BBVA Asset Management Why Mexico

Transcription

1 BBVA Asset Management Why Mexico 1 1

2 Contents 1 BBVA Global Asset Management 2 Why Mexico i. Strong Fundamentals ii. iii. Structural Reforms Local Markets 2

3 BBVA Global Asset Management 3

4 BBVA Asset Management is part of one of the leading Financial Groups in Europe Strong Brand Recognition Founded in 1857, BBVA has grown and strengthen its brand globally Listed on the main international stock markets New York, Mexico and Madrid 1st or 2nd Financial Institution in every core market Europe Belgium / France / Germany / Italy / Portugal / Russia / Spain / Switzerland / Turkey / UK Global Reach Presence in 30 countries Over 50 million customers North America Mexico / USA Strong Distribution Network 7,359 branches 109,450 employees 21,283 ATMs South America Argentina / Bolivia / Brazil / Chile / Colombia / Paraguay / Peru / Uruguay / Venezuela Asia Pacific Australia / China / Hong Kong / India / Japan / Singapore / South Korea / Taiwan / UAE / Indonesia Solid Financial Support Assets: USD billion Net attributable profit: USD million Efficiency ratio: 50.9% ROE (Net attributable/average equity): 5.8% ROA (Net income/average total assets): 0.2% Our credit ratings are linked to the Spanish sovereign Spain BBVA Moody s Baa2 Baa2 Fitch BBB+ A- S&P BBB BBB Data as of June

5 BBVA Global Asset Management: More than 40 years in the asset management business BBVA AM is the investment management arm of BBVA Group that gathers together all the Group s asset management activities worldwide USA BBVA Compass, S.A. Mexico BBVA Bancomer Gestión, S.A. de S.V., Sociedad Operadora de Sociedades de Inversión Grupo Financiero Bancomer Peru Continental, S.A. BBVA Asset Management Continental S.A.SAF (Fondos Mutuos) Spain BBVA Asset Management, S.A., S.G.I.I.C. BBVA Pensiones, SA, EGFP Gestión de Previsión y Pensiones, EGFP, S.A. Portugal BBVA Gest SGFIM, S.A Luxembourg Investment vehicles for international distribution Colombia BBVA Asset Management Sociedad Fiduciaria Chile BBVA Asset Management, Administradora de Fondos, S.A. Argentina Francés Administradora de Inversiones, S.A., Gerente de Fondos Comunes de Inversión 5

6 BBVA Asset Management: Strategic positioning We are leaders in the mutual and pension funds industries in Spain and Mexico and a significant player in Latin America. Our local presence provides us with a deep knowledge and complete coverage of these markets. People Process Product 6

7 BBVA AM in BBVA Group chart Chairman & CEO Francisco González Strategy & Finance Jaime Sáenz de Tejada President & COO Ángel Cano HR & Services Juan Ignacio Apoita Global Economics, Regulation & Public Affairs José Manuel González-Páramo Legal, Audit & Compliance Services Eduardo Arbizu Brand & Communication Ignacio Moliner Global Risk Management Manuel Castro IT Ramón Monell Global Accounting & Information Management Ricardo Gómez Barredo Spain & Portugal Cristina de Parias Digital Banking Carlos Torres Vila General Secretary Domingo Armengol Mexico Vicente Rodero Corporate & Investment Banking Juan Asúa Foundation Rafael Pardo Avellaneda United States Manuel Sánchez Global Lines of Business & South America Ignacio Deschamps 7

8 BBVA AM in BBVA Group chart Global Lines of Business & South America Global Asset Management Mexico Peru Colombia Chile Argentina Spain Portugal BBVA Bancomer Gestión, S.A. de S.V., Sociedad Operadora de Sociedades de Inversión Grupo Financiero Bancomer BBVA Asset Management Continental S.A. SAF (Fondos Mutuos) BBVA Continental (Administración de Carteras). BBVA Asset Management Sociedad Fiduciaria BBVA Asset Management Administradora de Fondos, SA Francés Administradora de Inversiones, S.A., Gerente de Fondos Comunes de Inversión BBVA Asset Management SGIIC S.A. BBVA Gest SGFIM, S.A. 8

9 Why Mexico i. Strong Fundamentals ii. Structural Reforms iii. Local Markets 9

10 2.1 Why Mexico i. Strong Fundamentals ii. Structural Reforms iii. Local Markets 10

11 Growth has been lagging lately Gross Domestic Product (%change, s.a.) We expect that the second half of the year, the economy will benefit from a broad-based recovery. Banxico has recognized the weakness on the economy side and has lowered its forecast to 2.4% The concensus are expecting a 2.5% of expansion this year. Strong Peso in the mid-term, positive outlook in order the implementation of the structural reforms. 11

12 but the perspective is bright The US is one of the few developed economies expected to keep growing on the upcoming years. Mexico is well positioned to benefit from the acceleration in the US as the economic cycles of the two countries are highly correlated Total auto exports have been thriving for the past 18 months, with no signs of slowing down 12

13 Mexico is an open economy with free trade agreements with 45 countries, allowing it to consolidate as a manufacturing export economy Mexican Annual Exports and Imports (% of total) Mexican Non-oil Exports by destination (% of total) Participation of Mexican Exports in US Imports (non-oil, annual average, %) Mexican Exports by Type (% of total) 13

14 Unit labor costs had remained very competitive Mexico has overturned China s hourly wages Mexico s ULCs remain stable vs competitors in the US market and other countries 14 14

15 Contrary to its Latam peers, Mexico has minimum exposure to commodity prices and to a slowdown in China EM countries with exposure to commodities (% of total exports unless stated otherwise) Impact of 20% decline in Total Commodities by type % of total exports to: commodities 1 on current account Commodities Oil Metals Agriculture US EU China US$ billion % GDP Brazil Chile Colombia Mexico Peru Latin America Assuming a drop in ALL commodity prices at once. 2. In Chile, the agriculture category includes cellulose and oil category is imports. Source: JP Morgan Exports to China as a share of total exports Mexico Colombia Peru Brazil Chile Source: JP Morgan 15

16 Mexico s current account deficit is low and compares favorably against other emerging markets. In addition, Mexico has strong liquidity buffers Mexico Current Account Balance (% of GDP) EM Countries Current Account Deficit for 2014 (% of GDP) Foreign Exchange Reserves (% of GDP) 16

17 Mexico s debt portfolio has a low exposure to exchange rate volatility and refinancing risk Federal Government s Net Debt (% of Total) Federal Government s Debt Average Maturity (years) 17

18 Luxembourg Japan Greece Portugal Italy Iceland Ireland Belgium United Kingdom France Spain Canada Germany Hungary Austria United States Netherlands Israel Poland Finland Slovenia Switzerland Slovakia Denmark Czech Republic New Zealand Sweden Turkey Mexico South Korea Norway Australia Chile Estonia Mexico has one of the lowest debt-to-gdp ratio among OCED members Public Debt as %GDP of OECD members Source: IMF,

19 Inflation has been running low and stable for a decade and in the process of converging to the Central Bank target Consumer Price Index (annual growth, %) Break-even Inflation and Inflation expectations (%) More than 20 years of an independent central bank with the single mandate to promote price stability has anchored inflation expectations. 19

20 2.2 Why Mexico i. Strong Fundamentals ii. Structural Reforms iii. Local Markets 20

21 Poor productivity performance is the main culprit behind Mexico s slow growth Average Annual GDP Growth in Mexico ( ) Growth accounting in Mexico ( ) Labor productivity by State, 2011 (Thousands of Mexican pesos per worker, 2008 prices) 21

22 Despite abundant natural gas reserves, Mexico achieves only minimum and declining production Mexico and Texas: National Gas Production (billions of cubic feet) 22

23 With geologic conditions similar to those of Texas, Mexico has a big opportunity for a more efficient oil sector Mexico and Texas: Crude Oil Production (millions of barrels) 23

24 The structural reform agenda has as an overarching goal: Increase productivity in all sectors and all regions Source: SHCP 24

25 The Energy Reform amended articles of the Mexican Constitution, allowing private investments in the sector Source: SHCP 25

26 As part of the Tax Reform, the Federal Fiscal Responsibility and Budget Law was strengthened Source: SHCP 26

27 Energy Reform will boost the potential growth and productivity The reform could increase Mexico s potential growth to around 4% from the actual expectation of 3%. Furthermore, given the reform, in a cyclical movement Mexico could reach a year with up to 6% growth in the short term. GDP Potential GDP (Prev. Reform) Potential GDP (Post Reform) The key elements about higher productivity promoted by energy reform are: 1) Technology and training to deep waters, shale oil and gas production. 2) Energy prices will decrease and the quality will improve. Given the reform, there could be an extra investments reaching $15bn - $20bn per year, with approximately 75% increase in FDI. Government estimates potential annual investments of $62bn after the reform. Mexico s average FDI to GDP was 2.1% from 2006 to If FDI to GDP duplicated in 10 years, Mexico would receive $35bn more in FDI per year. 5% 4% 3% 2% 1% 0% -1% -2% % 3.00% 27

28 Mexico could be one of the top oil producers and achieve better credit ratings Currently, Mexico is the world s 10th largest producer of crude oil with a production of 2.5mn b/d. The energy reform could duplicate the oil and gas output over the next 10 years. As a consequence, Mexico could become one of the top five oil producers in the world. mn b/d Mexico crude oil production Forecast 5.18 The energy reform and the good fundamentals of the Mexican economy favor of an increase in ratings of at least one notch Prev. Reform Post Reform Moody's Baaa1 A3 Moodys has already upgraded Mexico s rating after the reforms S&P Fitch BBB+ BBB+ A- A- S&P and Fitch could increase the rating once the laws are implemented Low-Medium Grade Upper-Medium Grade 28

29 2.3 Why Mexico i. Strong Fundamentals ii. Structural Reforms iii. Local Markets 29

30 Mexico offers an attractive interest rate structure with high liquidity and long term tenors Nominal Yield Curve in local currency (MXN) Inflation indexed yield Curve 7.0% 6.5% 6.0% 5.5% 10Y 20Y 30Y 4.0% 3.0% 2.0% 5Y 10Y 20Y 30Y Nominal Yield 5.0% 4.5% 4.0% 3.5% 2Y 5Y Real Yield 1.0% 0.0% -1.0% 2Y % -2.0% 2.5% Duration -3.0% Duration 30

31 Mexico compares to its peers in real rate terms as one of the most attractive countries in local currency Sovereign Foreign Currency Debt Moodys S&P Fitch Target Inflation Rate 10 Year Government Note 10 Year Real Rate Government Debt to GDP Slovakia A2 A A+ 2.0% 1.85% -0.15% 56% Poland A2 A- A- 2.5% 3.39% 0.89% 48% Israel A1 A+ A 2.0% 2.71% 0.71% 67% Malaysia A3 A- A- 3.0% 3.86% 0.86% 55% Czech Republic A1 AA- A+ 2.0% 1.39% -0.61% 49% Mexico A3 BBB+ BBB+ 3.0% 5.75% 2.75% 38% Thailand Baa1 BBB+ BBB+ 4.0% 3.51% -0.49% 48% Ireland Baa3 BBB+ BBB+ 2.0% 2.23% 0.23% 124% Peru Baa2 BBB+ BBB+ 2.0% 5.15% 3.15% 15% 31

32 Mexico is the only country from Latin America included in the WGBI given its market size and credit quality World Government Bond Index Regional Composition (Mexico) Source: WGBI To be part of the index the minimum credit quality of the country is A- by S&P or A3 by Moody s and the outstanding debt must total at least USD 50 billion. 32

33 Mexico has one of the highest YTM and lowest debt levels among the emerging countries included in the WGBI index WGBI Emerging Markets Peers Yield to Coupon Rate Government Sovereign Foreign Currency Debt Country Maturity (%) (%) Debt to GDP (%) Moodys S&P Fitch Mexico A3 BBB+ BBB+ South Africa Baa1 BBB BBB Poland A2 A- A- Malaysia A3 A- A- Singapore AAA AAA Government Debt to GDP(%) Debt (USD Bn) % Debt as GDP $600.0 $500.0 $400.0 $300.0 $200.0 $100.0 $- South Africa Malaysia Mexico Poland Singapore Mexico has the highest capacity of debt repayment Term Structure (emerging markets) Brazil Poland South Africa Mexico Malaysia Singapore The Mexican curve offers high liquidity along the curve, including long term tenors (up to 30 years) 33

34 Mexico s bond market liquidity is acceptable and improving US$91B 57% foreign participation foreign holdings out of total outstanding Foreign participation in MBONOS (USD billions) Foreign participation in MBONOS Foreign holdings USD billions Total Outstanding The foreign participation has steadily increased along with total outstanding bonds. Deep liquidity and breadth of the market allows the investor to sell large holdings in a short period of time. Market makers ensure trading flow and continuous security pricing Monthly Trading Flow (USD billions) Monthly Trading Flow USD billions Mexico Malaysia 36.6 Liquidity holds despite the increase of debt levels. Different market views assure dynamic trade in the market. Big players (pension and hedge funds) provide liquidity to the market

35 The Mexican peso is one of the top 10 most traded currencies worldwide OTC foreign exchange turnover (April 2013) Summary table Daily averages, in millions of US dollars Total Spot transactions Outright forwards Foreign exchange swaps Currency swaps FX options Total, "net-net" basis 1 5,344,549 2,046, ,994 2,227,629 54, ,745 USD 4,652,192 1,691, ,706 2,029,559 50, ,427 EUR 1,785, , , ,505 17,858 70,308 JPY 1,231, , , ,876 11, ,344 GBP 631, ,741 69, ,418 4,707 28,960 AUD 461, ,977 49, ,599 6,014 27,457 CHF 275,472 84,369 26, ,139 1,419 13,594 CAD 244,089 93,488 36, ,712 2,188 11,606 M XN 135,280 56,751 13,844 57, ,041 CNY 119,563 33,950 28,104 39, ,077 Other currencies 1,152, , , ,676 13,293 51,677 Source: BIS Free capital flow is ensured by the Mexican Central Bank given its no intervention policy and high levels of International Reserves. The Mexican peso is one of the few emerging market currencies expected to appreciate given the country's positive outlook: - Structural reforms (Telecom and Energy) - Inflation running near historical lows and stable expectations on the long run - High GDP potential growth compared to other emerging markets 35

36 The expected return of Mexican bonds is higher relative to its peers No. Country YTM 10Y (Spot) *Expected values based on Bloomberg information Source August 8, 2014 (E)Currency Return* Total Return* CDS (5Y) 1 Mexico 5.75% 4.87% 10.62% Poland 3.39% 3.48% 6.86% South Africa 8.30% -3.96% 4.33% Singapore 3.03% 4.06% 7.09% - 5 Malaysia 3.86% -2.42% 1.44% The expected total return of the 10 year Mexican Government Bond is higher relative to those of other countries given its higher yield and the appreciation of the currency expected by the market. Mexican Government debt is also attractive given its semiannual coupon payment, providing further liquidity flexibility than most of its comparable peers. 36

37 Disclaimer This document and the information, opinions, estimates and recommendations expressed herein, have been prepared by BANCO BILBAO VIZCAYA ARGENTARIA, S.A. (BBVA) to provide its customers with general information as of its date and are subject to changes without prior notice. BBVA is not liable for giving notice of such changes or for updating the contents hereof. This document and its contents do not constitute an offer, invitation or solicitation to purchase or subscribe to any securities or other instruments, or to undertake or divest investments. Neither shall this document nor its contents form the basis of any contract, commitment or decision of any kind. Investor who have access to this document should be aware that the securities, instruments or investments to which it refers may not be appropriate for them due to their specific investment goals, financial positions or risk profiles, as these have not been taken into account to prepare this report. Therefore, investors should make their own investment decisions considering the said circumstances and obtaining such specialized advice as may be necessary. The contents of this document must be considered confidential. However, no warranty, either express or implicit, is given regarding its accuracy, integrity or correctness. BBVA accepts no liability of any type for any direct or indirect losses arising from the use of the document or its contents. No part of this document may be (i) copied, photocopied or duplicated by any other form or means (ii) redistributed or (iii) quoted, without the prior written consent of BBVA. Past performance of securities or instruments or the historical results of investments do not guarantee future performance. No part of this report may be copied, conveyed distributed or furnished to any person or entity in any country (or persons or entities in the same) in which its distribution is prohibited by law. Failure to comply with these restrictions may breach the laws of the relevant jurisdiction. BBVA ASSET MANAGEMENT is a business unit of BBVA which includes different companies each of them subject to specific laws and supervisors depending of the jurisdiction in which is located and/or the activity of the company. 37