVX US)’s deal with Argentina’s YPF, in what

represents the Spanish oil company’s legal response

to the loss of its asset in Argentina. Moreover, GDF

Suez (GSZ FP) said that it is studying the acquisition of

Repsol’s LNG assets. The divestment of the LNG

business should address most credit agency concerns.

But, Repsol’s future upstream growth will probably

be the main driver of its stock price.Source: Bloomberg

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Repsol (REP SM) Share Price (€)

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1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

PSI 20 Yearly Price Changes (%)Source: Bloomberg

Charts we are watching (II)• Gemalto (GTO FP) will replace Alcatel-Lucent in the CAC

40. The change will be effective December 24th. Alcatel-

Lucent as been in France’s benchmark stock index in the

last 25 years. Moreover, Gemalto will seek a secondary

listing on the Amsterdam exchange in 2013. The

company is also considering a listing in the US or Asia.

Gemalto closed Friday at €74.59, the highest level since

the company’s listing in May 2004. Gemalto is strongly

positioned for several technology build-out cycles.

However, the company will need to continue to execute

on product cycles and to show improved cash

conversion in order to justify continued

outperformance.

• The Portuguese PSI 20 stock benchmark index has

recovered strongly from its 2012’s lows. The index is

down only 1% since the beginning of the year.

Portuguese stocks have been re-rated, reflecting the fall

in sovereign yields in Portugal since the highs posted in

January 2012, despite poor economic prospects. With

valuation already reflecting challenges faced by the

country, should we expect a further re-rating in 2013?Source: Bloomberg, 2012 reflects ytd change

0

50

100

150

200

250

Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12

Alcatel-Lucent (ALU FP) vs. Gemalto (GTO FP)

Gemalto

Alcatel-Lucent

1 Ja n 2011 = 100

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