last 1d ytd · 2017-04-10 · ems reported q1 net sales of chf533m, up 5.8% y/y, 1% above...
TRANSCRIPT
Julius Baer Research | Please find important legal information at the end of this document.
1/13
MONDAY, 10 APRIL 2017; 08:37 CET
MARKET UPDATE
US equities closed largely unchanged last Friday, with the
focus being on geopolitical tensions (specifically, the US air
strike in Syria) and a nonfarm payrolls report which came in
largely mixed. Sector performance was largely undifferenti-
ated, while treasuries closed weaker and the dollar closed
higher. The S&P dipped 0.1% and the DJIA remained un-
changed to close at 2,356 and 20,656 respectively. European
equities closed higher despite some risk aversion following
the US air strike, aided by strength in the energy sector and
strong German industrial production data. The Stoxx 600
added 0.1% to close at 381.26. Asian markets are trading in
mixed territory with the Nikkei up 0.8% and the Hang Seng
down 0.9% at the time of writing.
Weihao Chen
TOP STORIES
The week ahead: How are corporates doing?
This week marks the official start of the Q1 2017 earnings
season, with bellwether US financials reporting their num-
bers first. In the macro arena, expect various inflation prints,
European industrial production, business services and US
consumer confidence.
Thursday marks the start of the earnings season for Q1
2017. Investors want to know whether an improving
economy can already be felt in corporate earnings.
Christian Gattiker, CFA, CAIA
Economic events today
Time (CET)
Ctry Event Period Survey Prior
07:00 JP Eco Watchers Outlook Mar 50.3 50.6
08:00 NO CPI (Y/Y) Mar -- 2.5%
09:00 CZ CPI (Y/Y) Mar 2.6% 2.5%
22:00 US Fed's Yellen Speaks at University of Michigan
DAILY WIRE
Latest equity updates
EMS-Chem: Hold
Price/Target:
CHF586.00/580.00
EMS reported Q1 net sales
of CHF533m, up 5.8% y/y,
1% above consensus.
For 2017, management
reiterated its guidance for
slightly higher net sales
(vs. cons. growth of 4.8%
y/y).
Galenica: Hold
Price/Target:
CHF1016.00/1020.00
Galenica (to be renamed
Vifor Pharma in May 2017)
witnessed strong sales
growth driven by two key
franchises, Mircera and
Ferinject.
Divesting stable cash flow
from the retail pharmacy
store business has in-
creased the risk profile of
the remaining company, in
our view.
Latest publications
Blockchain: The missing
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Following substantial
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blockchain and the key
underpinnings of the tech-
nology.
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Last ∆1d YTD
MSCI World 1845.5 -0.1% 5.4%
S&P 500 2355.5 -0.1% 5.2%
Dow Jones 20656.1 0.0% 4.5%
Nasdaq 5877.8 0.0% 9.2%
Euro Stoxx 50 3495.8 0.2% 6.2%
Dax 30 12225.1 0.0% 6.5%
FTSE 100 7349.4 0.6% 2.9%
CAC 40 5135.3 0.3% 5.6%
SMI 8640.9 0.0% 5.1%
SPI 9638.2 0.0% 7.5%
Nikkei 225 18783.0 0.6% -1.7%
Kospi 2133.1 -0.9% 5.3%
Hang Seng 24272.3 0.0% 10.3%
Shanghai Comp. 3279.5 -0.2% 5.7%
Russia RTS 1113.5 -3.1% -3.4%
India Sensex 30 29736.8 0.1% 11.7%
Brazil Bovespa 64593.1 0.6% 7.2%
Spot +3mE +12mE
EUR/USD 1.06 1.07 1.07
USD/JPY 111.4 115.0 120.0
EUR/GBP 0.85 0.89 0.92
GBP/USD 1.24 1.20 1.16
EUR/CHF 1.07 1.07 1.07
USD/CHF 1.01 1.00 1.00
EUR/SEK 9.61 9.40 9.20
EUR/NOK 9.17 9.30 9.35
USD/CAD 1.34 1.35 1.36
AUD/USD 0.75 0.74 0.72
NZD/USD 0.69 0.69 0.68
USD/BRL 3.15 3.28 3.60
USD/CNY 6.91 7.05 7.20
USD/INR 64.44 65.00 66.00
Last ∆1d +12mE
Gold 1254.5 0.2% 1200.0
Silver 18.0 -1.4% 16.5
Platinum 954.6 -0.4% 1050.0
Palladium 803.4 -0.4% 700.0
Aluminium 1947.0 0.4% 1750.0
Copper 5798.8 -0.5% 5400.0
Iron Ore (62% Fe) 75.5 -6.8% 60.0
Crude oil (Brent) 55.2 0.6% 47.5
Natural gas (US) 3.26 -2.1% 2.80
Corn (cts/bushel) 359.5 -0.3% 400
Wheat 4.24 0.2% 475 Source: Bloomberg Finance L.P., Julius Baer
Data as of: 10/04/2017; 08:14 CET; E=estimate
Equity markets
Currencies
Commodities
DAILY WIRE | MONDAY, 10 APRIL 2017; 08:37 CET 2/13
NEXT GENERATION
Blockchain: The missing piece
of the internet
It is not a question of ‘if’, but ‘when’, ‘where’
and ‘how’ blockchain technology will be
implemented in industries, such as finance
and trade, which deal with the storage and
exchange of trusted information and value.
With quicker transaction settlement times
and lower resource intensity than traditional
ledgers, blockchains have the potential to
revolutionise how business networks oper-
ate. The technology allows the development
of protocols which form the basis for distrib-
uted, immutable and tamper-proof ledgers.
These can be designed with additional prop-
erties which open up a myriad of possibili-
ties, such as ‘cryptocurrencies’ (including the
famous ‘Bitcoin’), ‘smart contracts’, and the
digitalisation (also known as ‘tokenisation’)
‘Blockchain’ replacing ‘bitcoin’ in public mind
Source: Google Trends, Bloomberg Finance L.P., Julius Baer; XBT=Bitcoin; data as at close of 2 April 2017
of real-world financial and physical assets. Based on these properties, blockchain is poised to
streamline, rationalise and digitalise payments settlement and the post-trade infrastructure
in capital markets; revolutionise trade finance; and cut financial institutions’ back-office
costs. If you want to know more about this topic, please consult our comprehensive assess-
ment of the potential and key underpinnings of the technology, published last Friday by
Julius Baer Next Generation Research.
Blockchain could be the technology which finally enables the seamless digital trans-
fer of value – an ‘Internet of Value’ beyond the ‘Internet of Information’. Our base
case is that blockchain will eventually have far-reaching consequences for industry
and employment, no matter whether adoption is incremental or disruptive. None-
theless, these are early days, with direct equity exposure remaining elusive.
Alberto Perucchini
EQUITIES
Stada (Hold, Price/Target: EUR58.03/55.00): Offer backed by the board
Stada has received two takeover offers. The executive board and supervisory board are
supporting the offer from a consortium of the two private equity firms Bain Capital (not
listed) and Cinven (not listed). With a total value of EUR66.00 per Stada share, the offer
consists of EUR65.28 plus an expected dividend of EUR0.72 to be paid by Stada during the
offer period. The offer corresponds to an approximate 49% premium to the share price
before takeover rumours surfaced on 9 December 2016. We will review our price target.
After a protracted bidding process, the board of Stada are backing a takeover offer
from a consortium of Bain Capital and Cinven. The total offer value is EUR 66 per
share. We will review our price target.
Terence McManus, PhD
Shanghai Electric Group-H (Hold, Price/Target: HKD3.9/3.9): 2016 results update
Although 2016 results confirmed a drop in coal-fired power equipment sales, the new order
to sales ratio in the High Efficiency and Clean Energy Equipment segment remained above
1.0x, as Shanghai Electric Group (SEG) expanded business into overseas markets, mainly
focusing on sales of gas turbines. We remain negative on SEG’s thermal power equipment
business (ca. 15% of operating profit), as the industry has over-ordered and overbuilt coal-
fired power capacity. However, revenue mix is improving with rising contribution from new
energy, such as offshore wind turbine and nuclear equipment, as well as the elevator busi-
nesses.
We maintain our target price of HKD3.9, implying a forward P/E of 20x and P/B of
1.1x. Upside risks are more reform and asset restructuring.
Irene Chow, CFA
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2013 2014 2015 2016 2017
Google searches for ‘blockchain’ (lhs)
Google searches for ‘bitcoin’ (lhs)
XBT/USD exchange rate (rhs)
Index (adjusted) XBT/USD
NEXT GENERATION VIDEO
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Spot +3mE +12mE
US Fed Funds 1.00 1.25 2.00
ECB Main Refi. Rate 0.00 0.00 0.10
BoJ Overnight -0.10 -0.10 -0.10
UK Base Rate 0.25 0.25 0.25
SNB 3m CHF-Libor -0.75 -0.75 -0.75
10y government bond yields
Spot +3mE +12mE
US 10y T-Notes 2.38 2.85 2.55
Euro 10y Bund 0.25 0.95 0.70
Japan 10y Gov't 0.05 0.00 0.00
UK 10y Gilts 1.08 1.40 1.15
Swiss Conf. 10y -0.16 0.15 0.05
Growth (real, % year-on-year)
2016 2017E 2018E
World 3.1 3.3 3.4
United States 1.6 2.5 2.3
Eurozone 1.7 1.6 1.5
Germany 1.9 1.5 1.6
United Kingdom 1.8 1.4 0.6
Switzerland 1.3 1.4 1.4
Japan 1.0 1.2 1.0
China 6.7 6.5 6.0
India 7.5 6.0 7.0
Brazil -3.6 0.0 1.5
2016 2017E 2018E
World 2.8 3.3 3.0
US 1.3 2.4 2.5
Eurozone 0.2 1.6 1.5
Germany 0.4 1.8 1.6
UK 0.6 2.0 1.6
Switzerland -0.4 0.8 0.8
Japan -0.1 0.4 0.1
China 2.0 2.0 1.6
India 4.5 5.0 5.0
Brazil 8.7 5.0 4.5 Source: Bloomberg Finance L.P., Julius Baer
Central bank policy rate
Data as of: 10/04/2017; 08:14 CET; E=estimate
Inflation (% year-on-year)
DAILY WIRE | MONDAY, 10 APRIL 2017; 08:37 CET 3/13
Cheetah Mobile (Hold, Price/Target: HKD10.79/11): Q4 2016 results update
User stickiness continued to decline, as growth in user engagement was stagnant; however,
monetisation of its new mobile content apps improved, leading to revenue growth. Man-
agement is confident about its growth outlook supported by its artificial intelligence-
enabled news app (News Republic) and popular live streaming social app (Live.me) that
leverage the big data generated by the large global user base on its core utility apps. Initial
monetisation of the two content apps has proven that Cheetah no longer just relies on its
mature utility apps. However, it takes time to build a social community around content apps
that boosts user engagement and increases time spent.
Our revised price target of USD11 implies a forward P/E of 23x.
Irene Chow, CFA
Wilmar International (Hold, Price/Target: SGD3.54/3.45): Outlook mixed
The near-term outlook remains mixed for Wilmar International (Wilmar). While industry-
wide China oilseed crush margins for Q1 2017 have trended higher at USD6/tonne (2016:
USD3/tonne), the damage that tropical Cyclone Debbie has inflicted on sugarcane crops in
Queensland, Australia, in March suggests some impact (as yet unquantifiable) to Wilmar’s
sugar business. To recap, sugar milling averaged about a fifth of Wilmar’s pre-tax profit in
the past five years. We expect the market to look past the company’s decent Q4 2016 earn-
ings to focus on the near-term outlook ahead.
We maintain our Hold rating on the stock, with valuations looking fair but not com-
pelling.
Jen-Ai Chua
Stock of the week
Merck KGaA (Buy, Price/Target: EUR106.35/115): Loaded with catalysts
Merck KGaA is a conglomerate consisting of a life science tools business, a pharma business
and a performance materials business. The recently approved drug Bavencio for Merkel cell
carcinoma (a rare form of cancer) is the first internally developed drug by Merck KGaA
pharma since the acquisition of its main pharma division (the Swiss company Serono) over a
decade ago. For the first time in over a decade, Merck KGaA has a promising innovative
pipeline of drugs with multiple potential approvals and pipeline study readouts expected
over the next year. The life science tools division has plenty of scope for sales synergies
remaining from the Sigma acquisition, which represents upside to estimates. The
performance materials division, for its part, could benefit from a new upgrade cycle in
mobile phones. Merck KGaA trades on a 20% discount to our EV/EBITDA sum-of-the-parts
(SOTP) valuation. While some conglomerate discount will always persist, we see the
catalysts to trigger a narrowing.
With catalysts on the horizon for all three business units, we expect share price ap-
preciation through a narrowing of the conglomerate discount and earnings up-
grades. As a diverse business, we also see Merck KGaA as a defensive option in phar-
ma should US drug pricing return as a concern.
Terence McManus, PhD
DAILY WIRE | MONDAY, 10 APRIL 2017; 08:37 CET 4/13
FIXED INCOME
South African bonds come under pressure following Fitch’s downgrade to BB+
Last Friday, Fitch downgraded South Africa’s (Hold/Opportunistic) senior unsecured for-
eign and local currency rating from BBB- to BB+ but kept a stable outlook -in contrast to
S&P, which left the outlook on negative after its own downgrade of the country to BB+. Fitch
has brought to attention the same development highlighted by Moody’s and S&P, namely
the major cabinet reshuffle that, in their view, will weaken standards of governance and
public finances. In that sense, the agency seems concerned that state-owned electricity
company Eskom (not covered) will embark on an expensive nuclear programme that will
ultimately be financed by the government, given that the former does not have the financial
resources for it. Nevertheless, Fitch notes that although South Africa’s general government
debt has increased to approximately 53% of GDP as of March 2017, foreign currency debt
account for only about 11.3% of GDP. With two of the three largest rating agencies now
having moved South Africa to high-yield space, sovereign bonds have come under some
pressure due to the resulting forced selling from certain indices –for example, the 2028
USD-denominated government bond yield moved from 5.02% to 5.19% on Friday. At this
point, neither sovereign nor corporate bond valuations in South Africa look particularly
attractive relative to similarly rated issuers, in our view, and we do not see the current weak-
ness as a buy opportunity.
Fitch’s downgrade automatically led to forced selling of South African bonds from
certain indices. Despite the weakness in corporate and sovereign bonds, valuations
do not look particularly attractive relative to similarly rated issuers in emerging
markets. We do not see South African bonds as a buying opportunity at this point.
Alejandro Hardziej
India holds rates, tightens interest rate corridor, and maintains neutral policy stance
The Reserve Bank of India (RBI) monetary policy committee left its policy rate unchanged at
6.25% last Thursday, while tightening the interest rate corridor by 25bps on each side, rais-
ing the reverse repurchase rate to 6% from 5.75% and lowering the marginal standing facili-
ty rate to 6.5% from 6.75%. The tightening of the policy corridor should help to correct
distortions at the short end of the yield curve, and improve transmission of the central
bank’s monetary policy signals. Last week’s move is intended to address excess liquidity in
the banking system following the demonetisation, as well as concerns about inflationary
pressures. While the gradual growth of currency in circulation should reduce some of the
liquidity surplus, the central bank has highlighted its commitment to move the system’s
liquidity towards neutrality, possibly through the use of tools such as open market auctions,
market stabilisation scheme bonds, and reverse repurchase auctions of longer tenors. In
addition, the RBI has proposed a new Standing Deposit Facility, which will enable the central
bank to absorb liquidity at a lower rate and without needing to provide collateral. The RBI
kept its projection for FY 2018 gross value added at 7.4% (FY2017: 6.7%), while slightly
raising its inflation forecasts for FY 2018 to 4.5% in the first half and 5% in the second half
(previously 4.0%-4.5% in H1 FY 2018 and 4.5%-5.0% in H2 FY 2018), which is higher than
the 4% midpoint of its target range. India’s (Hold/Opportunistic) inflation picked up to
3.7% y/y in February from 3.2% y/y the month before. Following the policy announcement,
the INR rallied and Indian government bond (IGB) yields moved up. The yield on the INR-
denominated IGBs due September 2026 rose by about 17bps to 6.826% on 7 April 2017.
The RBI’s move to raise the reverse repurchase rate was in line with its long-term
goal of narrowing the corridor to improve the alignment between the operational
rate and policy rate. The new liquidity facility is expected to offer a higher rate than
the reverse repo rate (6.0%) given that it is an uncollateralised facility. The proposed
facility also requires an amendment to the RBI act and remains subject to parliamen-
tary approval. We expect rates to remain on hold in the coming months.
Magdalene Teo
DAILY WIRE | MONDAY, 10 APRIL 2017; 08:37 CET 5/13
COMMODITIES
Gold and silver: Geopolitics trumped by the dollar
Support to gold and silver from Friday’s US missile strikes on Syria did not last long. Towards
the end of the day, prices came under pressure as the US dollar strengthened on the outlook
for further interest rate hikes in the United States and a reduction of the Federal Reserve’s
balance sheet. Gold ended the day up 0.2% while silver was down 1.4%. Rising interest rates
and a stronger dollar remain the biggest downside risks for gold and silver. That said, the
growth euphoria has faded as both tax cuts and infrastructure spending in the United States
take longer than expected. This prevented another wave of selling in physically backed gold
products – as we expected around the turn of the year – and left prices above our forecasts.
Also taking into consideration elevated uncertainties with regards to the upcoming French
elections, we believe major selling is unlikely to materialise over the coming months and
downside to gold prices is limited. We lift our three- and twelve-month targets to USD 1,200
per ounce and shift to a neutral view. Those wanting to hedge themselves against an unex-
pected outcome of the French elections should turn to the gold options market, where im-
plied volatilities, i.e. option premiums, remain very cheap. Considering the prevailing bullish
positioning in the futures market, we see more downside for silver than for gold but increase
our three- and twelve-month price targets to USD 16.5 per ounce. Due to silver’s higher
volatility, this still implies a neutral view also for silver.
Rising interest rates and a stronger dollar remain the biggest risks for gold but
downside appears limited as investor selling is unlikely to materialise. We lift our
three- and twelve-month price targets to USD 1,200 per ounce and shift to a neutral
view. We also increase our price targets for silver, leading to a neutral view.
Carsten Menke, CFA
DAILY WIRE | MONDAY, 10 APRIL 2017; 08:37 CET 6/13
TECHNICAL ANALYSIS
(SHORT-TERM INVESTMENT RECOMMENDATIONS)
Legal note: Technical analysis may be inconsistent with and reach
different conclusions to fundamental analysis.
Friday – bear-market trap?
What a reversal on Friday! US 10-year interest rates declined to a
new three-month low of 2.27% before bouncing back up to 2.38%.
Of course, investors now ask themselves if this was a bear-market
trap. Are US interest rates just recharging to move finally above the
range at 2.60%? We have to admit that we are still reluctant to pull
the trigger and buy long-dated US government bonds. Accordingly,
we will let prices lead us. A second decline and close below 2.30%
would indicate to us that US interest rates have peaked for 2017.
It is too early to buy long-dated US government bonds. We
will follow closely the range of 2.30%-2.60%.
Mensur Pocinci, MFTA
US 10-year yield (USGG10YR) – weekly candle chart
Source: Bloomberg Finance L.P., Julius Baer Please see information on abbreviations/charts at the end of the document.
Last Trend Sup Res 5d%
S&P500 2356 2300 2400 -0.3
Nasdaq100 5418 5200 5500 -0.3
DAX 30 12225 11900 12500 -0.7
SMI 8641 8550 8750 -0.2
EuroStoxx50 3496 3350 3560 -0.1
Nikkei 225 18783 18200 19500 -1.1
T-Note Future * 124.73 122.30 132.80 -0.2
Bund Future * 162.85 158.50 165.50 0.9
Dollar Index 101.18 98.00 103.00 0.6
EUR/USD 1.0590 1.0500 1.0840 -0.7
USD/CHF 1.0088 0.9640 1.0250 -0.7
EUR/CHF 1.0683 1.0650 1.1200 0.0
USD/JPY 111.35 106.00 115.50 -0.4
WTI crude oil * 52.50 46.50 56.50 4.5
Gold 1255 1200 1310 0.1
Last Entry Stop Since PnL
Nasdaq100 5418 4077 3760 16 Feb 32.9%
Apple ** 143.34 98.84 89.00 18 Feb 46.8%
NYSE Biotech Index 3477 2874 2400 22 Mar 21.0%
Swatch Group 356.60 314.00 240 22 Dec 13.6%
Inditex 33.92 33.64 28 7 Apr 0.8%
Last Entry Stop Since PnL
Silver (Short) 17.96 16.46 19.00 9 Jan -8.3%
GBP/JPY (long) 138.0 143.8 135.0 2 Dec -4.0%
USD / CHF (Long) 1.0088 0.9973 0.9280 5 Nov 1.2%
EUR/USD (Short) 1.0590 1.1345 1.2000 20 Jun 7.1%
Source: Bloomberg Finance L.P., Julius Baer
** Dividends included in the PnL* continued contract
Technical Analysis: Medium-term trends
Equity Recommendations
Fixed income, currencies and commodities
Data as of: 10/04/2017; 08:14 CET
Sep Oct Nov Dec 2017 Feb Mar Apr May
0
20
40
1.5
2.0
2.5
Momentum
US 10-yr yield
DAILY WIRE | MONDAY, 10 APRIL 2017; 08:37 CET 7/13
IMPORTANT LEGAL INFORMATION
This publication constitutes investment research and has been produced by Bank Julius Baer & Co. Ltd., Zurich, which is authorised and regulated
by the Swiss Financial Market Supervisory Authority (FINMA). This publication series is issued regularly. Information on financial instruments and
issuers is updated irregularly or in response to important events.
IMPRINT
Authors
Christian Gattiker, Head of Research, [email protected] 1)
Carsten Menke, Commodity Research, [email protected] 1)
Terence McManus, Equity Research, [email protected] 1)
Alejandro Hardziej, Fixed Income Research, [email protected] 1)
Alberto Perucchini, Next Generation Thematic Research, [email protected] 1)
Mensur Pocinci, Head of Technical Analysis, [email protected] 1)
Jen-Ai Chua, Equity Research Asia, [email protected] 3)
Siew Siew Magdalene Teo, Fixed Income Research Asia, [email protected] 3)
Weihao Chen, Equity Research, [email protected] 3)
Irene Chow, Equity Research Asia, [email protected] 4)
1) This analyst is employed by Bank Julius Baer & Co. Ltd., Zurich, which is authorised and regulated by the Swiss Financial Market Supervisory Authority
(FINMA).
2) This analyst is employed by Bank Julius Bär Europe AG, which is authorised and regulated by the German Federal Supervisory Authority (BaFin).
3) This analyst is employed by Bank Julius Baer & Co. Ltd., Singapore branch, which is regulated by the Monetary Authority of Singapore.
4) This analyst is employed by Bank Julius Baer & Co. Ltd., Hong Kong branch, which holds a full banking license issued by the Hong Kong Monetary
Authority under the Banking Ordinance (Chapter 155 of the Laws of Hong Kong SAR). The Bank is also a registered institution under the Securities
and Futures Ordinance (Chapter 571 of the Laws of Hong Kong SAR) to carry on Type 1 (dealing in securities), Type 4 (advising on securities) and
Type 9 (asset management) regulated activities with Central Entity number AUR302.
APPENDIX
Analyst certification
The analysts hereby certify that views about the companies discussed in this report accurately reflect their personal view about the companies and securities.
They further certify that no part of their compensation was, is, or will be directly or indirectly linked to the specific recommendations or views in this report.
Methodology
Please refer to the following link for more information on the research methodology used by Julius Baer analysts:
www.juliusbaer.com/research-methodology
Structure
References in this publication to Julius Baer include subsidiaries and affiliates. For additional information on our structure, please refer to the following link:
www.juliusbaer.com/structure
Price information
Unless otherwise stated, the price information reflects the closing price of the previous trading day.
Disclosure
Galenica: Julius Baer holds > 0.5% net short position of the total issued share capital of Galenica.
DAILY WIRE | MONDAY, 10 APRIL 2017; 08:37 CET 8/13
Frequently used terms and abbreviations
BoAML Bank of America Merrill Lynch Boe/d Barrels of oil equivalent per day CAGR Compound annual growth
rate
c.c. Constant currencies CFF Cash flow from financing CFI Cash flow from investing
CFO Cash flow from operation Consensus
rating
The analysts’ opinions on the
security. It shows the number of
analysts covering the security
and the breakdown between
Buy, Hold and Sell ratings.
Consensus
target
The average price to which analysts
expect the security to rise.
CPI Consumer price index DCF Discounted cash flow E Estimate
EBIT Earnings before interest and taxes EBITDA Earnings before interest, taxes,
depreciation and amortisation
EM Emerging markets
EPS Earnings per share EV Enterprise value FCF Free cash flow
Fed Federal Reserve, the US central bank FFO Funds from operation FY Fiscal year
GAAP Generally accepted accounting princi-
ples
GDP Gross domestic product Ifo Institut für Wirtschaftsforschung, a
German economic research institute
IMF International Monetary Fund KOF Konjunkturforschungsstelle der
ETH Zürich (Swiss Economic
Institute)
MAV Moving average
MV Market value NAV Net asset value NII Net interest income
PBoC People’s Bank of China P/B Price-to-book value P/E Price-to-earnings ratio
PEG P/E divided by year-on-year EPS
growth
PEG Price/earnings-to-growth ratio PMI Purchasing Managers’ Index
q/q Quarter on quarter RCF Retained cash flow REIT Real Estate Investment Trust
ROE Return on equity y/y Year on year ZEW Zentrum für Europäische Wirtschafts-
forschung (German Centre for Euro-
pean Economic Research)
Equity research
Equity rating allocation as of 10/04/2017
Buy 31.3% Hold 65.9% Reduce 2.8%
Julius Baer does not provide investment banking services to the companies covered by Research.
Equity rating history as of 10/04/2017
Company Rating History
Cheetah Mobile Hold Since 23/11/2016
Reduce Since 20/05/2016
Hold (initiation of coverage) Since 26/04/2016
EMS-Chemie Hold Since 15/07/2013
Galenica Hold Since 30/11/2016
Reduce Since 10/08/2016
Hold (initiation of coverage) Since 14/04/2015
Merck Hold Since 22/12/2015
Shanghai Electric Group-H Hold Since 22/10/2014
STADA Arzneimittel Hold (initiation of coverage) Since 20/06/2016
Wilmar International Hold Since 03/10/2016
Reduce Since 19/07/2016
Buy Since 29/02/2016
Rating system for global equity research (stock rating)
Buy Expected to outperform the regional industry group by at least 5% in the coming 9-12 months, unless otherwise stated.
Hold Expected to perform in line (±5%) with the regional industry group in the coming 9-12 months, unless otherwise stated.
Reduce Expected to underperform the regional industry group by at least 5% in the coming 9-12 months, unless otherwise
stated.
Frequency of equity rating updates
An update on Buy-rated equities will be provided on a quarterly basis. An update for Hold and Reduce-rated equities will be provided semi-annually or on an ad-
hoc basis.
Risk rating system for global equity research (stock rating)
The risk rating (High/Medium/Low) is a measure of a stock’s expected volatility and risk of losses in case of negative news flow. This non-quantitative rating is
based on criteria such as historical volatility, industry, earnings risk, valuation and balance sheet strength.
DAILY WIRE | MONDAY, 10 APRIL 2017; 08:37 CET 9/13
Strategy research
Countries, sectors and investment styles are rated “overweight”, “neutral” or “underweight”. These ratings are based on our expectations for relative perfor-
mance versus regional and global benchmark indices.
Overweight Expected to outperform regional or global benchmark indices in the coming 9-12 months, unless otherwise stated.
Neutral Expected to perform in line with regional or global benchmark indices in the coming 9-12 months, unless otherwise
stated.
Underweight Expected to underperform regional or global benchmark indices in the coming 9-12 months, unless otherwise stated.
Equity investments are divided into three different risk segments. Risk here is defined as the historical five-year volatility based on
monthly returns in CHF. Based on the data of all segments considered (developed markets, emerging markets, global sectors, investment styles) the following
distinction is made:
Conservative Investments whose historical volatility is in the bottom quartile of the universe described above.
Medium Investments whose historical volatility is in the middle two quartiles of the universe described above.
Opportunistic Investments whose historical volatility is in the top quartile of the universe described above.
Fixed income research
Issuer rating allocation as of 10/04/2017
Buy 53.4% Hold 42.7% Sell 3.9%
Julius Baer does not provide investment banking services to the companies covered by Research.
Issuer rating history as of 10/04/2017
Issuer Rating History
India Hold (initiation of coverage) Since 30/07/2015
Republic of South Africa Hold (initiation of coverage) Since 06/03/2015
Rating system for fixed income research
Buy Within its risk category, the issuer is highly recommended due to its financial and business condition (strong balance sheet, income state-
ment, cash flow and good position in the industry). Debt instruments of the issuer are regarded as an attractive investment from a
risk/return perspective.
Hold Maintain position based on stable credit fundamentals and/or average expected return characteristics within peer group.
Sell The rating is changed to Sell, depending on a significant deterioration in the fundamental data of the issuer in relation to the industry
peers. The investment is no longer justified from a risk/return perspective for the relevant category.
Frequency of issuer rating updates
An update on each issuer will be provided semi-annually, on a rating change or on an ad-hoc basis.
Fixed income market segment ratings
Attractive Segments that are expected to yield a return that is above the ten-year historical average.
Neutral Segments that are expected to yield a return that is in line with the ten-year historical average.
Unattractive Segments that are expected to yield a return that is below the ten-year historical average.
Risk categories for fixed income research
Conservative Supranational issuers, top-rated sovereign issuers and bodies that are directly and fully guaranteed by these institutions.
These issuers are most likely to preserve their top rating throughout the business cycle.
Quality Sovereigns and corporate issuers that are very likely to service and repay debt within a five-year credit scenario. They are
likely to preserve their investment-grade rating throughout a normal business cycle.
Opportunistic Issuers that are quite likely to service and repay debt within the five-year credit scenario. Such issuers have an attractive
risk/return profile in the current credit scenario but are subject to rating downgrade risk and, thus, might be exchanged
periodically.
Speculative Sub-investment-grade issuers in Europe and the USA as well as local issuers in emerging markets. Issuers are likely to
service and repay debt in the current credit scenario. Investors must note that these issuers are subject to a higher
downgrade and default frequency and that an active management of these positions is crucial.
DAILY WIRE | MONDAY, 10 APRIL 2017; 08:37 CET 10/13
Credit rating definition
Credit ratings used in our publications follow the definitions and systematic of Moody's (www.moodys.com).
Moody’s Standard & Poor's Fitch/IBCA Credit rating definition
Aaa AAA AAA Obligations rated Aaa are judged to be of the highest quality, with minimal credit
risk.
Aa1
Aa2
Aa3
AA+
AA
AA-
AA
AA-
Obligations rated Aa are judged to be of high quality and are subject to very low
credit risk.
Investment-
grade
A1
A2
A3
A+
A
A-
A+
A
A-
Obligations rated A are considered upper-medium grade and are subject to low
credit risk.
Baa1
Baa2
Baa3
BBB+
BBB
BBB-
BBB+
BBB
BBB-
Obligations rated Baa are subject to moderate credit risk. They are considered
medium-grade and as such may possess certain speculative characteristics.
Ba1
Ba2
Ba3
BB+
BB
BB-
BB+
BB
BB-
Obligations rated Ba are judged to have speculative elements and are subject to
substantial credit risk.
Non-
B1
B2
B3
B+
B
B-
B+
B
B-
Obligations rated B are considered speculative and are subject to high credit risk.
investment-
grade
Caa1
Caa2
Caa3
CCC+
CCC
CCC-
CCC+
CCC
CCC-
Obligations rated Caa are judged to be of poor standing and are subject to very
high credit risk.
Ca CC
C
CC+
CC
CC-
Obligations rated Ca are highly speculative and are likely in, or very near, default,
with some prospect of recovery of principal and interest.
C D DDD Obligations rated C are the lowest rated class of bonds and are typically in de-
fault, with little prospect for recovery of principal or interest.
Technical analysis
The information and opinions expressed were produced by Julius Baer Technical Analysis as of date of writing and are subject to change without notice. Julius
Baer conducts primary technical analysis aimed at creating value through investment recommendations. Technical Analysis uses historic market prices in order
to assess market conditions. The historic data is analysed by chart reading i.e. by following chart patterns and interpreting indicators calculated from historic
price movements. Technical Analysis may be inconsistent with and reach different conclusions to fundamental analysis. It may vary at any time due
to the different tools used to assess market conditions and recommendations. Besides individual investment recommendations, Technical Analysis also publish-
es technical indicator readings, which are mechanically calculated and only provide additional information to large sets of data, and are not intended as invest-
ment recommendations. These tables show current trends on an absolute price or relative basis using up, flat and downward pointing arrows. At the same time,
support and resistance levels might be displayed which are calculated using Bollinger Bands.
Frequently used abbreviations
C Closing price H High price L Low price
ST Short-term (2-8 weeks) MT Medium-term (8-26 weeks) LT Long-term (> 26 weeks)
MAV Moving average
Bollinger-band The middle Bollinger band is a 20 day simple moving average, the higher and lower bands are calculated as a 20-day simple moving aver-
age plus or minus two standard deviations on a 20-day period.
Momentum Momentum is derived from different rate of change calculations based on the underlying instrument.
RSI Relative strength index is a leading momentum indicator of prices, showing the strength of a stock by monitoring changes in closing prices
in a 9-day period.
Rating system for global technical analysis (absolute)
Buy Expected to advance by at least 10% in the coming 3-12 months, unless otherwise stated.
Hold Expected to perform in line (±5%) in the coming 3-12 months, unless otherwise stated.
Reduce Expected to decline by at least 10% in the coming 3-12 months, unless otherwise stated.
Rating system for global technical analysis (relative)
Overweight Expected to outperform its benchmark by at least 5% in the coming 3-12 months, unless otherwise stated.
Neutral Expected to perform in line (±5%) against its benchmark in the coming 3-12 months, unless otherwise stated.
Underweight Expected to underperform its benchmark by at least 5% in the coming 3-12 months, unless otherwise stated.
For the history of Technical Analysis equity recommendations over the previous 12 months please view the document at:
http://www.juliusbaer.com/tech-analysis-recom-history
DAILY WIRE | MONDAY, 10 APRIL 2017; 08:37 CET 11/13
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