Corporate review march 2014 by Andbank

ANDBANK RESEARCH Global Economics & Markets

Alex FustĂŠ Chief Economist alex.fuste@andbank.com +376 881 248

Monthly Corporate Review Outlook for the Global Economy & Financial Markets March, 2014

Corporate Review

Table of Contents Executive Summary ………………………………………………………………………….……………………………………………………………..3 Overall Economic Environment Global – What is behind the new-found currency instability? ..……………………………………………………………..4 Asia – The troublesome economies are Indonesia, India and Thailand ………………………………………………..6 EMEA – Turkey is perhaps the hottest spot within the “Fragile Five” but … ..……………………………………..17 Eurozone – The problems are concentrated in Greece ………..……………………………………………………………..22 Latam – Argentina. Some good steps in the right direction .……………………………………………………………..25

Market Snapshot. Performance and Volatility ………………………..……………………………………………………………..28 Market Outlook Equity. Short Term Outlook & Fundamental Outlook (Fundamental Analysis) ………………………….………..32 Interest Rates. Core Global Fixed Income ………………………………..…………………………………………………………..42 Sovereign Risk (European Periphery) …………………………………………………………………………………………………..50 Corporate Credit ..…………………………………………………………………..……………………………………………………………..54 Commodities & Precious Metals …………………………………………….……………………………………………………………..59 Forex ………………………………………………………….………………………………..………………………………………………………..76

Summary Table for financial market prospects & Asset Allocation Proposal

……………………………..83

Executive Summary

Corporate Review

Economy & Markets Emerging – Bad dynamics in CA balance (regardless of its level) is the primary reason for the new-found currency instability. In that regard, we have already seen significant improvements in this area in some of the Fragile Five. Asia – Indonesia: BI’s decision not to support the currency reflects the fact that the country has reduced its external vulnerabilities. This idea is reinforced by watching how some factors have developed recently: Resilience of the IDR, healthy Fx reserves, low debt that will be even lower and an improving CA deficit. India: Has also managed to significantly improve the CA balance, with the deficit narrowing to a more than four-year low of 1.2% of GDP in Q4. An increase in exports and a fall in imports have been the drivers for the general improvement in the external balance. However, the biggest swing factor has been the effectiveness of curbs on gold imports. The improvements seen in India and Indonesia’s external balance will prove more than fleeting, and we believe that the recent resilience shown in these two currencies was not a one-off. Thailand: The unresolved political crisis is already being felt. For 2013 as a whole, growth came in at 2.9%, down from 6.4% in 2012. The longer the power vacuum lasts, the worse it will be for the Thai economy. It is doubtful that Thai GDP in 2014 can exceed 3%, and downside risks are rising fast. EMEA – Turkey: Indeed, CA imbalances are worsening rapidly but on the fiscal front, things seem to remain clearly under control. Although Fx reserves are dangerously declining, there is no strain in the coverage coefficient of public external debt yet (still at a healthy level of 1.13x). Eurozone – Greece: Taxpayers to see their income tax returns filed automatically in what could be the world’s first automatic tax system. This points toward more efficient and higher tax receipts. Construction activity posts a big rebound in 4Q13. Shippers increase investment in new vessels. Latam - Argentina seems to have slightly introduced some corrective actions that may help to improve perceptions of the economy. Venezuela has opted for the politics of fear in response to social unrest. The government has imposed caps on corporate profits.

Equities – S&P: Short Term view. Our flow indicators provide an aggregate assessment that can range from -10 (strong sell) to +10 (strong buy). Today, our indicators show an aggregate score of -3 (better than the -6.6 seen last month), suggesting that there is no significant level of stress in the equity market (Overbought). Despite this, and although we would not recommend entering now long in the S&P, margin debt dynamics can go higher, leading the S&P above current levels. S&P: Fundamental Term view. Our 2014 projections are: Sales +6.2%, margins +9.5%, EPS +6.2%, target PE 15.9, target price 1849, potential appreciation from current is +0.7%. Europe (Stoxx600) Fundamental Term view. Our 2014 projections are : Sales +3.4%, margins +6.5%, EPS +22.7%, PE 14.5, target Price 370, potential appreciation +10.4%. Asia EM ex Japan Fundamental Term view. Our 2014 projections are : Sales +9%, margins +7.7%, EPS +15.3%, PE 13.7, potential appreciation +20%. Mexbol’s target price is 47,500 (potential appreciation +19%). Brazil’s Bovespa target price is 52,000 (potential appreciation +9.8%). Core Fixed Income – Bund: Start buying at 2%-2.25% yield, sell at 1.5%. Treasury: Start buying at 3%-3.25%, sell at 2.5% Sovereign Risk (European Periphery): We project now just single-digit potential performance in Italy, Spain, Portugal (around 6%). Corporate Credit: HY bonds now offer just +2.35% expected potential, vs. a mild 1.4% in the itraxx and 1.2% in the CDX. Buy EUR credit at +100bp spread. CDX at +90bp and increase exposure in HY with spreads above 400bp. EM Bonds Asia (local currency): We see value in these assets, especially in local currency. Volatility guaranteed. Preferred: Indonesia, India and Philippines. EM Bonds Latin America (local currency): Same reading as in Asian bonds. Volatility guaranteed. Most preferred: Chile, Mexico and Peru. Commodities: Commodities in general at fair value, except precious metals. Preferred: Gas, wheat, cotton, and some minerals. Avoid metals. Our target price for Oil (WTI) remains stable around $85. Buy below $80’s and sell above $95. Fx: Fundamental target for the USD/EUR at 1.40. Asian currencies are attractive. Avoid JPY (vs. EUR and USD). GBP vs. EUR range bound in the 0.82-0.86 area). Neutral MXN (target at 12.75). Short BRL (2.6).

Corporate Review

Table of Contents Executive Summary Overall Economic Environment Global – What is behind the new-found currency instability? Asia – The troublesome economies are Indonesia, India and Thailand EMEA – Turkey is perhaps the hottest spot within the “Fragile Five” but … Eurozone – The problems are concentrated in Greece Latam – Argentina. Some good steps in the right direction

Market Snapshot. Performance and Volatility Market Outlook Equity. Short Term Outlook & Fundamental Outlook (Fundamental Analysis) Interest Rates. Core Global Fixed Income Sovereign Risk (European Periphery) Corporate Credit Commodities & Precious Metals Forex

Summary Table for financial market prospects & Asset Allocation Proposal

Corporate Review

Bad dynamics in CA balance (regardless of its level) is the primary reason for the new-found currency instability Change in CA balance & Exchange Rate

Corporate Review

Summary Table for financial market prospects & Asset Allocation Proposal

Corporate Review

Indonesia

Corporate Review

Indonesia – BI stops to defend the Rupiah Bank of Indonesia (BI) decided not to follow the lead of other deficit countries, including Turkey, South Africa and India (all of them having hiked rates in recent weeks), and left interest rates on hold for a third consecutive month. BI’s decision reflects the fact that the country has reduced its external vulnerabilities. This idea is reinforced by watching how some factors have developed recently. 1. Resilience of the IDR: By not hiking rates in 3 months, the BI stopped defending the rupiah, in part due to the resilience of the currency in the most recent sell-off (after falling 21% in 2013, it has appreciated 3% in 2014, being the best of the EM currencies).

2. Healthy Fx reserves: With no intervention, the recent appreciation has come as a result of an increase in Indonesia’s Fx reserves. The country has reached the US$100bn level (after the US$5bn bond issue, with demand for US$17.5bn). Public external debt is US$123bn (12.8% of GDP), meaning that the Public Coverage Coefficient is 81%.

3. Low debt that will be even lower: The total government debt represents 24% of GDP. Still healthy according to international standards and showing clear signs of continuing to decline.

4. Improving CA deficit: CA balanced has improved from 4.2% in Q3 to just 2% in Q4 with exports rising sharply and imports falling. Some analysts suggest that the recovery in exports seen in December can be explained by a front-loading of mineral ore exports ahead of a ban that came into effect on January. We doubt it. Exports of copper and nickel increased sharply but combined account for only 3% of total exports. A much more important factor was a recovery in exports of manufactured goods, supported by an upturn in the global economy in 4Q13 and last year’s sharp fall in the rupiah. Behind lower imports are (1) tighter MP weighting on domestic demand, (2) a reduction in fuel subsidies, and the weaker currency pushing up the price of imports. Tight monetary policy (no hikes but no cuts, keeping the refi rate at 7.5% after a cumulative 175bp raise since May 2013) ensures that the CA deficit continues its downward trend in 2014. We expect it to stay at around 2% of GDP.

Corporate Review

Indonesia - GDP projection Growth to remain at 5.5% in 2014 and 2015 (indeed below 6% but still healthy) and unlikely to accelerate. Why? 1. Consumer spending unlikely to accelerate: due to (1) temporary high inflation, resulting from fuel subsidies removal, will probably eat into the purchasing power of consumers in the next months, and (2) wage growth has slowed. 2. Investment spending unlikely to accelerate due to (1) tighter monetary policy resulting from the BI defense of the Rupiah, (2) lower commodity prices globally, and (3) political impasse arising from presidential elections in 2Q. 3. Public spending will continue being tamed since government sticks to its target of reducing deficit to just 1.7% of GDP in 2014 (it was 2.3% in 2013) 4. Exports will remain fairly stable. Admittedly, faster growth in DM will boost manufactured exports (33% of total), but "slower" demand from China and new law banning exports of some raw materials) will keep commodity exports subdued (50% of total). All in all, and after arguing with some analysts familiar with this topic, we set a noacceleration-no-deterioration-of-GDP-pace as our central scenario for this economy, with the tightening cycle probably over (and a cut in rates as the most likely step in the next monetary policy decision)

Corporate Review

Indonesia - Inflation will decline sharply Despite weakness in the currency (which is starting to feed through to import prices: 17% y/y in December), this will not be passed onto CPI because 1. Indonesia is a relatively closed economy with imports barely representing 25% of GDP 2. Government subsidizes a range of goods, most notably fuel, meaning that it is the government which bears the cost of the escalation in import prices. Inflation is high currently because of gasoline subsidy cuts in 2012. Gasoline price raised 44%, bringing headline CPI to 8% (from 4.5%), but inflation should fall sharply from July once the low base drops out. On the two occasions that the government hiked fuel prices (2005 and 2008), inflation was lower a year later than it was before the increase. The economy is going to expand at 5.5% pace during 2 years, which is a non-accelerating inflation level.

Corporate Review

Indonesia - The three main risks 1. The uncertainty over the pace of tapering (although a 10 bn cut is already fully priced in per FOMC).

2. The uncertainty over a hypothetical rise in Fed's rates. Indonesia is highly sensitive to Fed fundâ&#x20AC;&#x2122;s rate.

3. Low pace in reducing the CA deficit (due to the law banning some exports). Although we have seen how CA deficit has been lowered to 1.8% of GDP (from 4.4%)

Corporate Review

India

Corporate Review

India â&#x20AC;&#x201C; Significant improvement in CA balance Indiaâ&#x20AC;&#x2122;s current account deficit narrowed to a more than four-year low of 1.2% of GDP in Q4, having been as high as 6.5% at one point in 2012. Like in Indonesia, an increase in exports and a fall in imports have been the drivers of the general improvement in the external balance. Behind the improvement in exports has been a stronger and more competitive external demand. In addition, weak domestic sentiment, rate hikes, and currency weakness have all held back imports. However, the biggest swing factor has been the effectiveness of curbs on gold imports. These restrictions were tightened progressively last year to contain the deficit (and halt the rupeeâ&#x20AC;&#x2122;s slide). Nonetheless, some officials have called for these restrictions to be relaxed (due to strains caused by the domestic gold shortage, local jewelers have lobbied against the curbs, concerns about rising gold smuggling). Given the ongoing jitters in EM financial markets, it is likely that India will relax curbs but only gradually, to help keep the CA deficit low. The CA deficit is expected to remain at 2% in 2014. The reductions in the CA deficit in India and Indonesia will prove more than fleeting, and the recent resilience shown in these two currencies was not a one-off.

Corporate Review

Thailand

Corporate Review

Thailand - The unresolved political crisis is already being felt Thailand’s economic growth eased to 0.6% q/q from a revised 1.4% in Q3. For 2013 as a whole, growth came in at 2.9%, down from 6.4% in 2012. Business sentiment has slumped. There are reports showing that companies are putting their expansion plans on hold. The weakness came from all areas of the economy, but primarily from a slump in investment growth and private consumption. Although February’s general election proceed as scheduled, voting went ahead only in 89% of polling stations, meaning that it will not be enough to deliver a new government (the constitution requires that 95% of seats in parliament are filled). Therefore, it can be said that protestors succeeded in blocking candidate registration in enough constituencies. 65

A best case scenario is that byelections (partial) will now be conducted to fill empty parliamentary seats, but it could be months before a new government can be formed.

THAIL AND - BUSINES S SENTIMENT

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Bus ine ss Sentim ent, Index Bus ine ss Sentim ent, Ex pe cte d Andbank, Bank of Thailand

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Bus ine ss Sentim ent, Inve stme nt Bus ine ss Sentim ent, Inve stme nt, Ex pe cted ©FactSet Research Systems

Corporate Review

Thailand - In the meantime the ongoing protest will further damage the economy. Foreign investors have been pulling funds out of Thai markets since November. The pace of tourism arrivals has declined to 6.7% growth (versus almost 20% for the whole of 2012). International arrivals in the two main gateways to Bangkok (Don Muang and Suvarnabhumi) were even weaker (2% pace y/y). Fiscal disbursements have been interrupted by the temporary closure of many state agencies (as a result of protests). Investment applications have also been stalled due to restrictions on the actions to be taken by caretaker governments. Large public infrastructure investments are unlikely to begin soon enough to lift growth in 2014. There is even a risk that the tabling of the budget for FY2015 (starting October 2014) will be hampered by delays. The longer the power vacuum lasts, the worse it will be for the Thai economy. It is doubtful that Thai GDP in 2014 can exceed 3%, and downside risks are rising fast. Thailand is immersed in a â&#x20AC;&#x153;political trapâ&#x20AC;?: With fiscal policy effectively paralyzed, the central bank must take the burden of responsibility for supporting the economy, meaning that it will probably cut rates at its next meeting in March. However, itâ&#x20AC;&#x2122;s a question of time before international investors starts attacking the currency and then the CBT will have to choose between defending the currency (hiking rates) or focusing on growth (keeping rates low). Whatever the decision, we will witness further strain in some area of the economy.

Corporate Review

Summary Table for financial market prospects & Asset Allocation Proposal

Corporate Review

Turkey – Current Account imbalances are worsening rapidly 2

BOP, CURRENT ACCOUNT - TURKEY

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BOP, CURRENT ACOUNT BALANCE (% OF GDP) - TURKEY

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BO P, Current Account, Total, Mil USD - Turke y / 1000 Andbank, Central Bank of Turkey

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CA balance last 12 months as a % of GDP Andbank, Central Bank of Turkey

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©FactSet Research Systems

TRADE BALANCE - TURKEY

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Such a deterioration in the CA deficit is certainly a concerning development but … … it is primarily due to a sharp rise in imports (suggesting that domestic dynamics are strong enough)

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Corporate Review

Turkey – But on the fiscal front, things seem to remain clearly under control 0

BUDGET BALANCE, CENTRAL GOV (% GDP) - TURKEY

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Cum 12 m o nths Ce ntral Go ve rnm ent Budget, (% GDP ) Andbank, Turkish Undersecretariat of Treasury

©FactSet Res earch Sys temsCENTRAL GOVERNMENT DEBT - TURKEY

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(MOV 1Y) CENTRAL GOV ERNMENT DEBT (% GDP ) - TURKEY Andbank, Turkish Undersecretariat of Tre asury

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Corporate Review

Turkey – Fx reserves are dangerously declining but … 160

Fx RES ERVES (bn USD) - TURKEY

Fx reserves have declined…

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Inte rna tio nal Re se rve s, Gro ss Fo re ign Ex change Re serve s, Bn USD Andbank, Central Bank of Turkey

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EXTERNAL DEBT

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… But it still seems high relative to public external debt

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Fo reign Excha nge Re se rves , (% o f GDP ) Andbank, Central Bank of Turkey

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EXTERNAL DEBT, GOVERNMENT (as % GDP)

In relative terms (as % of GDP) you can see how Fx reserves are still higher than the share of Public external debt (resulting in a Coverage Coefficient higher than 1)

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P riva te , bn U SD ©FactSet Res earch Sys tem s

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P ub lic Se ctor Ex te rna l de bt (a s % GDP ) Andbank, Turkis h Undersecretariat of Treas ury

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Corporate Review

â&#x20AC;Ś there is no strain in the coverage coefficient yet, though continued Fx outflows could cause serious problems Russia

Indonesia

Turkey

Argentina

GDP (bn USD)

2.200

894

841

461

Fx Reserves (% GDP)

22%

11.2%

14%

5.8%

Public Debt (as % GDP)

12%

24%

36%

41%

Public External Debt - PED (as % GDP)

2.8%

12.8%

12.4%

12%

National External Debt - NED (as % GDP)

32.4%

26.9%

44.3%

29%

Coverage Coefficient in PED (Fx Reserves / Public Ext Debt)

7.85x

0.88x

1.13x

0.48x

Coverage Coefficient in NED (Fx Reserves / National Ext Debt)

0.68x

0.42x

0.32x

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This is still a healthy level

Corporate Review

Summary Table for financial market prospects & Asset Allocation Proposal

Corporate Review

The darkest side of the Euro area continues to be Greece â&#x20AC;˘ Taxpayers to see their income tax returns filed automatically (maybe the worldâ&#x20AC;&#x2122;s first automatic tax system?). Authorities have identified taxpayers who spend more than twice as much as they earn according to their income tax declarations without that money having come from deposit withdrawals. As of March 28, all banks will transfer transactions data to the main form for the tax return. The data to be submitted will include a detailed breakdown of the salary, pension, payments from other professions, revenues from commercial enterprises, etc. all in electronic form. General Secretary Haris Theoharis has already signed the decision demanding the electronic submission of all revenue documents from employers (including 2013 data). All employers are therefore obliged to submit data for all of their employees. Any payment data that is not submitted electronically will be considered illegal. Who must submit the information? Banks, investment companies, insurance companies, private clinics, private schools, universities, tertiary education institutions, fixed and mobile networks, electricity and water utilities, etc. must submit to the General Secretariat of Information Systems full details and data on their customers with a full record of their spending in 2013. After the collection of the data the general secretariat will transfer the figures onto the electronic forms of the tax returns, meaning that taxpayers in Greece will see their income tax completed automatically on the Taxisnet system. From March 28 onward taxpayers will be able to enter the Taxisnet accounts and find their revenue data already filled. Construction activity posts big rebound in November: Hellenic Statistical Authority (ELSTAT) data showed on Wednesday an 89% jump in volume, along with a 36% rise in the number of building permits issued and a 62.8% increase in surface area.

Corporate Review

The darkest side of the Euro area continues to be Greece

Shippers increase investment in new vessels: Greek ship-owners spent over 9.5 billion euros last year on the construction of 275 new ships with a total capacity of over 24.5 million deadweight tons (dwt). DB backs Greek proposals on debt handling: Deutsche Bank on Wednesday branded the criterion used to assess the sustainability of the Greek debt – the ratio of debt to GDP – as narrow-minded, and estimated that a new debt restructuring by extending bilateral loans to 50 years could reduce the country’s burden by up to 26 billion euros in net present value terms. In doing so, Germany’s biggest lender has launched a debate about changing the way debt sustainability is determined, placing more significance on whether it is manageable rather than on its size.

Corporate Review

Summary Table for financial market prospects & Asset Allocation Proposal

Corporate Review

AR$ depreciation – A necessary (good) step… but done in the worst possible way.

The country’s crawling peg regime did not let the peso adjust to a more natural level.

In that regard, the recent depreciation is a necessary (good) step to restore external competitiveness. Why?

Using a more reliable CPI rate of 25% means that the inflation differential would have justified an AR$ depreciation of 23% vs the USD in 2013. However, Argentina’s authorities allowed a depreciation of just 17%, resulting in a Real Effective Exchange Rate appreciation (REER) of the AR$ to levels not witnessed since the 2001 crisis. Having reached that point, it was inevitable and necessary to depreciate the official rate.

Why do I say it has been done in the worst possible way?

Depreciating a domestic currency by 23% is an exercise that must be done in a communicated and controlled way, as opposed to a sudden, unannounced depreciation that could spread panic among international investors who have placed their savings in the rest of Emerging Countries (just as has happened).

Immediately after the depreciation, all restrictions on foreign exchange transaction should be removed, allowing the peso to float. What the authorities have done by reducing the tax on purchases of foreign currencies (from 35% to 20%, but then immediately putting it back up to 35%) and only for individuals earning more than AR$7,200 per month (with a limit of $2,000 per month) is simply a kind of joke.

Corporate Review

Argentina seems to have slightly introduced some corrective actions (devaluation and accuracy of data) … Though there is still a large list of pending reforms. 1. Halt the practice of deficit monetization and stop subsidizing the economy. 2. Remove the restrictions on foreign exchange transactions and allow the currency to float. 3. Take meaningful steps to tackle high inflation.

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(MOV 1Y , % 1YR) Moneta ry Bas e (MOV 1Y , % 1YR) M3

4. Monetary policy must be tightened aggressively, laying the foundations for a stronger, sustainable recovery.

Andbank, Central bank of Argentina

5. Improve the accuracy and quality of official reports

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6. A reconciliation with international creditors

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7. Improve the business environment by smoothing regulation. 8. Attract foreign operators in the energy space.

9. Eliminate the risk (or perception) about expropriation.

©FactSet Res earch Sys tems

GOVERN MEN T SP EN DIN G (% of GDP )

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(MOV 1Y) Gov Spending Quarterly (as % of GDP) (Right) GDP, Total Quarterly (ARS - Real Terms) (Left) Gov Spending Quarterly - Current & Capital spending (bn ARS) (Left)

Andbank, INDEC

©FactSet Research Systems

With the government failing to take meaningful action in these areas we suspect that the peso will face further falls.

Corporate Review

Summary Table for financial market prospects & Asset Allocation Proposal

Corporate Review

Global Financial Markets Performance

Performance Tot.Return Last Month (% )

Performance Tot.Return YTD (% )

-0.32% -0.91% -0.01% 0.33% -5.62% -2.44%

-0.78% 0.60% 2.25% -1.39% -6.67% -6.68%

0.68% 0.60% 0.48% 0.80% 0.28%

2.37% 2.27% 1.01% 2.33% 2.59%

1.68% 1.03% 2.84% 3.41% -0.46%

4.18% 5.06% 10.18% 6.36% 1.65%

1.20% 0.30% 1.48% 1.37% 0.70%

0.68% 0.31% 0.89% 2.86% 0.86%

-3.68% -0.62% -4.08% -3.12% -2.20%

-1.20% -0.25% -4.32% -4.56% -9.05%

Global Equity EQUITY

S&P 500 Euro STOXX 50 STOXX 600 MSCI AC Asia Pacific ex JP MSCI Japan MSCI EM Latin America

Core Government Bonds (10 year) US 10Yr Treasury Bond Euro 10Yr Benchmark Bond Japan 10Yr Benchmark Bond UK 10Yr Benchmark Bond Canada 10Yr Benchmark Bond

European Peripheral Government Bonds (10 year) FIXED INCOME INSTRUMENTS

Italy Benchmark Bond Spain Benchmark Bond Portugal Benchmark Bond Greece Benchmark Bond Ireland Benchmark Bond

Asian Government Bonds (10 year) Thailand Benchmark Bond Malaysia Benchmark Bond Indonesia Benchmark Bond India Benchmark Bond Taiwan Benchmark Bond

Andbank Data â&#x20AC;&#x201C; Powered by Factset Research Systems Data as of 1-24-2014

LatAm Government Bonds (10 year) Brazil Benchmark Bond Mexico Benchmark Bond Peru Benchmark Bond Colombia Benchmark Bond Argentina Benchmark Bond (Citi EMUSDGBI Argentina (USD)

Corporate Review

Global Financial Markets

ENERGY

Performance Oil (WTI) Coal Natural Gas Average Energy Corn

CROPS

Wheat Soybean Sugar Cotton

PREC. METALS

Average Crops Palladium Platinum Gold Silver Average Precious Metals

Andbank Data â&#x20AC;&#x201C; Powered by Factset Research Systems

MINERALS

Copper Nickel Zinc Aluminum Iron Ore Average Minerals

Performance Tot.Return Last Month (% )

Performance Tot.Return YTD (% )

8.76% 9.33% 30.60% 12.96%

4.97% 4.41% 38.47% 10.59%

7.53% 9.29% 6.87% 8.15% -1.71% 6.37%

8.97% 2.18% 2.10% 0.30% 2.44% 2.86%

-1.60% -2.00% 5.69% 8.59% 1.15%

2.48% 3.78% 9.76% 11.54% 5.61%

-1.53% -0.62% 0.27% -1.61% -5.26% -0.74%

-2.36% 3.61% -0.50% -1.50% -9.87% -0.69%

Corporate Review

Global Financial Markets - Equity Performance – YTD. 104 102 100 98 96 94 92 90 88 86

Global Equity Indices (Local - base 100)

06 Jan 13 Jan 20 Jan 27 Jan 03 Feb 10 Feb 17 Feb (INDEX) S&P 500 (INDEX) Euro STO XX 50 (INDEX) STOXX 600

Stoxx, S&P, MSCI

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(INDEX) MSCI AC As ia P acific ex JP (INDEX) MSCI Jap an (INDEX) MSCI EM La tin Ame rica

Latam Equity Indices (Local - Index 100)

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MSCI La tin Am e rica ©FactSet Research Systems

Corporate Review

Summary Table for financial market prospects & Asset Allocation Proposal

Corporate Review

Equity â&#x20AC;&#x201C; Short-term Outlook Positioning & Flows Assessment: Slightly Overbought Our flow indicators provide an aggregate assessment that can range from -10 (strong sell) to +10 (strong buy). Today, our indicators show an aggregate score of -3 (improving from the -6.6 seen last month), showing that there is no significant stress level in the equity market.

Nature of Index

1 2 3 Positioning 4 5 Aggregate Result in our Flow & 6 7 Sentiment Indicators 8 Previous Current 9 Flow Month Month 10 Buy signal 0 1 11 Positive Bias 2 0 12 Mkt vs Data Neutral 3 8 13 Negative Bias 3 11 14 Sell signal 14 2 15 FINAL VALUATION -6.6 -3.0 16 17 Sentiment 18 19 20 0 -5 +5 +10 -10 21 Area of Neutrality Market is Market is 22 Overbought Sell bias Buy bias Oversold

Index

Put Call Ratio Positioning - Speculators (US Equities vs rates) Positioning - Hedge Funds Positioning - Strategists Option Skew Monitor Asset Allocators - Equity Asset Allocators - Cash Flows - Global Asset Class, weekly Directors Buying vs Selling Driver for markets (Profits or PE expansion) BofA ML Global Financial Stress Index (GFSI Index) Citi Economic Surprise Index Citi Macro Risk Index (MRI CITI Index) Breadth - Companies over their 200 ma level Investor Intellgence Bull/Bear Ratio (newsletter) AAII Bull & Bears Survey of Management Sentiment (NAAIM Active Managers) Market Vane Index (CTA's advisors) NDR Crowd Composite Sentiment Complacency in Market (volatility) Andbank's Equity Composite FGA's Composite Sentiment

Andbank's Assessment -0.5 -1 0 -0.5 0 -0.5 1 0 0 -1 0 0 -0.5 0 -0.5 0 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5

Corporate Review

Margin debt could irrationally go higher • “It seems that the fellows using other people’s money to get rich have an uncanny ability to leverage up when shares become overvalued vs bonds… • … They also seem to get most enthusiastic usually after a prolonged outperformance of equities against bonds” (Charles Gave). • Why? The inventiveness of mankind is extremely generous when it comes to manufacturing good reasons why the stock market cannot change direction: “technology has created a new economy”, “we have discovered an infinite source of wealth”, etc.

Gavekal

Corporate Review

Equity â&#x20AC;&#x201C; Mid to Long-term Outlook Fundamental Approach

Corporate Review

S&P â&#x20AC;&#x201C; Estimating 2014 growth in EPS

Usd/Eur

S&P

Usa Europe Rest of the world Total world

2013 profit margin % (Factset) 2014 est profit margin % (3) *

Today

Avg 2013

1,35

1,38

% sales

2014 real GDP estimated

2014 inflation rate estimated

53,4 9,2 37,4 99,99

2,50 1,00 4,00 3,30

1,70 1,10 4,10

9,6 9,6

Sales base 2013 Sales exp 2014

100 106,18

Profit base 2013 Profit exp 2014

9,6 10,2

2014 expected profit growth %*

6,18

2,22%

Expected * Currency effect on 2014 nominal sales growth international Sales GDP estimated % 2014 in (%) USD 4,20 2,10 8,10

-1,63 1,50

4,20 3,73 9,60 6,18

EUR/USD average level 2014 USD change vs EUR USD change vs Rest of Fx % of Companies hedging Fx Risks

1,38 -2,17% -2,00% 25%

Effect of USD change vs EUR Effect of Int Fx changen vs USD

1,63% 1,50%

* Consensus estimates: Sales growth at 4.44%, Profit margin in 2014 expanding, EPS growth +10%

Corporate Review

Our fundamental value and the expected performance for the S&P 500

P = EPS2014 x PEmultiple

2013 Projected 2013 Projected 2013 EPS Growth EPS (%) EPS (US$)

2013 PE Andbank's ltm projections for 2014 PE ltm

Target Price

Current Price 24-feb-14

Expected Change (%) 2014

1,849

1,836

0.7%

(1)

S&P

109.51

6.2

116.27

16.37

15.9

(1) Our projection for the 2014 PE (ltm) in the S&P results from the values recorded in the three approaches we have used: The monetary impulse (13.4), the profit cycle (17.4) and the historical value (16.9). The average value is 15.9, and we consider this measure as conservative.

Corporate Review

Stoxx 600 Europe â&#x20AC;&#x201C; Estimating 2014 growth in EPS

Today

Avg 2013

1.35

1.38

2.22%

% sales

2014 real GDP estimated

2014 inflation rate estimated

2014 nominal GDP estimated

Currency effect on international Sales (%)

Expected sales growth % 2014 in EUR

10.8 60.2 29.1 100.00

2.50 1.00 4.00 3.30

1.70 1.10 4.10

4.20 2.10 8.10

-1.63 -0.00

2.57 2.10 8.10 3.89

USD/EUR

Stoxx 600

Usa Europe Rest of the world Total world

2013 profit margin % (Factset) 2014 est profit margin % (3) *

5.5 6.5

Sales base 2013 Sales exp 2014

100 103.89

Profit base 2013 Profit exp 2014

5.5 6.8

2014 expected profit growth %*

22.78

* Consensus estimates: Sales growth at 2%, Profit margin in 2014 at 6.3%, EPS growth +16%

EUR/USD average level 2014 USD change vs EUR EUR change vs Rest of Fx % of Companies hedging Fx Risks

1.38 -2.17% 0.00% 25%

Effect of USD change vs EUR Effect of Int Fx changen vs EUR

-1.63% 0.00%

Corporate Review

Our fundamental value and the expected performance for the Stoxx 600 Europe

P = EPS2014 x PEmultiple

2013 Projected 2013 Projected 2013 EPS Growth EPS (%) EPS (US$)

2013 PE Andbank's ltm projections for 2014 PE ltm

Target Price

Current Price 24-feb-14

Expected Change (%) 2014

370

335

10.4%

(1)

Stoxx 600 (sxxp)

20.77

22.8

25.50

15.55

14.5

(1) In the case of the PE for Europe, despite the fact that we see an acceleration in profits, the current level of PE ltm (15.55) is well above its long term average (13.3). For this reason, we believe that PE could go towards 13.3 although we are aware that risks are on the upside for the PE actually being higher at year end. We feel comfortable with a PE at 14.5

Corporate Review

Asia Pacific x Japan â&#x20AC;&#x201C; Estimating EPS

Usd/Eur

MSCI Asia EM

Usa Europe Region Asia Pcific x Japan Total world

2013 profit margin % (Factset) 2014 est profit margin % (3)

Avg 2013

1.35

1.38

2.22%

% sales

2014 real GDP estimated

2014 inflation rate estimated

2014 nominal GDP estimated

Currency effect on international Sales (%)

Expected sales growth % 2014 in USD

5.0 5.0 90.0 100.00

2.50 1.00 5.80 3.30

1.70 1.10 4.00

4.20 2.10 9.80

-1.63 ---

2.57 2.10 9.80 9.05

7.33 7.75

Sales base 2013 Sales exp 2014

100 109.05

Profit base 2013 Profit exp 2014

7.33 8.5

2014 expected profit growth %

Today

15.30

EUR/USD average level 2014 USD change vs EM currencies EUR change vs EM currencies % of Companies hedging Fx Risks

1.38 -2.17% 0.00% 25%

Effect of USD change vs EUR Effect of Int Fx changen vs EUR

-1.63% 0.00%

Corporate Review

Our fundamental value and the expected performance for the Asia Pacific x Japan index is:

P = EPS2014 x PEmultiple

2013 Projected 2013 Projected 2013 EPS Growth EPS (%) EPS (US$)

FDSAG Asia Pac x Japan

58.48

15.3

67.43

2013 PE Andbank's ltm projections for 2014 PE ltm 13.18

13.7

Target Price

Current Price 24-feb-14

Expected Change (%) 2014

925

761

21.5%

Corporate Review

Summary Table for financial market prospects & Asset Allocation Proposal

Corporate Review

Interest rates Swaps & Govies (The underlying messages) 1.

Still a disinflationary world: Swap rates & Treasury yields have increased during the last months primarily due to the threat of Tapering. Despite this, it cannot be said yet that strong implicit inflation is expected in the long term (2.82% in the US and 1.90% in the Eurozone).

A positive “swap spread” (in both currencies) means that Treasury and Bund now reflect not only inflation expectations, but something more. The higher spread between the two EUR curves points to the existence of a relatively higher demand for bunds as a result of higher market fears. Maybe a sign that global macro risks & financial fears have not disappeared. Nevertheless, it can be said that today, these fears are now much lower.

EUR swap spread is now slightly below the historical average level (23 vs 45bp). In order for this spread to normalize towards 40-45 bps, with no inflationary pressures in sight, this can only be materialized through a 15 bp decline in bund yield.

However, the swap spread in the US remains more clearly at historical lows (10 bps) and this should normalize towards the 4050 bps average. With no inflationary pressures in sight, this can only materialize through a structurally low yield in the UST.

USD: SWAP10 – Govie10

EUR: SWAP10 – Govie10

Corporate Review

Core Fixed Income – US Dollar Performance & Perspectives • Strategic range for the T10 Yield: 2.5%-3% • Buy above 3% • Sell in the 2.5% area

Corporate Review

Core Fixed Income – Euro Performance & Perspectives • Strategic range for the Bund Yield: 1.5%-2% • Buy above 2% • Sell in the 1.5% area

Corporate Review

Core Fixed Income â&#x20AC;&#x201C; EUR Gov bond & USD Treasury Expected Performance

Figures as of: 24/02/2014

ST Performance (2m) Change Short until Term Fundament al Target Fundamental change Target (in bp) (bp)

MT Performance (12m)

Expected Price Coupon Price Coupon Performance Performance Performance Performance Performance Short Term

Expected Performance (Fundamental)

24-Feb-2014

Short Term Target

0,12

0,25

0,00

-12

1,96

-0,25%

0,02%

0,24%

0,12%

-0,23%

0,36%

0,22

0,34

0,12

-10

2,86

-0,35%

0,04%

0,28%

0,22%

-0,31%

0,50%

0,42

0,54

0,35

-7

3,83

-0,44%

0,07%

0,28%

0,42%

-0,37%

0,70%

0,68

0,79

0,63

-5

4,68

-0,50%

0,11%

0,23%

0,68%

-0,39%

0,91%

0,80

0,90

0,78

-2

5,31

-0,54%

0,13%

0,80%

-0,40%

0,93%

1,04

1,13

1,04

6,09

-0,57%

0,17%

0,00%

1,04%

-0,40%

1,03%

1,26

1,35

1,29

6,83

-0,60%

0,21%

-0,17%

1,26%

-0,39%

1,09%

1,50

1,58

1,55

7,62

-0,62%

0,25%

-0,38%

1,50%

-0,36%

1,12%

1,68

1,75

8,45

-0,63%

0,28%

-0,63%

1,68%

-0,35%

1,05%

0,31

0,35

0,25

-6

1,92

-0,07%

0,05%

0,12%

0,31%

-0,02%

0,44%

0,70

0,73

0,65

-5

2,92

-0,10%

0,12%

0,16%

0,70%

0,02%

0,85%

1,19

1,22

1,15

-4

3,81

-0,12%

0,20%

0,16%

1,19%

0,07%

1,35%

1,53

1,56

1,50

-3

4,68

-0,15%

0,25%

0,15%

1,53%

0,11%

1,67%

1,85

1,87

1,82

-2

5,52

-0,16%

0,31%

0,11%

1,85%

0,14%

1,96%

2,16

2,19

2,15

-1

6,29

-0,18%

0,36%

0,06%

2,16%

0,18%

2,22%

2,43

2,45

2,43

6,95

-0,18%

0,40%

-0,01%

2,43%

0,22%

2,42%

2,58

2,60

2,59

7,89

-0,20%

0,43%

-0,10%

2,58%

0,23%

2,48%

2,73

2,75

8,37

-0,20%

0,45%

-0,20%

2,73%

0,26%

2,53%

Duration

Corporate Review

EM bonds - Asia 1. The Market failure: The drop had different intensities i. The group of economies that has withstood the “crisis” better has been the one comprising the countries that “buy protection” via a mercantilist approach (which ensures current account surpluses): South Korea, Taiwan, etc… ii. And the countries hardest hit have been those experiencing current account deficits (in most cases due to the development of their domestic currencies). 2.

The opportunity: i. The mercantilist approach reduces the dependence on capital inflows, but synchronizes the domestic cycle to the Western economies. ii. The best options to invest are in those countries that are least synchronized with the developed economies. Those with stronger domestic dynamics.

Corporate Review

EM bonds – Yes but, is now the time to stay in?

Indeed, these markets will “dance” to the Tapering song

Admittedly they can get worse, but we see value in these assets.

This is not a balance sheet problem, thus not a solvency problem.

What could be a good entry point? Historically, a good entry level in Treasuries is when the real yield achieves the 1.5%-2% level. Given the new “reality” of structural low inflation – low yields, it is reasonable to think of a real yield of 1% -1.5% as a good entry point for Treasuries. The rule of thumb for the EM bond markets has been “buy” whenever the spread in real yields is at 150 - 200 bp vs. the real yield in Treasuries. Again, yields in the EM bonds are now structurally low and this will persist, making it more reasonable to set the 100-150 bp of spread with US real yields as a good entry point. This means that, given that real yield in T10 is now near 1.5%, we recommend buying EM bonds when they offer a real yield near 2.5%.

Corporate Review

Asian bonds. Is there already some opportunity?

S.Korea Taiwan Thailand Malaysia Singapore Indonesia* Philippines China India

CPI (y/y) Nominal CPI (y/y) Andbank's 10yr Yield Last reading Estimate 3.53% 1.08% 1.08% 1.60% 0.76% 0.76% 3.76% 1.93% 1.93% 4.11% 3.40% 3.40% 2.69% 1.32% 1.32% 8.35% 12.81% 4.50% 4.05% 4.24% 4.24% 4.54% 2.49% 2.49% 8.79% 8.79% 8.79%

Real Yield (10yr bond) 2.45% 0.84% 1.82% 0.71% 1.37% 3.85% -0.19% 2.05% 0.00%

Corporate Review

Summary Table for financial market prospects & Asset Allocation Proposal

Corporate Review

European Sovereign Risk Trends Periphery (10 Yr Government Bond)

Good start to the year! 10 PERIPHERAL

9 8 7 6 5 4 3 2

Portugal

Spain

Ireland

Italy

Corporate Review

European Sovereign Risk Trends Core Countries (10 Yr Government Bond)

Rally also in the Tier 1 bonds!! 3 2,8

CORE COUNTRIES

2,6 2,4 2,2 2 1,8 1,6 1,4 1,2 1

Belgium

France

Germany

Austria

Corporate Review

Sovereign Risk Recommended Strategy â&#x20AC;&#x201C; Consistent with our APRI

CURRENT LEVELS FOR SOVEREIGNS

Yield 10Y Spread 10Y (cash bond) (cash bond, bp)

Peripheric

24/02/2014

Recommendation Overweight

Greece

7,56

589

Neutral

Portugal

4,89

322

Overweight

Ireland

2,91

124

Neutral

Spain

3,54

187

Overweight

Italy

3,60

193

Overweight

Corporate Review

Summary Table for financial market prospects & Asset Allocation Proposal

Corporate Review

Corporate credit Recent Performance & Recommendation Corporate Credit - EUR 140

110

130

100

120 110

100

90 80

Figures as of:

CDX Main

120

150

Corporate Credit - USD

Itrax Main

24-2-14

EUR Corporates (itraxx): At 72bp of spread, we consider euro corporates as “expensive”. Nevertheless we believe that the positive mood in the market will persist during the year. We recommend maintaining positions if you are long but not to build new exposures. Entry point above 100bp.

Best names: (1) Fin Subs and Tier 1 of core countries’ banks. (2) Fin Sen of “troublesome” countries. (3) Leader corps in peripheral countries. (4) Small operators in the TMT sector.

Avoid: (1) Financial corps of countries that have not undertaken reforms in the financial sector (Fra & Germ). (2) Autos of Germ & Fra (not expensive but bad dynamics)

USD Corporates (CDX): The same reading as in EUR. Entry point above 90s

Corporate Review

Financials EUR - Credit Performance & Recommendations FINANCIAL SPREADS - EUR 700 ITRXESE CBBT Curncy

600

ITRXEUE CBBT Curncy 500 400 300 200 100

feb-14

ene-14

dic-13

nov-13

oct-13

sep-13

jul-13

ago-13

jun-13

abr-13

may-13

feb-13 mar-13

dic-12

ene-13

nov-12

oct-12

sep-12

jul-12

ago-12

jun-12

may-12

abr-12

feb-12 mar-12

dic-11

ene-12

oct-11

nov-11

Specific â&#x20AC;&#x153;bankingâ&#x20AC;? risk premiums are disappearing. French, German and many northern bank bonds are extremely expensive.

Be long only in subordinated debt of big names in troublesome European countries

Corporate Review

Credit – HY EUR Recent Performance & Recommendation Markit iTraxx Europe Crossover 900 800 700 600 500 400 300 200 100

feb-14

dic-13

ene-14

nov-13

oct-13

sep-13

jul-13

ago-13

jun-13

abr-13

may-13

feb-13 mar-13

dic-12

ene-13

nov-12

oct-12

sep-12

jul-12

ago-12

jun-12

abr-12

may-12

feb-12 mar-12

dic-11

ene-12

nov-11

oct-11

HY Crossover: Already below 300bp of spread, we consider EUR-HY as “expensive”. Nevertheless, we believe that the positive mood in the market will persist during the year.

The price of this asset will move to the rhythm of tapering. Start buying again above 400bp. Strong buy above 450.

Corporate Review

Corporate Credit â&#x20AC;&#x201C; EUR, USD & HY Expected Performance CDX USD - SHORT TERM OUTLOOK 3M (ex-interest rate risk)

ITRAX MAIN EUR - SHORT TERM OUTLOOK 3M (ex-interest rate risk)

Spread effec t

Change (bp)

Price effect

From

Change

27,2

-0,95%

72,8

100

27,2

Spread effec t

0,25%

Eur3m+

0,73%

0,25%

Coupon effec t

Coupon effec t Total Effect Yield effect (5yr bond)

0,17%

0,68%

0,63%

Price effect

From

Change

-2,8

0,10%

72,8

-2,8

Spread effec t

1,28%

Eur3m+

0,73%

1,28%

Coupon effec t

Total Effect Yield effect

1,37% -5

0,17%

65,1

24,9

0,22%

USLib3m+

0,65%

0,22%

1,52%

1,56%

0,03%

0,63%

Price effect

From

-0,1

0,00%

65,1

-0,1

1,21%

USLib12m+

0,65%

1,21%

-0,05%

Yield effec t

1,52%

1,49%

-0,03%

-3

Change (bp)

Price effect

From

126,8

-4,44%

273,2

400

126,8

0,74%

USLib3m+

2,73%

0,74%

0,68%

0,63%

- 0,05%

Coupon effect Total Effect Yield effect (5yr bond)

Change

-3,70% -5

0,17%

HY / CROSS OVER EUR - SHORT TERM OUTLOOK 12M (ex-interest rate risk)

Spread effec t

Change (bp)

Price effect

From

26,8

-0,94%

273,2

300

26,8

3,29%

USLib12m+

2,73%

3,29%

0,68%

0,63%

- 0,05%

Coupon effect Total Effect Yield effect

Change

2,35% -5

0,17%

Change

1,21%

HY / CROSS OVER EUR - SHORT TERM OUTLOOK 3M (ex-interest rate risk)

Spread effec t

- 0,11%

Change (bp)

Total Effect 0,68%

Change

CDX USD - SHORT TERM OUTLOOK 12M (ex-interest rate risk)

Change (bp) Coupon effec t

From

- 0,87% -0,65%

Yield effec t (5yr bond)

-0,05%

ITRAX MAIN EUR - MID TERM OUTLOOK 12M (ex-interest rate risk)

Spread effec t

Price effect

24,9

Total Effect

-0,70% -5

Change (bp)

0,10%

Corporate Review

Summary Table for financial market prospects & Asset Allocation Proposal

Corporate Review

Industrial commodities. The super-cycle ended in 2013 and we do not expect a big upward movement in prices.

Corporate Review

1st. The primary driver of the commodities super-cycle has now slowed down and we suspect that this slowdown is structural (not just cyclical) 50

CHINA HEA VY INDUSTRIA L BOOM & COMMODITY PRICES

-25

-50

-75

'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

(% 1 Y R , I N D E X) C R B S pot I ndex , 1 9 6 7 =1 0 0 - U nit ed S tat es (Le ft) (% 1 Y R) I ndus t ria l P rod uc tio n, V a lue A dde d, (R ight ) Andbank, CRB,Chines e N at Bureau of Stat is t ics

©Fact Set Res earch Sys tems

1. This new norm will not necessarily imply big additional falls in commodity prices 2. … but means that the prospects for a new structural bull market are still dim

Corporate Review

2nd. Metal producers and miners have been clearly caught off guard with a gargantuan excess capacity Many projects are being cancelled, although this WILL NOT PREVENT THE OVERSUPPLY IN METALS, and to a lesser extent MINERALS, for a long period (years), which should keep prices subdued.

240

WORLD PRODUCTI ON OF IND USTRIA L & ENERGY COMMOD ITI ES (I ndex)

220 200 180 160 140 120 100 80

'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Crude Stee l P rim ary Alum inium

Co ppe r Co al P roductio n

Andbank, World Steel Assoc, Int Alum Inst, EIA

Crude O il Natura l Gas ÂŠFactSet Research Sys tems

Corporate Review

3rd. Real vs. speculative demand still points south for prices During 2H13 we saw a rise in the price of transporting dry commodities (a sign that global activity was recovering), but, as we suggested, it was too early to bet on a sustained rise in commodity prices based on a steady recovery in real demand. We still think this. Real vs. Speculative demand continues to behave differently, with the speculators still being the main driver for prices over the last 4 years. Be cautious with the last increase seen in the derivatives markets! 800

Baltic Dry Inde x Vs Commodity Prices (daily)

14,000

12,000

700

10,000 600 8,000 500 6,000 400 4,000 300

2,000

200

0 '04

'05

'06

'07

'08

'09

'10

'11

Baltic Dry Index - Price (Right) CRB Continuous Commodity Index - Price (Left) CRB Spot Commodity Index - Price (Lef t)

'12

'13

Corporate Review

Precious metals. We consider that the gold price remains expensive. In the long term, we feel comfortable setting the target price for gold at US$ 900.

Corporate Review

Precious Metals Gold – All our approaches lead us to conclude that Gold is still expensive. 2,500

HISTORICAL GOLD PRICE DEFLATED

2,500 30

GOLD PRICE IN TERMS OF OIL

2,000

2,000 25

1,500

1,500 20

1,000

1,000 15

500

0 0 '68 '72 '76 '80 '84 '88 '92 '96 '00 '04 '08 '12 Gold (2009 prices) Trendline: Ave ra ge

50 45 40 35 30 25 20 15 10 5 0

'96

'98

'00

'02

'04

'06

'08

'10

'12

50 45 40 35 30 25 20 15 10 5 0

DJ Industria l A verage - Inde x P rice Lev el / London Gold (AM Fix ing $/ozt) - Price Trendline: A ve ra ge A ndbank, Dow Jones & Compa ny

'98

'00

'02

'04

©FactSet Rese arch Systems A ndbank, London B ullion Market A ssociation

GOLD PRICE IN TERMS OF EQUITY

'94

'96

'06

'08

'10

'12

Gold Spot price / WTI o il price Trendline: Ave ra ge from 22-Feb-98 to 25-Fe b-13

Trendline: 35 Year Mo ving Av erage

Andbank custo m series, Dow Jo nes Co mpa ny

'94

©FactSet Rese arch System s

©FactSet Rese arch Systems

GOLD – NOMINAL vs. REAL PRICE: The gold price has increased significantly in real terms YTD (from 1.128 to 1.232 $). Being now much further from its historical LT average of US$700, meaning that given our deflator (base year 2009), the nominal price of gold should stay near US$814. GOLD PRICE / OIL PRICE: The value of this ratio stands now close to 13 (fairly close the historical average value of 12.85). Given that our 5yr target price for oil remains at US$85, the nominal gold price should approach the US$1,092 level for this ratio to be near its LT average level. EQUITY PRICE / GOLD: The 15yr average value for this ratio is 20.04. Currently this ratio stands at 12.2. If the DJI remains (as we think) stable at year end levels (let us say at 16.080), the gold price should decline towards US$800 in order for this ratio to be near its LT average level.

Corporate Review

Have you asked yourself why Gold is so stable in these turbulent times, with EM in panic mode?

Because within the Reserve banks’ activity in Asia, we are witnessing two offsetting forces. On the one hand we have India and Japan firmly reducing their stocks of gold. On the other hand we have China showing a steady appetite to increase its gold reserves (see the chart)

100

GOLD STOCK IN CENTRAL BANK RESERVES

100

-20 -40

-20 '10

'11

(MOV 6M , % 1YR) India (MOV 6M , % 1YR) Thailand (MOV 6M , % 1YR) Sing Andbank, National Reserve Banks

'12 (MOV 6M , % 1YR) Philipp (MOV 6M , % 1YR) Japan (MOV 6M , % 1YR) UK

'13

-40

(MOV 6M , % 1YR) Chile (MOV 6M , % 1YR) China ©FactSet Research Systems

Corporate Review

Which of these two forces will prevail? Will the gold price remain range bound? Or is Gold going to head North again? • In my very limited degree of wisdom, I identify today three major themes that could dominate gold prices in the foreseeable future. (Ok. This is just one more of the many opinions you receive every day but … I just hope it helps)

1.The Indian Factor. India, like China, accounts for 25% of global demand for Gold. As you already know (because I’ve been specially persistent in reminding you), Indian Fx & government bonds have been specially hard hit by market participants for belonging to the group of countries experiencing current account deficits. (India’s CA deficit was 5.5% in 2012, and although lower, is still going to be high in 2013). In that regard, India will likely continue destocking Gold (in order reduce imports or raise exports, improve CA, and finally abandon the “group” just to stop receiving blows. This factor will presumably continue to put pressure on the Gold price All of which represents NEGATIVE IMPLICATIONS FOR GOLD

Corporate Review

… The other themes.

2. The Japanese Factor. The sale of gold by the monetary authorities in Japan is part of the BoJ’s asset purchase program On the one hand, the BoJ expands the monetary base to get fresh money and buy bonds. On the other hand, the BoJ sells gold in order to get money from the market and buy bonds as well. The million dollar question is whether Japan will continue doing it. And … you also know perfectly well my view in this regard. Yes. Until when? Many are projecting the limits of this policy through the prism of the USD/JPY exchange rate. They said “the BoJ will continue doing it until the USD/JPY reaches the 130 or maybe the 140 level, as it did in 1998 or 2002”. They forget that Japan now has Europe’s export champions in its crosshairs and that Germany is a major trade competitor. As a result, the prism should really be the EUR/JPY exchange rate. If so, the aggressiveness of gold selling could be much higher than previously thought, since gold selling could continue until the EUR/JPY exchange rate reaches the 160 or 170 level (as it did in 1998 and 2008). In summary, this factor will presumably continue to also put pressure on the Gold price All of which represents

NEGATIVE IMPLICATIONS FOR GOLD

Corporate Review

… The other themes. 3. The Chinese factor. Do you have some slight idea of why China is now buying Gold again? Let me give you a visual hint U SD/ CNY (USDCNY-FX1)

6 .09 9 4 0 .0 07 4 0 .1 2 % 0 1 :3 7:3 1 P M C N Y

F eb -0 9 - F e b- 1 4

6 .9 6 .8 6 .7 6 .6 6 .5 6 .4 6 .3 6 .2 6 .1 6 '0 9

'1 0

'1 1

'1 2

'1 3

Yes, the Yuan was at a 20 year record high at the beginning of the year for two reasons: 1. PBOC’s Governor (Zhou Xiachouan) reported three weeks ago that the Bank would end regular Fx intervention. This drew the attention of investors who, for a long time, were eager to enter long the Yuan but remained out due to the CNY’s status of “intervened currency”. 2. Chinese authorities have been progressively tightening (raising) reference rates in order to control loan and shadow banking dynamics. The result of these two actions has been a strong flow of capital into the country.

Corporate Review

… The other themes. … The Chinese factor. Well. At this point one should know that the PBOC does not like such intense appreciations of the Yuan (CNY) … … So what are the instruments the PBOC has in order to respond to this sharp rise in the currency? A rise, moreover, driven by “speculative inflows”? Indeed. Sell Yuans in the market and buy Fx reserves (US$ or Gold). In fact, we know that the PBOC purchased $73bn of Fx in October and another $70bn in November (according to CEIC). THE MOST IN THREE YEARS. What from now on? Please note that China is doing nothing more than “sacrificing growth” in order to ensure the necessary credibility of the CNY (as a potential new currency reserve in the region). Remember the expression “China must sacrifice growth”? (If you can say which Working Paper, I promise a reward)

In this process, market participants may think either of two ways: 1. Think, just like us, that sacrifice will bring sustainability. In this regard investors will probably decide to go long the CNY. In such a case, the PBOC will continue selling Yuans and buying Gold => POSITIVE IMPLICATIONS. 2. Nevertheless, if investors fear a sharp slowdown in the China spread, they could decide to go short the Yuan, allowing the PBOC to buy the local currency while selling Fx reserves in the form of USD or gold => NEGATIVE IMPLICATIONS. My bet on this specific issue / factor? I do not know. Let’s say it’s a “Neutral Factor”

Corporate Review

Our conclusions

1. While India and Japan are firmly reducing their stocks of gold, China is accelerating its purchases of gold (by selling CNY) in order to respond to the sharp rise of the CNY. A rise that has been driven by “speculative inflows” powered by recent decisions of the PBOC (the announcement of the end of regular intervention and the rise in the reference rates)

2. Today I identify three “major themes” that could dominate gold prices in the foreseeable future. Here you have the implications that, in my humble opinion, will arise from each factor: I.

The Indian Factor => NEGATIVE IMPLICATIONS FOR GOLD

II. The Japanese Factor => NEGATIVE IMPLICATIONS FOR GOLD III. The Chinese Factor => NEUTRAL IMPLICATIONS FOR GOLD

4. In summary, and according to these considerations, We maintain a negative long-term vision for the Gold with a fundamental target US$ 900 ozt*.

* For those interested in the calculus of our target price for gold, please look at the Monthly Corporate Review document

Corporate Review

Precious Metals Gold: New long-term target price of US$ 900 Criteria

Recent Developments

Andbankâ&#x20AC;&#x2122;s Assessment

India's government is restricting gold imports

The biggest swing factor behind the improvement of the CA balance in India has been the effectiveness of curbs on gold imports. These restrictions were tightened progressively last year to contain the deficit. Some officials have called for these restrictions to be relaxed (due to some strains caused by the domestic gold shortage, local jewelers have lobbied against the curbs, concerns about rising gold smuggling). Given the ongoing jitters in EM financial markets, it is likely that India will relax curbs but only gradually, to help keep the CA deficit low.

Expensive

Financial Liberalization in China

With more than half of global physical gold demand coming from China and India, we consider that what happens in Asia is more likely to be a driver for gold than what happens at the Fed. The Chinese government continues with its economic reforms, pointing to a financial liberalization that could widen the investment alternatives for Chinese investors (capital account opening). This could reduce the demand for gold.

Expensive

Gold in Real Terms

The gold price continues experiencing a significant adjustment. However, in real terms it should approach the LT average of US$700, meaning that given our deflator (we recently changed the base year from 2005 to 2009), the nominal price of gold should stay near US$814.

Expensive

Gold in terms of Oil (Gold / Oil)

The value of this ratio now stands at 12.65 (fairly close to the historical average value of 12.85). Given that our 5yr target price for oil remains at US$85, the nominal gold price should approach the US$1,092 level for this ratio to be near its LT average level.

Slightly expensive

The 15yr average value for this ratio is 20.04. Currently this ratio stands at 12.64. If the DJI remains (as Gold in Terms of Equity (Dow we think) stable at year end levels (letâ&#x20AC;&#x2122;s say at 16.080), the gold price should decline towards / Gold) US$800 in order for this ratio to be near its LT average level.

Expensive

Gold & Money Impulse

The tapering represents the end of QE, and therefore also the end of the explicit support that the Fedâ&#x20AC;&#x2122;s asset purchase program exerted over all financial assets, including gold.

Expensive

Size of Gold in the world

The total value of the gold in the world is circa US$ 6.9trn. A fairly small part (3.2%) of the total financial cash markets (212trn). The daily volume traded in the LBMA and other gold marketplaces is near US$173bn (2.5% of global gold, and just 0.08% of total financial markets)

Cheap

Positioning in Gold (CFTC)

CBOT longs (164k) vs Shorts (79k) = Net of +84k // CBOT longs (164k) vs Shorts (79k) = Net of +84k

Expensive

We consider that the gold price remains expensive. In the long term, we feel comfortable setting the target price for gold at US$ 900.

Expensive

Final Assessment

Corporate Review

General Commodities under a historical perspective. Considering historic prices it could be said that only precious metals are expensive. Other Commodities would be at a fair value.

Corporate Review

Commodities (by groups) Viewed in Perspective 450

ENERGY

x 1.75 in 10Y (5.8% annual)

450

400

350

300

250

200

150

100

50 0

'04

'05

'06

'07

'08

W TI C rude O il

'09 Co a l

'10

'12

'13

x 2.70 in 10Y (10.4% annual)

600

500

400

300

200

100

'04

'05

'06 Co rn

PRECIOUS METALS

x 1.70 in 10Y (5.4% annual)

CROPS

Na tura l Ga s

Andbank, DJ Com pany

800

'11

50 0

600

'07 W he a t

'08

'09 So ybe a n

'10

'11

Suga r

Andbank, CRB

'12

'13

MINERALS & METALS

x 1.76 in 10Y (5.8% annual)

800

450

700

600

400 350

500

400

300 250

300

200 150

200

100

100 50

'04

'05

'06

'07

P alla dium Andbank, NYMEX

'08

'09

P latinum

'10 Gold

'11

'12

'13

'04

'05

'06

Copper

'07 Nick e l

Andbank, London Metal Exchange

450

'08

'09 Zinc

'10

'11

Alum inum

'12

'13

Iro n Ore

Corporate Review

Commodities Under a historical perspective, it could be said that only Precious metals are expensive. Other Commodities would be at a fair value or even cheap CURRENT Index100 (T-10Y)

10 YEAR PERFORMANCE

ANNUALIZED GROWTH

Oil Coal Gas

175.0 285.0 122.0 117.0

75% 185% 22% 17%

5.8% 11.0% 2.0% 1.6%

FAIR VALUE EXPENSIVE CHEAP CHEAP

Corn Wheat Soybean Sugar Cotton

170.0 158.0 163.0 168.0 228.0 131.0

70% 58% 63% 68% 128% 31%

5.4% 4.7% 5.0% 5.3% 8.6% 2.7%

FAIR VALUE CHEAP FAIR VALUE FAIR VALUE FAIR VALUE CHEAP

Palladium Platinum Gold Silver

270.0 317.0 169.0 323.0 329.0

170% 217% 69% 223% 229%

10.4% 12.2% 5.4% 12.4% 12.6%

EXPENSIVE EXPENSIVE FAIR VALUE EXPENSIVE EXPENSIVE

Copper Nickel Zinc Aluminium Iron Ore

176.0 249.0 95.0 186.0 101.0 82.0

76% 149% -5% 86% 1% -18%

5.8% 9.6% -0.5% 6.4% 0.1% -2.0%

FAIR VALUE FAIR VALUE VERY CHEAP FAIR VALUE CHEAP VERY CHEAP

Energy

Crops

Precious

Minerals

ANDBANK'S ASSESSMENT

Annualized growth last 10 Yr < 0% 0% - 5% 5% - 10% 10% -15% > 15%

Andbank's Criteria VERY CHEAP CHEAP FAIR VALUE EXPENSIVE BUBBLE

Corporate Review

Summary Table for financial market prospects & Asset Allocation Proposal

Corporate Review

USD Global Monetary Policies point to a lower USD As of January, three out of the six central banks most actively holding currency reserves decided to increase exposure to the USD. Brazil, India and Indonesia increased their USD currency reserves to 18.9, 8.2 and 6 months of imports equivalent, Brazil being the most aggressive, with a 0.7 months equivalent increase. Meanwhile, China, Japan and Korea reduced their positions relative to their imports, China being the most aggressive, with an entire 1.1 month equivalent decline. In general terms, some of the “big brothers” still retain an abnormally high proportion of foreign currency reserves (much higher than that implied by the pace of their current account balance), meaning that they probably accumulated Currency Reserves and Gold on the back of systemic fears, that are gradually disappearing. In fact, and with a long term perspective, we can already appreciate how some of these players have been reducing their holdings during 2013 (Brazil, Japan and Indonesia). We still expect this normalization process to continue in the rest of central banks, putting pressure on the USD.

Foreign Currency Reserves (Monthly imports equivalent, 3mMA)

5 0

5 '04

'05

'06

'07 India C hina

A ndbank, Centra l Ba nks

'08

'09

Japan K ore a

'10

'11

'12

'13

Corporate Review

USD Geopolitical developments also point to a lower USD The flow of USD with respect to the global volume of commercial trade has reached a 15 year low (at 1998 levels). Although this may sound like a shortage of USD (apparently supportive for that currency), from a geopolitical perspective it is not. We consider this factor as a trigger point that could give rise to new and dramatic developments. With a long-term view, we see some interesting aspects, such as the internationalization of the RMB, and the progress seen in the RMBdenominated debt market, which could result in strategic movements of a specific group of countries in order to overcome the relatively low level of the USD (compared to the nominal level of commercial transactions that are looking for a currency to be settled). If true, the USD could stop being the settlement currency of a major part of global transactions. Why? Simply because, as many times in the past, the prevailing currency reserves cannot keep pace with the growth of global trade and are being dwarfed by the growing size of international commerce. When this happens, the countries involved in international commerce create solutions that lead to more than one currency cohabiting as currency reserves. This means that other currencies will be present in the foreign reserves of these central banks. In other words, the USD could be forced to make room for the new tenant, which could result into lower demand for the USD.

USD FLOW TO THE WORLD ECONOMY 1

2 3’

5 4

1’

2 1 0 -1

2’

3 4’

'84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

0 -100 -200 -300 -400 -500 -600 -700 -800 -900

Quarte rly US C urr.Acc balance as a % of Quarterly Glob al Trade (Left) BOP , C urrent Account Balance, S A (12m Mov S um, US $bn) (Right) Recession Periods - Unite d S tate s A ndba nk, BEA

(1) In 1989, with a US$ 100bn cumulative 12m CA deficit, the quarterly flow of USD thrown to the world (25bn) coming from this CA represented 3% of quarterly international commerce (1’). In other words, US$ 100bn represented 12% of quarterly international commerce. (2) In 1995, with the same amount of 12m cumulative CA deficit in USA, the quarterly flow of USD (some 25bn) represented just 2% of international commerce. Or each US$100bn represented 8% of total international commerce. (3) In 2000, with a larger CA deficit of US$416bn (cumulative 12 months), the quarterly flow of dollars (some 100bn) represented 4.5% of international transactions. (4) Now, in 2013, with a similar CA deficit of $412bn, the quarterly flows of dollars (100bn) represent just 2.3% of the level of international transactions.

Corporate Review

USD/EUR Andbank’s Assessment Effect on the USD (Short-Term view)

Effect on the USD (Long-Term view)

NEUTRAL

NEGATIVE

NEUTRAL

NEGATIVE

The flow of USD with respect to the global volume of commercial trade has reached a 15 year low, increasing the probability of the appearance of a new reserve currency

NEUTRAL

NEGATIVE

Non-commercial Long contracts in EUR are 89k, vs. 80k in short contracts. The net position is +8k long EUR.

NEUTRAL

The Tapering process will probably be more rapid than initially anticipated. This could undeniably support the USD, despite the fact that the ECB has been reducing its monetary base in recent months

NEUTRAL

POSITIVE

Central Bank Idiosyncrasy

New ECB official shares similarities with Weidmann. (The appointment of Latvia’s Ilmars Rimsevics and Bundesbank’s vice-president Sabine Lautenschläger makes the extension of non-conventional policies less likely.)

Recent Developments

Criteria Tensions in Europe

A positive reading in our APRI for the second quarter in a row means that (1) on aggregate, these economies are no longer deteriorating and (2) they continue showing positive dynamics in certain aspects.

Global accumulation In general terms, the “big brothers” still retain an abnormally high of the Reserve proportion of foreign currency reserve (much higher than that implied Currency by the pace of their current account balance). USD flow to the world Positioning in € (CFTC. Options & Futures, ECA cur)

Final Assessment

NEUTRAL

NEUTRAL (1.35-1.40)

NEGATIVE

NEGATIVE (1.40)

Corporate Review

Asian Fx 1.

Two out of the five main Asian currencies are markedly up for the year. The rest have been plodding along at the start of 2014.

PBoC has continued depreciating the CNY after it reached a 20 year high at year end. Meanwhile, the THB and IDR have stood up quite well. The rest of currencies have recovered in February the ground lost in January and are now almost flat in the year.

The majority of Asian currencies were hit during 2013 by the threat of Tapering. However the drop has been of varying intensity, depending on the country.

The group of economies that has withstood the “crisis” better has been the one comprising the countries that “buy protection” via a mercantilist approach (which ensures current account surpluses): South Korea, Taiwan, etc…, while the countries hardest hit have been those experiencing current account deficits (in most cases due to the development of their domestic currencies).

The mercantilist approach certainly reduces the dependence on capital inflows, but … Is it not true that these economies are the most leveraged to the Western cycle? What would happen if I told you that the Western economies will have subpar growth for many years? Yes, the outlook for these countries worsens automatically.

On the other hand, we are inclined to think that the best options to invest are in the countries that are least synchronized with the developed economies. Those with stronger domestic dynamics, at the expense of a negative current account balance – a deficit which, on the other hand, they have the ability to finance domestically.

104

ASIAN CURRENCIES (Performance vs USD)

104

110

103

105

102

100

101

100

6/1

13/1 IDR

Andbank, WM/Reuters

20/1 THB

27/1 P HP

3/2 MYR

10/2

17/2

24/2

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb

110

IDR Andbank, WM/Reuters

THB

P HP

M YR

Corporate Review

Asian Fx The RMB’s satellites are a “buy” Asian Currency Diffusion Index

POSITIVE OUTLOOK Asian currencies are still cheap relative to the USD.

Diffusion Index 3mth smoothed (lhs) Asian curr Index (rhs)

0.001 STRONG BUY

0,30

0.001

0,20

0.001 0,10 0.001 BUY

0.001

closely related to JPY (KRW, TWD). SELL

-0,10

0.001

-0,20

0.001 -0,30 0.001 -0,40

0.001

Dec-13

Jun-13

Sep-13

Mar-13

Dec-12

Jun-12

Sep-12

Mar-12

Dec-11

Jun-11

Sep-11

Mar-11

Dec-10

Jun-10

Sep-10

Mar-10

Dec-09

Jun-09

-0,50

Sep-09

0.001

Mar-09

STRONG SELL

Dec-08

Indeed, these markets will “dance” to the Tapering song in 2014. Every time there are rumors of Tapering, these markets could fall considerably (equities, bonds and currencies).

0,00

0.001

Sep-08

We recommend being long in the THB, IDR, PHP and MYR. Avoid those more

S&P Volatility. Asian assets are the first to be sold when managers need to liquidate portfolios. A rise in the volatility of the S&P has a negative reading for the attractiveness of Asian currencies. A VIX above 25 makes this factor negative.

Kospi volatility. This factor helps to reflect the risks specific to the region. A reading above 23 makes this factor contribute negatively.

Overall velocity of money. As velocity increases, “animal spirits” grow in financial markets. We take the variation rate of M1 in the Eurozone, USA and Japan as representative of this. Asia’s natural response to an upswing in the overall level of prices is to allow their currencies to appreciate, thus keeping purchasing power levels up. An increase in the overall M1 is therefore synonymous with currency appreciation in emerging countries.

OECD LEI. When global growth slows, Asian countries’ exchange rate policies are used as a tool to counter short-term dynamics and manage the domestic economy. The commercial mindset of many central bankers makes them limit the appreciation of their currencies in such episodes. This factor computes negatively when the LEI of the Asian big five falls.

Performance of the RMB.

Performance of the JPY. Traditionally a currency “anchor” for the rest. Korea and Taiwan have a product overlap with Japan, competing in many fields with Japanese products. A weak yen therefore “invites” competitive devaluations from the rest. With the JPY down by over 300 bps (from 80 to 83), this component is negative for the rest.

Corporate Review

JPY - We still recommend staying short JPY/Long EUR. How far and how fast can the JPY depreciate? News of the month: EUR/JPY (EURJPY-FX1 )

The BoJ released the minutes from its Jan 21-22 monetary policy meeting. The minutes contained little that had not already been revealed to markets. Board members speculated that they may not stop easing once the inflation target is reached

1 4 0.8 3 0 .1 0 0 .0 7 % 0 8 :1 0 :4 9 P M J P Y

F eb -1 3 - F e b-1 4

145 140 135

Koichi Hamada, an advisor to Prime Minister Abe, said that the BoJ can wait for more data in the summer before it decides whether to ease policy further. Thus, in the meantime they will continue with the current pace.

130 125 120 Ma r Ap r Ma y Ju n Ju l Au g Se p O ct No v De c Ja n Feb

EUR/JPY (EURJPY-FX1 )

HOW FAR? Considering the global aspects affecting mostly developed economies, particularly Japan, our guess is above 140, with the possibility of reaching the 170 level again. HOW FAST? We believe that a rapid & disorderly depreciation of the JPY will inflict severe pain on various business segments (chemicals and steel producers) and on households in the form of much higher import prices. We expect the momentum to ease, with the BoJ seeking a more managed decline. This could well be a 3-5 year process before the aforementioned targets are reached.

1 4 0.8 1 0 .0 8 0 .0 6 % 0 8 :1 1 :0 4 P M J P Y

F eb -9 4 - F e b-1 4

170 160 150 140 130 120 110 100 90 '9 4

'9 6

'9 8

'0 0

'0 2

'0 4

'0 6

'0 8

'1 0

'1 2

Corporate Review

Summary Table for financial market prospects & Asset Allocation Proposal

Corporate Review

Market Outlook Summary Table Short Term Asset Class

Instrument

S&P Stoxx 600 Equity

Fundamental

Current

Performance

Fundamental

Performance

24/02/2014

(1-2 months)

Target

(12 months)

1.836

(0%, +5%)

1.850

0,7%

335

(0%, +5%)

370

10,4%

Mexbol

39.725

(0%, +5%)

47.500

19,6%

Bovespa

47.380

(0%, +5%)

52.000

9,8%

768

(0%, +5%)

925

20,4%

FDSAG Asia Pac xJapan

Fixed Income (2)

Bund 10y

1,67%

-0,36%

1,75%

1,03%

Treasury 10y

2,72%

0,23%

2,75%

2,50%

Sovereign Risk

Spain

3,557

(0%, +5%)

3,25

6,0%

Europe

Italy

3,621

(0%, +5%)

3,25

6,6%

(10 year Yields)

Portugal

4,892

(0%, +5%)

4,0%

Ireland

3,176

(0%, +5%)

4,6%

Greece

7,558

(0%, -5%)

Average

3,81

(1)

(2)

(1) Expected performance at year end. (2) Expected performance includes price and coupon effect. (3) Credit performance excludes interest rate effect, and refers to spread performance and coupon (FRNs).

Itraxx Main (â&#x201A;Ź) Corporate Credit CDX Main (US$) - EUR & usd (3) X-Over (EUR)

7,5

0,08022

3,63

5,3%

72,751

-0,70%

1,37%

65,125

-0,65%

1,21%

273,188

-3,70%

300

2,35%

(3)

Corporate Review

Market Outlook Summary Table Short Term Asset Class

(3) Credit performance excludes interest rate effect, and refers to spread performance and coupon (FRNs).

Current

Performance

Fundamental

Performance

24/02/2014

(1-2 months)

Target

(12 months)

EM bonds

Taiwan

1,64%

(0%, +5%)

1,14%

5,6%

Asia (in local)

Thailand

3,77%

(0%, +5%)

3,80%

3,5%

Indonesia

8,52%

(0%, +5%)

8,20%

11,1%

Malaysia

4,13%

(0%, +5%)

3,75%

7,1%

India

8,87%

(0%, +5%)

8,00%

15,8%

Philipines

4,33%

(0%, +5%)

3,50%

10,9%

12,95%

(0%, +5%)

12,00%

20,5%

EM bonds

Brazil

Latam (in local)

Mexic o

6,37%

(0%, +5%)

6,00%

9,3%

Colombia

7,25%

(0%, +5%)

6,50%

13,3%

Peru

6,51%

(0%, +5%)

5,00%

18,6%

Chile

5,00%

(0%, +5%)

4,50%

9,0%

Oil

102,21

(0%, -5%)

-16,8%

CRY

301,58

(0%, -5%)

275

-8,8%

Gold

1333,82

(0%, -5%)

900

-32,5%

(1) Expected performance at year end. (2) Expected performance includes price and coupon effect.

Instrument

Fundamental

Commodities

Fx (Always US$

EUR/USD

EUR/JPY perspective, except for the JPY exchange USD/JPY rate, where we use a MXN/USD JPY perspective )

BRL/USD

1,376

(0%, -5%)

1,4

-1,7%

140,9

(0%, -5%)

160

-12,0%

102,4

(0%, -5%)

114

-10,2%

13,3

(0%, -5%)

12,75

-4,1%

2,3

(0%, -5%)

2,6

10,8%

Corporate Review

Legal Disclaimer All the sections in this publication have been prepared by the financial institutionâ&#x20AC;&#x2122;s team of analysts. The views expressed in this document are based on the assessment of public and private information. These reports contain evaluations of a technical and subjective nature on economic data and relevant social and political factors, from which the financial institutionâ&#x20AC;&#x2122;s analysts have extracted, evaluated and summarized the information they believe to be the most objective, subsequently agreeing upon and drawing up reasonable opinions on the issues analyzed herein. The opinions and estimates in this document are based on market events and conditions that took place before the publication of this document, and therefore cannot be determining factors in the evaluation of future events that take place after its publication. The financial institution may hold views on financial instruments that differ completely or partially from the general market consensus. The market indices chosen have been selected using the exclusive criteria that the financial institution regards as most appropriate. The financial institution cannot in any way guarantee that the predictions or events given in this document will take place, and expressly reminds readers that any past performances mentioned do not in any circumstances imply future returns; that the investments analyzed may not be suitable for all investors; that investments can fluctuate over time in terms of their share price and value; and that any changes that might occur in interest rates or currency exchange rates are other factors that may also make it unadvisable to follow the opinions expressed herein. This document cannot be regarded, under any circumstances, as an offer or proposal to buy the financial products or instruments that may have been mentioned, and all the information herein is for guidance purposes and should not be regarded as the only relevant factor when it comes to making a decision to proceed with a specific investment. This document does not, therefore, analyze any other determining factors for properly appraising the decision to make a specific investment, such as the risk profile of the investor, his/her knowledge, experience and financial situation, the duration or the liquidity of the investment in question. Consequently, investors are responsible for seeking and obtaining appropriate financial advice in order to assess the risks, costs and other characteristics of any investments they wish to make. The financial institution cannot accept any responsibility for the accuracy or suitability of the evaluations or estimates of the models used in the valuations in this document, or any possible errors or omissions that may have been made when preparing this document. The financial institution reserves the right to change the information in this document at any time, whether partially or in full.