Update on the Emerging Markets July 2013

Transcription

1 Update on the Emerging Markets July 213 James Donald, CFA Managing Director, Portfolio Manager/Analyst Arif T. Joshi, CFA Managing Director, Portfolio Manager/Analyst Paul Rogers, CFA Director, Portfolio Manager/Analyst This presentation and all research and materials enclosed are property of Lazard Asset Management LLC. 213 Lazard Asset Management LLC Information and opinions presented have been obtained or derived from sources believed by Lazard to be reliable. Lazard makes no representation as to their accuracy or completeness. All opinions expressed herein are as of the date of this presentation and are subject to change. Please see the Disclosures section for additional important information about risks.

2 EM Equity Has Underperformed Other Markets for Some Time Returns (%) YTD 1 Year 3 Years 5 Years 1 Years Annualized MSCI Emerging Markets Index MSCI World Index S&P 5 Index As of 3 June 213 The performance quoted represents past performance. Past performance is not a reliable indicator of future results. For illustrative purposes only. This information does not represent any product or strategy managed by Lazard. The indices are unmanaged and have no fees. One cannot invest directly in an index. Source: MSCI, Standard & Poor s via FactSet 1 Lazard Asset Management

3 EM Debt Has Recently Lagged Other Markets Returns (%) YTD 1 Year 3 Years 5 Years 1 Years Annualized J.P. Morgan EMBI Global Diversified (External Debt) Barclays Global Aggregate Index J.P. Morgan GBI-EM Global Div Composite (Local Debt) Barclays US Aggregate Index As of 3 June 213 The performance quoted represents past performance. Past performance is not a reliable indicator of future results. For illustrative purposes only. This information does not represent any product or strategy managed by Lazard. The indices are unmanaged and have no fees. One cannot invest directly in an index. Source: J.P. Morgan, Barclays via FactSet 2 Lazard Asset Management

4 TAB Emerging Markets Equity

5 Evolution of Emerging Markets (Growth of $1) 1,5 1,3 The First 1 Years: Healthy Growth EM Getting to 15: Growing Pains From 15 to 2: Life Is Fun As EM approaches 3: Maturity and More Hard Work 1, We believe emerging markets have gone through a life cycle and are reaching a mature stage As of 3 June 213 Data show MSCI EM Index price returns. Source: MSCI, FactSet 4 Lazard Asset Management

6 Recent Performance by Sector Returns for Sectors in the MSCI Emerging Markets Index Returns (%) Info. Technology Cons. Staples Telecom. Services Financials Industrials Energy Materials 6 Months 1 Year As of 28 June 213 The performance quoted represents past performance. Past performance is not a reliable indicator of future results. For illustrative purposes only. This information does not represent any product or strategy managed by Lazard. The indices are unmanaged and have no fees. One cannot invest directly in an index. Source: MSCI via FactSet 5 Lazard Asset Management

7 Recent Performance by Region Returns for Regions in the MSCI Emerging Markets Index Returns (%) EM Asia EM EMEA EM Latin America BRIC 6 Months 1 Year As of 28 June 213 The performance quoted represents past performance. Past performance is not a reliable indicator of future results. For illustrative purposes only. This information does not represent any product or strategy managed by Lazard. The indices are unmanaged and have no fees. One cannot invest directly in an index. Source: MSCI via FactSet 6 Lazard Asset Management

8 ROE Remains Higher in the Emerging Markets ROE (%) MSCI World Index MSCI EM Index As of 3 June 213 Trailing 12-month data. Source: UBS, MSCI, Datastream, FactSet 7 Lazard Asset Management

9 EM Equities Appear Cheap Relative to History and Developed-Market Equities P/E Standard Deviations +1 Standard Deviation 15 Long-Term Average 13.3x MSCI World Index 13.4x at 3-Jun Standard Deviation -2 Standard Deviations MSCI EM Index 9.9x at 3-Jun MSCI EM Index As of 3 June 213 Data shown on a forward 12-month basis Forecasted or estimated results do not represent a promise or guarantee of future results and are subject to change. Source: IBES, MSCI, FactSet, Morgan Stanley Research 8 Lazard Asset Management

10 TAB Emerging Markets Debt

11 Fiscal Position and Debt/GDP Ratios Much Better than Developed World Emerging Market fiscal deficits much lower than the levels of developed markets Emerging Market Debt/GDP ratios exhibit long-term stability Strong Fiscal Indicators in EM (Fiscal Deficit as % GDP) Lower Debt / GDP Ratios in EM (Debt as % GDP) E 213F 214F United Kingdom United States Euro Zone Emerging Markets F United Kingdom United States Euro Zone Emerging Markets Source: IMF Data through March 213 Forecasted or estimated results do not represent a promise or guarantee of future results and are subject to change. 1 Lazard Asset Management

12 EM Inflation Is Coming off Cyclical Highs on the Back of Positive Base Effects and a Decline in Resource Utilization Emerging Market Inflation Rate 1 (%) Jan-7 Jun-7 Nov-7 Apr-8 Sep-8 Feb-9 Jul-9 Dec-9 May-1 Oct-1 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12 Headline CPI Core CPI As of 31 March Calculated as the sum of individual country YoY inflation rates, each weighted by each country s share in total EM GDP measured in US dollars. Source: IMF World Economic Outlook, Haver Analytics, Lazard 11 Lazard Asset Management

13 Drivers of Returns in Emerging Markets Debt Emerging Market Local Debt Returns Emerging Market External Debt Returns (%) (%) Return from Carry Return from F/X Return from Rate Movements Local Debt Total Return Return from UST Return from Carry Return from Spread Compression External Debt Total Return Yields Plus Potential FX Appreciation & Spread Compression Are Attractive As of 31 May 213 External debt returns reflect the JPM EMBI Global Diversified Index. Local debt returns reflect the JPM GBI-EM Global Diversified Index. This is not intended to reflect the performance of any product or strategy managed by Lazard. The performance quoted represents past performance. Past performance is not a reliable indicator of future results. Source: J.P. Morgan 12 Lazard Asset Management

14 Wide and Diverse Opportunity Set within Sovereign Credit Country Differentiation is the Key Spread (bps) 2 16 A & AA BBB BB B N/A 12 8 EMBIG, 1-Jun-7: 162 bps 4 EMBIG, 31-May-13: 296 bps China Chile Malaysia Poland Brazil Bulgaria Colombia Kazakhstan Lithuania Mexico Panama Peru Philippines Russia South Africa Uruguay Croatia El Salvador Hungary Gabon Georgia Indonesia Jordan Nigeria Serbia Turkey Argentina Belarus Belize Dominican Rep Ecuador Egypt Ghana Lebanon Pakistan Sri Lanka Ukraine Venezuela Cote DIvoire Iraq Jamaica 31-May-13 1-Jun-7 Credit re-rating stories still persist As of 31 May 213 For Belarus, Croatia, Gabon, Georgia, Ghana, Jamaica, Jordan, Kazakhstan, Lithuania, Nigeria, Sri Lanka there is no available data on 1 June 27. We used instead the tightest historical spread. S&P does not rate Cote d Ivoire and Iraq. For illustrative purposes only. Source: J.P. Morgan and S&P. 13 Lazard Asset Management

15 EM Local Debt YTD FX and Interest Rate Returns YTD Returns due to FX (%) South Africa Colombia Poland Peru Turkey Russia JPM GBI-EM Glb Div Idx Brazil Hungary Philippines YTD Bond Return (%) Hungary Nigeria Philippines Mexico Poland Turkey Thailand Malaysia Russia JPM GBI-EM Glb Div Idx Indonesia Nigeria Malaysia Thailand Mexico South Africa Brazil Indonesia Colombia Peru -6 4 EM FX has lagged, though we believe it offers value going forward As of 31 May 213 The performance quoted represents past performance. Past performance is not a reliable indicator of future results. Source: J.P. Morgan 14 Lazard Asset Management

16 We believe EM Real Interest Rates Remain Attractive Relative to Developed World Real Interest Rates (%) Japan Philippines Germany United States China Indonesia Philippines India Thailand Turkey Korea Russia Nigeria Malaysia Colombia South Africa Peru Poland Mexico Hungary Chile Romania Brazil As of 3 April 213 Source: Lazard, J.P. Morgan, Haver Analytics Real interest rates are estimated as the difference between the current nominal 1-year rate and consensus inflation forecast 2 years ahead Forward looking data is not a reliable indicator of future results and is subject to change. 15 Lazard Asset Management

17 TAB Conclusion

18 Scenarios for Emerging Markets Performance Four Scenarios Global Recession Global Depression Robust Global Growth Anemic Global Growth All opinions expressed herein are as of 3 June 213 and are subject to change. 17 Lazard Asset Management

19 TAB Q&A

20 Biographies James Donald, CFA Managing Director, Portfolio Manager/Analyst Lazard Asset Management LLC (New York) James Donald is a Portfolio Manager/Analyst on the Emerging Markets Equity team and Head of the Emerging Markets Group. James also represents emerging markets as a member of various global and international equity teams. He began working in the investment field in Prior to joining Lazard in 1996, James was a Portfolio Manager with Mercury Asset Management. He has a BA (Hons) in history from the University of Western Ontario. Arif T. Joshi, CFA Managing Director, Portfolio Manager/Analyst Lazard Asset Management LLC (New York) Arif Joshi is a Portfolio Manager/Analyst on Lazard s Emerging Markets Debt team. He began working in the investment field in Prior to joining Lazard in 21, Arif was with HSBC Asset Management (formerly Halbis) where he served as Senior Vice President and Portfolio Manager. At HSBC, Arif was responsible for global emerging markets, focusing on corporate and sovereign credit analysis, risk management and quantitative modeling. He began this role at The Atlantic Advisors LLC (acquired by HSBC in 25). Prior to HSBC, he was an associate at Strategic Management Group where he advised Fortune 5 companies on finance and corporate strategy. Arif has an MBA in Finance from Columbia Business School and a BS in Economics from the Wharton School at the University of Pennsylvania. Paul H. Rogers, CFA Director, Portfolio Manager/Analyst Lazard Asset Management LLC (New York) Paul Rogers is a Portfolio Manager/Analyst on the Emerging Markets Core Equity and Latin American Equity teams, focusing primarily on emerging markets investments within Latin America. He began his career at Chemical Bank in Prior to joining Lazard in 211, Paul served as the Managing Director of Emerging Markets Research at Fidelity Management & Research Company. Before that, Paul spent 14 years at Deutsche Asset Management where he was at first an Analyst and later a Portfolio Manager on the Scudder Latin America Fund, the Brazil Fund, the Scudder Latin America UK Trust, the Argentina Fund and a number of institutional accounts. Paul has an MBA in Finance from New York University and a BA in Political Science from the University of Vermont. He is fluent in Spanish. 19 Lazard Asset Management

21 Disclosures This presentation and all research and materials enclosed are property of Lazard Asset Management LLC 213 Lazard Asset Management LLC. Information and opinions presented have been obtained or derived from sources believed by Lazard to be reliable. Lazard makes no representation as to their accuracy or completeness. This presentation is for informational purposes only. It is not intended to, and does not constitute, an offer to enter into any contract or investment agreement in respect of any product offered by Lazard Asset Management and shall not be considered as an offer or solicitation with respect to any product, security or service in any jurisdiction or in any circumstances in which such offer or solicitation is unlawful or unauthorized or otherwise restricted or prohibited. All opinions expressed herein are as of the date of this presentation and are subject to change. Equity securities will fluctuate in price; the value of your investment will thus fluctuate, and this may result in a loss. Securities in certain non-domestic countries may be less liquid, more volatile, and less subject to governmental supervision than in one s home market. The values of these securities may be affected by changes in currency rates, application of a country s specific tax laws, changes in government administration, and economic and monetary policy. The securities and/or information referenced should not be considered a recommendation or solicitation to purchase or sell these securities. It should not be assumed that any of the referenced securities were or will prove to be profitable, or that the investment decisions we make in the future will be profitable or equal to the investment performance of securities referenced herein. An investment in emerging markets debt is subject to the general risks associated with fixed income investing, such as interest rate risk and credit risk, as well as the risks associated with emerging-market investments, including currency fluctuation, devaluation, and confiscatory taxation. The strategies may use derivative instruments that are subject to counterparty risk. Investments in global currencies are subject to the general risks associated with fixed income investing, such as interest rate risk, as well as the risks associated with non-domestic investments, which include, but are not limited to, currency fluctuation, devaluation, and confiscatory taxation. Furthermore, certain investment techniques required to access certain emerging-market currencies, such as swaps, forwards, structured notes, and loans of portfolio securities, involve risk that the counterparty to such instruments or transactions will become insolvent or otherwise default on its obligation to perform as agreed. In the event of such default, an investor may have limited recourse against the counterparty and may experience delays in recovery or loss. Investments denominated in currencies other than US dollars involve certain considerations not typically associated with investments in US issuers or securities denominated or traded in US dollars. There may be less publicly available information about issuers in non-us countries that may not be subject to uniform accounting, auditing, and financial reporting standards and other disclosure requirements comparable to those applicable to US issuers. Past performance is not a reliable indicator of future results. Certain information included herein is derived by Lazard in part from an MSCI index or indices (the Index Data ). However, MSCI has not reviewed this product or report, and does not endorse or express any opinion regarding this product or report or any analysis or other information contained herein or the author or source of any such information or analysis. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any Index Data or data derived therefrom. The MSCI Index Data may not be further redistributed or used as a basis for other indices or any securities or financial products. Australia: Issued by Lazard Asset Management Pacific Co., Level 39 Gateway, 1 Macquarie Place, Sydney NSW 2. Germany: Issued by Lazard Asset Management (Deutschland) GmbH, Neue Mainzer Strasse 75, 6311 Frankfurt am Main. Japan: Issued by Lazard Japan Asset Management K.K., ATT Annex 7th Floor, Akasaka, Minato-ku, Tokyo Korea: Issued by Lazard Korea Asset Management Co. Ltd., 1F Seoul Finance Center, Taepyeongno-1ga, Jung-gu, Seoul, United Kingdom: For Professional Investors Only. Issued by Lazard Asset Management Ltd., 5 Stratton Street, London W1J 8LL. Registered in England Number Authorised and regulated by the Financial Services Authority (FSA). United States: Issued by Lazard Asset Management LLC, 3 Rockefeller Plaza, New York, NY Lazard Asset Management