Standard Bank Oil ETN · JSE:SBOIL
Standard Bank Oil ETN — Standard Bank — Non-Deal Roadshow (March 2002)
29 slides from Standard Bank Oil ETN's roadshow presentation, March 2002
Slide 1: Latin American Market Outlook
Standard Miami Emerging Markets Research Latin American Market Outlook Latin America Research March 2002
Slide 2: Drivers of Latin America Performance in 2002
Drivers of Latin America Performance in 2002 • Global recovery led by US • Liquidity & low G7 interest rates • Commodity prices • Investor risk appetite • Event risk Conclusions: • Latin American fundamentals have improved • Contagion effects remain negligible • Differentiation of relative value off
Slide 3: The global economy recovery is underway...
The global economy recovery is underway... • OECD leading indicators started to rise in 3Q01 after the free fall from late 2000 • The quick global response to the Sept 11 attacks by the private and public sectors (slashing production and interest rates, for example) led to what is now the mildest gl
Slide 4: …led by the US industrial sector and more recently broadening out to services
…led by the US industrial sector and more recently broadening out to services • Conference Board LEI for December posts largest increase since 1996 • The LEI rose for the 4th consecutive month in January - signaling that the US economy has turned the corner • The 2.6% rise in Durable Goods Orders in
Slide 5: The industrial sector is rebounding, helped by low inventories
The industrial sector is rebounding, helped in large measure by low stockpiles of inventories • The ISM PMI Index (formerly the NAPM Index) surged to 54.7 in February from 49.9 in January, indicating an expansion in manufacturing activity for the fist time in 19 months ISM Purchasing Managers Index
Slide 6: Initial jobless claims continue downward trend...
Initial jobless claims continue downward trend... • 4-week moving average of jobless claims continues to slide • Consumer confidence is bouncing back US Initial J obless Claims (4 wk M.A.) US Consumer Confidence Index 550 80 60 500 40 450 % chg y/y 20 '000 400 0 350 -20 300 -40 250 -60 Jan-94 Jan-95
Slide 7: …but the recovery may be more muted than usual
…but the recovery may be more muted than usual • Though it appears to have peaked, the unemployment rate remains 1.5 percentage points higher than a year ago at 5.5% • Thin profit margins and excess manufacturing capacity continue to squeeze capital spending • Strong consumer demand for housing and
Slide 8: Cost cutting, technology and layoffs have led to productivity increases
Cost cutting measures, technology improvements and layoffs have led to remarkable increases in productivity • Razor thin profit margins and weak pricing power have compelled businesses to raise productivity levels • Low unit labor costs should help keep inflation at bay for the near to mid term, hel
Slide 9: Outlook for commodities appears mixed
Outlook for commodities appears mixed • Base metals showing early signs of life - the price of copper, in particular, is up about 13% year-to-date • Soft commodities still depressed, though lumber futures have rebounded • Oil Prices have finally stabilized and are trending up Economist Commodities I
Slide 10: Global liquidity is abundant
Global liquidity is abundant, providing the necessary financing for a global economic recovery • Low inflation suggests that central banks can bide their time before raising rates though the risk to this view has recently increased • Global short-term interest rates historically low • Limited upside
Slide 11: Capital flows to emerging markets: Down in 2001, expected to rise in 2002
Capital flows to emerging markets: Down in 2001, but expected to rise in 2002 • Net private capital flows to EMs fell by almost one-third, from $169 billion in 2000 to $115 billion in 2001 • According to the IIF, they are expected to rise to $144 billion in 2002 Net Private Flows Net Equity Investme
Slide 12: Investor risk appetite is recovering
Investor risk appetite is recovering • Sept 11 aftermath: risk aversion gained sway - but only temporarily • Recovery in US risk appetite interrupted by Enron debacle - likely to be temporary also, but default rates remain high • Equities in recovery phase - EM and LatAm look set to outperform - abu
Slide 13: EMBI+ Spread & Volatility: Contagion minimal compared to previous crises
EMBI+ Spread & Volatility: Contagion minimal compared to previous crises • Post-Argentina volatility has fallen back to earlier lows • Negligible contagion from Argentina • Lower volatility is a necessary precursor for EM spread tightening EMBI+ Spread and 10-day Volatilty EMBI+ Total Return Index &
Slide 14: Latam macro fundamentals: 1994 vs. 2001
Latam macro fundamentals: 1994 vs. 2001 • Though improvements in debt burdens have been selective, adoption of more robust policies, including floating FX regimes, have led to: – Lower inflation, improved central bank credibility – Lower current account deficits – Lower public sector deficits – Howe
Slide 15: Latam macro fundamentals: 1994 vs. 2000/2001
Latam macro fundamentals: 1994 vs. 2000/2001 Real GDP Inflation 14 80 12.8 70.8 12 1112.9 70 10 60 8 5.8 5.9 5.7 5.8 50 6 5 % ch y/y 4.3 4.4 40 % y/y 4 3 2.8 1994 1994 1.7 30 25.4 1.5 2001 22.6 2001 2 22.4 -0.1 20 15.4 0 12.3 3.9 6.5 8.9 7.65 7 5.5 -0.5 10 2.6 -2 0 -4 -3.2 -0.13 -3.8 -1.4 -10 -6 Mex
Slide 16: The slowdown in Latin American growth was reflected in loan portfolios
The slowdown in Latin American economic growth was reflected in loan portfolios • Economic stability since the mid-1990s bolstered credit demand and led to steady loan growth for most Latin American banking systems, although slowing significantly in the last year • Yet banks’ function as facilitator
Slide 17: Liquidity has remained very strong...
Liquidity has remained very strong... Brazil - System Liquidiy Mexico - System Liquidity 35% 50% 30% 40% 25% 30% 20% (%) (%) 15% 20% 10% 10% 5% 0% 0% Liquid Assets/Total Assets Cash & Cash Equivalents/Total Assets Cash & Cash Equivalents/Total Assets Liquid Assets/Total Assets Source: CNBV. Source:
Slide 18: …but asset quality remains a concern
…but asset quality remains a concern • NPLs typically lag the economic cycle • Some consumer loan growth in Brazil should pressure asset quality although steep intermediation margins help compensate for the high level of provisioning • The combination of lower interest rates, increasing foreign owne
Slide 19: Investment Themes: Emerging Market Debt Risk vs. Return
Investment Themes Emerging Market Debt: Risk vs. Return • Argentina & Russia are the top EM performers YTD - but at significantly different levels of return volatility • Mexico’s total return is lagging behind the EMBI Global. • For a bit more risk, Brazil offers better returns • Conclusion: As vola
Slide 20: Rich/cheap analysis: EMBI Global stripped spread vs. S&P ratings
Rich/cheap analysis: EMBI Global stripped spread vs. S&P sovereign ratings • Mexico becomes the latest EM to join the investment grade club, though near-term upside appears limited in the absence of further structural reforms • Investment grade credits appear to be fairly valued • As the recovery in
Slide 21: Argentina: pivotal issues amidst a doom loop
Argentina: 3 pivotal issues amidst a doom loop of economic and political chaos • Credible fiscal program? Macroeconomic assumptions for the 2002 budget are overly optimistic • Solvency and liquidity of banking system? The corralito is unlikely to be eliminated soon • International financial support?
Slide 22: Argentina: downside risks continue to outweigh potential returns
Argentina : downside risks continue to outweigh potential returns • Terms of restructuring remain unknown • Event risk surrounding the pivotal issues highly fluid • Government attempting to provide support from a position of weakness • Social tensions bode unfavorably for industry vs. individual • C
Slide 23: Venezuela in crisis….
Venezuela in crisis…. • Devaluation and fiscal adjustment to produce big improvement in budget balance • Current account swings back into surplus • Inflation surges - voting base disenchanted • Political pressures remain with opposition unlikely to be mollified by extension of olive branch • Most of
Slide 24: … but not the next Argentina
… but not the next Argentina • Exports to GDP much higher • Foreign debt ratios way better • No deflation • Experience with devaluation • Venezuelan crude oil basket - currently at $18.88 p.b. - continues to rise
Slide 25: Mexico vs. Brazil: Relative Performance
Mexico vs. Brazil: Relative Performance • Mexico is a convergence play on the US • Mexico will be primary beneficiary of US recovery • Political noise in Brazil is rising ahead of the presidential elections in October, but longer-term fundamentals remain constructive • Moody’s just upgraded Brazil’s
Slide 26: Corporates vs. Sovereign: Mexico & Brazil
Corporates vs. Sovereign: Mexico & Brazil • Mexican corporates look cheap given the recent sovereign ratings upgrade and the fledgling US economic recovery - spreads to tighten • Sanluis default impact and refinancing risk are subsiding • The peak in US corporate defaults and downgrades now likely t
Slide 27: Mexican industrial corporate value
Mexican industrial corporate value • Decreasing risk aversion, US recovery expectations and some refinancing successes have allowed the Mexican corporate curve to revert back to a normally-sloping shape • A window of opportunity has opened for investors to differentiate among credits and extend dura
Slide 28: Central America and Caribbean - the New Frontier
Central America and Caribbean - the New Frontier • Growth was sluggish throughout the region during 2001, and will be highly dependent on the US economic recovery for 2002 • The region has been historically vulnerable to external shocks – Coffee prices hit 30-year lows – US recession dampened demand
Slide 29: 2001 economic indicators for Central America and the Caribbean
2001 economic indicators for Central America and the Caribbean Costa Rica El Salvador Guatemala Nicaragua Dom. Rep* Nominal GDP (US$ billion) 16.36 14.00 20.50 2.50 19.9 Real GDP (y/y % chg) 0.3 1.5 2.3 3.0 3.1 Inflation rate (acum. annual %) 11.0 3.0 9.8 7.3 4.38 Budget Balance (% of GDP) -3.1 -3.6