Allianz Se · XETR:ALV
Allianz — Q3 2023 Earnings Presentation
61 slides from Allianz's earnings presentation, Oct 4, 2023
Slide 1: The last hike
The last hike Allianz Research 4 October 2023
Slide 2: Executive summary
Executive summary Ultra long political year, • Muddle-through economics in the making due to normalizing consumption and wait-and-see mode in a very electoral 1 recession (mostly) avoided, year. Consumer demand will remain soft amid negative wealth effects and increasing precautionary savings. Corpo
Slide 3: Global Macro & Corporate Outlook 2023-2025
Global Macro & Corporate Outlook 2023-2025 3
Slide 4: Geopolitics increasingly polarized and devoid of trust
GLOBAL OUTLOOK Geopolitics increasingly polarized and devoid of trust Europe‘s credibility and unity tested RU-UKR war likely turning into frozen conflict Indo-Pacific / Taiwan US-China strategic tensions increasing competition to stay Global South more visible and influential 4
Slide 5: Sidestepping the recession
GLOBAL OUTLOOK Sidestepping the recession Global real GDP growth (%) Subdued growth for the next two years Growth (yearly %) 2021 2022 2023f 2024f 2025f Quarterly real growth rates (q/q %) Global 6.1 3.0 2.7 2.4 2.7 USA 6.0 2.1 2.2 1.1 1.7 Latin America 6.8 3.6 2.1 1.7 2.1 Brazil 5.3 3.0 3.1 1.3 0.7
Slide 6: Timid rebound in global trade in 2024
GLOBAL OUTLOOK Timid rebound in global trade in 2024 Europe to rebound after two years of trade recession Demand shock: cost to GDP in pp in 2023-24 due to Volume trade of goods and services, y/y lower import growth in the US, China and Eurozone Western Europe Central and Eastern Europe 15% Asia Pac
Slide 7: Bumpy (dis)inflation
GLOBAL OUTLOOK Bumpy (dis)inflation Inflation forecasts, % No return to 2% before 2025 Inflation (yearly %) 2021 2022 2023f 2024f 2025f Quarterly inflation rates, y/y% Global 4.3 8.4 6.3 4.3 3.4 USA 4.7 8.0 4.2 2.3 2.2 Latin America 13.9 14.9 22.0 11.8 7.5 Brazil 8.3 9.3 5.1 4.2 3.5 UK 2.6 9.1 7.0 3
Slide 8: Inflation outlook in emerging markets is challenged by strong USD and higher commodity prices
GLOBAL OUTLOOK Inflation outlook in emerging markets is challenged by strong USD and higher commodity prices Supply shock: import dependence on commodities Consumer price inflation will continue to retreat in all and exchange rate variation, selected countries regions but remain above central bank t
Slide 9: Inventory glut pushes goods inflation down
GLOBAL OUTLOOK Inventory glut pushes goods inflation down In the US, goods inflation is back to pre-pandemic Producer price deflation, notably in China and Germany norm amid the unwinding of supply shortages Producer price index, y/y % 4 20 Global Supply Chain Pressure Index 3 15 Durable goods CPI (
Slide 10: Consumers: Softer demand
GLOBAL OUTLOOK Consumers: Softer demand Precautionary savings are higher in the Eurozone Housing prices are adjusting; affordability has not while excess savings stand at close to 4% of GDP improved as much Gross saving rate, % of disposable income Real house price index growth, y/y% Sources: LSEG D
Slide 11: No additional relief from energy prices
GLOBAL OUTLOOK No additional relief from energy prices Oil to remain expensive Wholesale future electricity prices should not Brent prices, USD/bbl decrease much in 2024 in Europe 130 500 Brent Crude 2015-2019 Average France 120 450 Germany 400 US 110 2023 average Japan USD 82 350 India 100 2024 ave
Slide 12: A wage pinch, but no price spiral
GLOBAL OUTLOOK A wage pinch, but no price spiral Positive real wages will not compensate for 2022 Corporates are feeling the higher cost of labor losses, except in the UK, y/y % Quarterly EBITDA margin (%) US UK Eurozone Germany 23 6 France Italy Spain 21 4 19 2 17 0 15 -2 13 -4 11 Forecasts -6 9 US
Slide 13: Timid pivots in interest rates to start mid-2024
GLOBAL OUTLOOK Timid pivots in interest rates to start mid-2024 Central banks will start cutting rates in H2 2024 amid Quantitative tightening will continue in the Eurozone weak growth and ongoing disinflation whereas the Fed is expected to stop in mid-2024 10 000 Fed balance sheet 9 000 ECB balance
Slide 14: Ingredients in place for the Fed to cut by Q3 2024
GLOBAL OUTLOOK Ingredients in place for the Fed to cut by Q3 2024, but monetary settings will remain tight The labor market is gradually easing back towards …while inflation expectations are low and the output the 2018-19 pattern, compatible with 2% inflation… gap is expected to widen sharply 7 1.5
Slide 15: The ECB will need to avoid a hard landing in 2024
GLOBAL OUTLOOK The ECB will need to avoid a hard landing in 2024 Phillips curve model shows disinflation due to To achieve a soft landing the ECB will need to release anchored expectations and fading of supply shocks the brakes slightly in 2024 10 CPI qoq saar 5 CPI qoq saar (model) 4 8 SPF 5y infla
Slide 16: Mildly restrictive policy mix
GLOBAL OUTLOOK Mildly restrictive policy mix Fiscal consolidation is needed as real interest rates The politicized environment calls for moderate will reach their highest levels since 2006 adjustments (government interest expenditures, % of GDP) (cyclically adjusted primary balance, % of GDP) 6 UK U
Slide 17: Net deceleration of credit in the economy
GLOBAL OUTLOOK Net deceleration of credit in the economy The debt-repayment wall can prove more challenging Higher interest rates start to bite with credit to non- for European corporates given their exposure to banks financial corporates slowing down fast Net interest payments (paid – received), %
Slide 18: Corporates feeling the pinch from higher costs & lower revenue growth
GLOBAL OUTLOOK Corporates feeling the pinch from higher costs & lower revenue growth Unfavorable expense momentum... ...alongside turnover slump (q/q change in operating expenses, %) (industrial turnover, y/y) Sample of 23,000 listed global corporates 18 Sources: Refinitiv Datastream, IMF, Allianz R
Slide 19: Business insolvencies: Normalizing at a high speed
GLOBAL OUTLOOK Business insolvencies: Normalizing at a high speed North America and Europe are leading the global Still higher levels to expect in most countries and rebound, selected countries regions in 2024, index 100 = 2019 160 North America Forecasts Latin America 150 Western Europe Central & E
Slide 20: Banks are better prepared to absorb shocks, still face increasing pressures
GLOBAL OUTLOOK Banks are better prepared to absorb shocks, still face increasing pressures Banks are better capitalized compared to 2015 and ...but fears of a corporate-bank doom loop can re- able to absorb shocks... emerge if asset quality deteriorates Tier 1 capital ratio (%) Non-performing loan r
Slide 21: Prolonged high AE rates to stall EM policy normalization
EMERGING MARKETS – MONETARY POLICY Prolonged high AE rates to stall EM policy normalization; risks of politics-induced errors grow Widespread positive real policy rates (excl. Eastern Policy normalization has started but few will manage Europe) as a sign of effective fight against inflation to cut a
Slide 22: Most emerging markets are also confronting weak domestic demand
GLOBAL OUTLOOK Most emerging markets are also confronting weak domestic demand Real GDP growth contributions, 2024, pp Consumer spending Government spending Gross investment Net exports Real GDP growth (%) 8 6 4 2 0 -2 Turkey Kenya Peru Colombia Morocco Mexico Indonesia Chile South Africa Poland Bra
Slide 23: Portfolio flow pressures likely to continue in EMs
GLOBAL OUTLOOK Portfolio flow pressures are likely to continue in EMs, but imbalances are set to improve Exposure to sentiment swings in China is particularly Current account adjustments are taking place, pronounced in Asia, portfolio flows (USD bn) Asia remains in a favorable position, % GDP Source
Slide 24: Industrial policy: from passé to fashionable again
GLOBAL OUTLOOK Industrial policy: from passé to fashionable again, but beware the strings attached Global industrial policy interventions on the rise Green subsidy levels in the US versus EU are similar in size but very different in implementation (2022-2031, in USD (left) and bn USD (center and rig
Slide 25: Protectionism going forward?
GLOBAL OUTLOOK Protectionism going forward ? Rising trade restrictions worlwide Global FDIs sharply dropping (4 quarter average, USD Bn) Sources: Global Trade Alert as of Aug. 2023, IMF, Allianz Research Sources: LSEG Refinitiv, Allianz Research 25
Slide 26: Regional outlooks 2023-2025
Regional outlooks 2023-2025 26
Slide 27: US heading towards lackluster growth
REGIONAL OUTLOOKS 2023-2025 US heading towards lackluster growth Muted capex intentions signal struggling Household income is slowing while the savings rate is manufacturing sector ahead already low, meaning softer consumption ahead 50 Philly Fed capex intentions - adv. 2m 85 2.5 Outlays, % m/m 5.0
Slide 28: The USD tends to appreciate on average after the presidential elections
REGIONAL OUTLOOKS 2023-2025 The USD tends to appreciate on average after the presidential elections USD to remain strong in the short-run but valuations Markets anticipate the ‘election effect’ in the case of suggest weakness in the mid-run Republican victory Real transatlantic spread and EURUSD (in
Slide 29: Eurozone in stag(dis)flation but significant downside risks loom
REGIONAL OUTLOOKS 2023-2025 Eurozone in stag(dis)flation but significant downside risks loom Eurozone growth has been below trend since Q4 High downside risks and uncertainty amid elevated 2022 dispersion 2 0 -2 -4 2003 2007 2011 2015 2019 2023 GDP qoq sa BLS change in credit demand (Z-score) M1 yoy
Slide 30: German economy set for recession
REGIONAL OUTLOOKS 2023-2025 German economy set for recession GDP, Composite PMI output, ifo business climate Strengthening Germany as place to innovate, invest (q/q % and Index) and create high-value jobs despite… …cyclical challenges …structural headwinds ▪ Slowing global demand ▪ Shortage of skill
Slide 31: Rising political violence and social risk
REGIONAL OUTLOOKS 2023-2025 Rising political violence and social risk Frequency of political violence events by type and region Most pressing issues facing EU countries (%) in 2023-ytd, change vs 2019-2022 average (%) Violence against civilians Battles Explosions/remote violence Riots Inflation / co
Slide 32: The last thing the EU needs are illusory solutions
REGIONAL OUTLOOKS 2023-2025 The last thing the EU needs are illusory solutions European populist parties have more than doubled their Correlation between the populist vote shares in vote share in the last 30 years Europe and economic policy uncertainty Sources: Party classification from The PopuList
Slide 33: France: Few growth boosters in sight
REGIONAL OUTLOOKS 2023-2025 France : Few growth boosters in sight Household (goods) consumption struggling to Business investment braced for a slowdown amid recover (Index, January 2023 = 100) lower credit demand Sources: Refinitiv Datastream, Allianz Research Sources: Refinitiv Datastream, Allianz
Slide 34: Italy: Engines of recent resilience to step back
REGIONAL OUTLOOKS 2023-2025 Italy: Engines of recent resilience to step back Private consumption to slow down as households feel Strong construction activity – linked to tax credit the impact of rising interest rates scheme – should normalize and not be fully offset by the spending of EU funds (2019
Slide 35: Italy: Still good appetite for BTPs
REGIONAL OUTLOOKS 2023-2025 Italy: Still good appetite for BTPs Retailers and foreign investors have taken over the ECB and are keeping Italian sovereign Rollover risks remain under control so far Monthly Italian government bond flows (EUR bn) Sources: Refinitiv Datastream, Allianz Research Sources:
Slide 36: Spain: A two-sided story
REGIONAL OUTLOOKS 2023-2025 Spain : A two-sided story Leading economic indicators suggest that economic But strong tourism should continue to boost growth growth may have decelerated slightly in Q3 2023 0.50 60 12000 France Italy 10000 Portugal 0.25 55 Belgium 8000 Rest of the World 0.00 50 6000 Tot
Slide 37: UK: A long-lasting supply shock
REGIONAL OUTLOOKS 2023-2025 UK: A long-lasting supply shock Labor market remains tight despite recent Dependency on imports from outside the EU is up rebalancing (+6pps from US and China combined since 2016, -13pps from EU) Job vacancies, ‘000 Imports by origin, % of total Sources: LSEG Datastream,
Slide 38: China: It's all about policy
REGIONAL OUTLOOKS 2023-2025 China: It’s all about policy Monetary policy is far too restrictive, which warrants Housing indicators point to a stabilization at low further easing by year-end, % y/y levels, % y/y Government Bonds Corporate Bonds and Stocks NBS 70 Cities Prices %y/y Bank Loans Shadow B
Slide 39: APAC: Weak global trade performance will jeopardize regional growth
REGIONAL OUTLOOKS 2023-2025 APAC: Weak global trade performance will jeopardize regional growth GDP growth and short-term country risk Exports are bottoming-out as of Q3 2023 Total APAC exports, %y/y smoothed 40 Exports to US Exports to EU 30 Exports to China 20 10 0 -10 -20 12 13 14 15 16 17 18 19
Slide 40: Emerging Europe: Growth will gradually recover in 2024-2025
REGIONAL OUTLOOKS 2023-2025 Emerging Europe: Growth will gradually recover in 2024-2025, supported by monetary easing GDP growth and short-term country risk As inflation is retreating, CEE central banks will cut as of Q3 2023 rates to support growth Sources: Refinitiv, Allianz Research. Sources: All
Slide 41: Africa & Middle East: Growth moderates amid external and social pressures
REGIONAL OUTLOOKS 2023-2025 Africa & Middle East: Growth moderates amid persisting external and social pressures Inflation and political instability in Country risk map, short-term ratings Fiscal and current account improve Africa keep weighing on growth in Kuwait, Oman, Qatar and UAE Source: Allian
Slide 42: LatAm: Growth divergence, monetary policy to gradually ease further
REGIONAL OUTLOOKS 2023-2025 LatAm: Growth divergence, monetary policy to gradually ease further Outperformance of Brazil and Mexico to reduce Fiscal consolidation remains Brazil's main challenge; Chile and Colombia more exposed to external shocks Brazil Colombia Chile Mexico Peru Fiscal Fiscal balan
Slide 43: Capital Markets Outlook 2023-2025
Capital Markets Outlook 2023-2025 43
Slide 44: Markets to navigate the policy-heavy environment
CAPITAL MARKETS – FORECAST SUMMARY Markets to navigate the policy-heavy environment Capital Markets: Eurozone and US Capital Markets: UK, Emerging Markets, FX year-end figures year-end figures year-end figures Last Unit EMU 2022 2023f 2024f 2025f UK 2022 2023f 2024f 2025f Government Debt Government
Slide 45: Long-term yields should start edging lower as policy peaks
FIXED INCOME – RATES Long-term yields should start edging lower as policy peaks Sovereign bond yields will fall on lower policy rates But high net supply, quantitative tightening and and easing inflation expectations subdued foreign demand limit yield compression 40 000 Fed balance sheet 80% Treasur
Slide 46: Yield curves will stay inverted for a while but will bull steepen in 2024
FIXED INCOME – RATES Yield curves will stay inverted for a while but will bull steepen in 2024 US yield curve will remain inverted for a long time – a Similar pattern for the German yield curve though it pattern last seen in the oil price shock of the 1980s will likely stay inverted for even longer
Slide 47: Volatility in bond markets to remain elevated
FIXED INCOME – RATES Volatility in bond markets to remain elevated until investors are certain that inflation is under control 90-day rolling volatility of daily changes in the US Volatility in the German 10y bund yield even higher 10y yield at upper end of historical range from a historical perspec
Slide 48: USD to remain strong in the short-run but valuations suggest weakness
FX USD to remain strong in the short-run but valuations suggest weakness in the mid-run Valuation shows that the USD is very overvalued Real transatlantic spread and EURUSD (inverted) 125 REER FV 120 minus 1 stdev 115 plus 1 stdev 110 105 100 95 90 85 80 1995 1999 2003 2007 2011 2015 2019 2023 Sourc
Slide 49: Corporate debt servicing will remain under pressure but will not break the market
FIXED INCOME – CORPORATE CREDIT Corporate debt servicing will remain under pressure but will not break the market Lower-shorter issuance and limited redemptions should Earnings to outpace the growing interest burden in prevent a full pass-through effect of higher rates the US but might not do so in
Slide 50: Credit remains tight given current macroeconomic conditions
FIXED INCOME – CORPORATE CREDIT Credit remains tight given current macroeconomic conditions but should still be resilient in the mid-run Short-term cyclical risks point towards a mild … and still resilient debt servicing capacity should cap widening but relatively strong balance sheets … the widenin
Slide 51: In a higher-for-longer environment the weak links face elevated headwinds
PERIPHERALS AND HY In a higher-for-longer environment the weak links will continue to face elevated headwinds Rising defaults, higher rates and a crowded market add Eurozone periphery spreads versus Germany to short-term risks to the weak links in high-yield corporates remain stable amid ECB support
Slide 52: Concentration risk remains high and depends on a handful of tech companies
EQUITIES Concentration risk remains high and performance will depend on a handful of tech companies Tech earnings are set to remain strong but leave The overperformance of the top companies hides the global markets at the mercy of a few companies underperformance of the rest of the market Sources: L
Slide 53: Macro and fundamentals suggest diverging paths for equity markets
EQUITIES Macro and fundamentals suggest diverging paths for equity markets moving forward Macro indicators suggest downside risks for equities China’s economic resilience will remain crucial for the but fundamentals yield a more positive outlook fundamentals resilience story Sources: LSEG Datastream
Slide 54: Balance sheet resilience should keep markets afloat
EQUITIES Balance sheet resilience should keep markets afloat until the economy reaccelerates Resilient earnings should keep equity markets Our scenario suggest ~10% returns for US equities performing positively in the next three years and 8% for European equities US Equity markets and GDP (y/y%) Sou
Slide 55: A much higher for much longer scenario could derail a fragile market
CROSS ASSET A much higher for much longer scenario could rapidly derail an already fragile market equilibrium The financial conditions tightness vs market The equity market leaders belong to one of the positioning conundrum is already overstretched sectors most sensitive to interest rates Sources: L
Slide 56: Peak EM momentum? Only in certain areas of the market
EMERGING MARKETS –SOVEREIGN Peak EM momentum? Only in certain in areas of the market as selectivity prevailed Appetite for high returns may be underestimating the … but markets have drawn clear distinctions across challenges… the rating spectrum \1 Sources: Bloomberg, Allianz Research. Notes: \1 Wit
Slide 57: EM resilience stories: commodities shock and central banks drive success
EMERGING MARKETS – SOVEREIGN EM resilience stories: commodities shock and central banks drive regional success CB response and FX strength helped LatAm local … a situation that could continue given the still above- bond markets to navigate market turmoil… average nominal yield differentials and FX v
Slide 58: China bonds and equities show divergent fundamentals
EMERGING MARKETS – CHINA China bonds and equities show divergent fundamentals, but both face geopolitical concerns China's local currency bonds lose appeal with a Good fundamentals don’t assure the Chinese equities weaker CNY, highlighting divergent monetary stance comeback, weighed by investability
Slide 59: Diversification, a comeback to the post 2000s era or a structural shift?
CROSS ASSET - DIVERSIFICATION Diversification, a comeback to the post 2000s era or a structural shift? The simultaneous equity-fixed income … but declining growth-inflation uncertainty and a underperformance in 2022 will remain engraved in comeback of demand-driven dynamics should bring market senti
Slide 60: The ESG market rush is decelerating as sustainable investing is politicized
ESG The ESG market rush is decelerating as sustainable investing becomes ever more politicized ESG investment fund liquidations increase in 2023 ESG fund flows are decelerating and even turning Sustainable fund closures in first eight months of each year into outflows (q/q - USD Bn) 30 210 Europe 18
Slide 61: © Allianz 2023
© Allianz 2023