汇丰银行-新兴市场-股票策略-新兴市场前沿股票策略-2019.2-66页.pdf

Disclosures&Disclaimer:This report must be read with the disclosures and the analyst certifications inthe Disclosure appendix,and with the Disclaimer,which forms part of it.Asset/SubcategoryFrontier Emerging Markets Equity StrategyFebruary 2019Equity Strategy/Frontier MarketsEquity StrategyFrontier MarketsFebruary 2019By:John Lomax,Francisco Schumacher,Devendra Joshi and Herald van der LindeFrontier EmergingMarkets Equity StrategyOil-price stickiness persistsPerformance of FEM markets remains highly dependent on oil pricesPace of government efforts to diversify oil-focused economies is slowingValuations have corrected sharply but earnings growth and ROEs remain weak 1 Equity Strategy Frontier Markets February 2019 Investment strategy 2 Strategy Dashboards 9 HSBC coverage of companies in frontier emerging markets 19 Country Pages 23 Argentina(positive)24 Bangladesh(positive)27 Egypt(positive)30 Kazakhstan(positive)33 Kuwait(positive)35 Nigeria(positive)37 Peru(positive)40 Vietnam(positive)42 Saudi Arabia(off-benchmark)45 Colombia(negative)47 Kenya(negative)49 Morocco(negative)51 Oman(negative)53 Pakistan(negative)55 The Philippines(neutral)57 Sri Lanka(neutral)59 Disclosure appendix 61 Disclaimer 64 Contents Equity Strategy Frontier Markets February 2019 2 Market outlook Oil continues to be a key driver of FEM markets which include some of the worlds largest oil exporters.In our latest GEMS Equity Strategy Quarterly(9 January 2019)we cut our off-benchmark exposure to frontier markets owing to the lower oil price.With the rise of shale production in the US and the slowing global economy,HSBC has lowered its oil price assumptions for 2019e and 2020e to USD64/b from USD80/b,and to USD70/b from USD85/b,respectively(see:Range bound:OPEC cut meets US shale glut,Gordon Gray et al,13 January 2019).With the oil price having fallen,our outlook for oil-producing nations overall has diminished.We are still positive,although less so than we were before,on Kuwait,Saudi Arabia,Nigeria and Kazakhstan we are negative on Colombia and Oman.The financial sector presents opportunity in Nigeria,Saudi Arabia and Egypt.Elections are impacting Asian countries;after the elections we are turning positive on Bangladesh,but we are cautious on Sri Lanka as elections have to be held some time before 1 December 2020.Investment strategy Performance of FEM markets remains highly dependent on the oil price In light of the lower oil price environment we have cut our benchmark exposure to the frontier markets in our GEMs portfolio Lower valuations are justified due to weak earnings growth and ROE John Lomax*Head of Global Emerging Markets equity strategy HSBC Bank plc +44 20 7992 3712 Aseem Madan*Associate Bangalore *Employed by a non-US affiliate of HSBC Securities(USA)Inc,and is not registered/qualified pursuant to FINRA regulations HSBC views on frontier market equities HSBC view(previous)Rationale CEEMEA Egypt positive The blend of constructive top-down and positive bottom-up factors continues to represent an attractive combination.Kazakhstan positive The coming minimum wage hike policy should support private consumption,valuations remain cheap.Kuwait positive Most resilient to oil price volatility,with twin surpluses and strong balance sheet.Infrastructure spending should boost banks earnings.Nigeria positive Cheap valuations and attractive bottom-up ideas,notably for banks.Saudi Arabia off benchmark Valuations and earnings remain reasonable.MSCI inclusion later this year is a big boost.Kenya negative Concerned about the impact of interest rate caps on financial sector keeps upside very limited.Valuations are not cheap.Morocco negative Weak European outlook is holding back the Moroccan economy.GDP and earnings growth remain subdued.Oman negative Deteriorating economy and weak oil prices keeps us negative.Asia Bangladesh positive(neutral)With the elections-related uncertainty now over,the macro picture should improve.Vietnam positive Strong economic growth,stable currency,well-managed inflation and strong FDI flows.Sri Lanka neutral Weak economic growth,macro-stability,low liquidity and risks of a populist budget are concerns but valuations are very cheap Pakistan negative Economic headwinds remain the key concern.Earnings revisions are expected to be negative.The Philippines neutral Falling margins and ROEs remain a concern,however valuations are below average and falling inflation can act as a positive catalyst for markets.Latin America Argentina positive Monetary policy has delivered very positive results with local currency rate cuts accelerating in the last weeks and a stable FX rate.However our view is strictly dependent on the election outcome.Peru positive Strong economic growth,significantly stronger reform momentum and reasonable valuations.Colombia negative Diminished expectations regarding reform momentum,business sentiment deteriorating and oil prices now becoming a drag.Source:HSBC estimates 3 Equity Strategy Frontier Markets February 2019 Impact of the oil price After the 2014 oil-price crash,major oil-producing countries started taking steps to reduce their economies reliance on oil.Although this process is still ongoing,the pace of reform appears to have slowed in 2018.The World Bank1 assessed the extent of reforms in GCC in the latest issue of its Gulf Economic Monitor(November 2018).GCC states have imposed taxes in the range of 50-100%on tobacco and sugary drinks.Saudi Arabia and UAE have introduced VAT for the first time,at a rate of 5%.Saudi also increased gasoline and electricity prices in January 2018,although electricity producers are still getting oil supply at subsidised rates.Kuwait has postponed its introduction of VAT from 2018 to 2021,and the reduction of subsidies on water and electricity prices has also been implemented more slowly than originally proposed.Oman relaxed the salary threshold for eligibility for the fuel subsidy from OMR600 a month to OMR950.In addition,Colombia has passed a tax reform bill to reduce the 1.4%of GDP gap between the 2019 budget of the previous administration and the 2.4%deficit allowed by the fiscal rule(see:Colombia tax reform,Jorge Morgenstern,19 December 2018)Citizens of oil-producing nations have long benefited from oil money,with each countrys revenue level supported by rising oil prices and the extent of its dominance in oil markets.The challenge for these countries is to diversify their economies to increase non-oil revenue,but without putting too much of a burden on the citizens.Increasing privatisation and social reforms may help governments to achieve their targets in an orderly manner.FEM markets are highly correlated to oil Despite reforms,correlation remains high Source:MSCI,Refinitiv Datastream Source:MSCI,Refinitiv Datastream,HSBC calculations Colombian markets remain most sensitive to volatility in oil prices(see charts overleaf),but Saudi Arabia,Oman,Kazakhstan,Nigeria and Kuwait are also highly sensitive countries.In terms of sector sensitivity,energy is,for obvious reasons,the most sensitive to oil prices.Financials is the next most sensitive sector,indicating the spill-over effects from downturns in the energy sector on economic growth.FEM countries sensitivity*to the oil price FM sectors sensitivity*to the oil price Calculated as RSQ of monthly returns over weekly frequency Source:MSCI,Refinitiv Datastream,HSBC calculations Calculated as RSQ of monthly returns over weekly frequency Source:MSCI,Refinitiv Datastream,HSBC calculations _ 1 Gulf Economic Monitor:Staying the Course on Reforms,The World Bank,27 November 2018 020406080100120200022002400260028003000320034003600Feb-14Feb-15Feb-16Feb-17Feb-18Feb-19MSCI FEMOil U$/Bbl(RHS)-80%-60%-40%-20%0%20%40%60%80%100%Feb-14Feb-15Feb-16Feb-17Feb-18Feb-193y correlation of y-o-y returns of FEM markets and Oil price0.000.050.100.150.200.250.300.35ColombiaPeruSaudi ArabiaOmanKazakhstanNigeriaKuwaitPakistanPhilippinesEgyptVietnamArgentinaKenyaMoroccoSri LankaBangladeshFEM countries senstivity to Oil0.000.050.100.150.200.25ENFNCNCSIDMTITUTHCCDFM sectors senstivity to OilThe pace of reforms in oil economies appears to have slowed in 2018 Equity Strategy Frontier Markets February 2019 4 Valuations,earnings and flows FM valuations,after having been higher than EM valuations since 2014,have corrected significantly over the past few months.However,FM still trades at a 4%premium over EM 11pp over its long-term average of a 7%discount.The high dividend yield,which was one of FMs attractions,started on a downward trend in 2016,but is still higher than EM;although the dividend yield rose for a few months in 2018,it has started to fade again.The FM dividend yield is now just 114bps higher than EM,compared to a long-term average difference of 152bps.12M trailing PE 12M trailing dividend yield Source:MSCI,Refinitiv DataStream,HSBC Source:MSCI,Refinitiv DataStream,HSBC When compared to history,PB valuations also look elevated;currently the FM premium to EM is c14%while the historical average is a c2%discount.High RoE,another FM advantage over EM,has also corrected in the past few years.After reaching an all-time-high premium of 358bps in early 2015 it has now come down to just 115bps.12month trailing PB 12month trailing RoE Source:MSCI,Refinitiv DataStream,HSBC Source:MSCI,Refinitiv DataStream,HSBC FM earnings growth,which crashed during the oil crisis of 2014,did not start to recover until 2017 when the global economy was back in full swing.In 2018,concerns around the US-China trade tensions and a subsequent slowdown in the global economy weighed on FM earnings.Flows have largely followed the earnings trajectory.FM overall has seen outflows in six out of past eight months.Barring Colombia,all the countries have seen outflows 0.60.81.01.11.35.0 x8.5x12.0 x15.5x19.0 xJan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18FMFM relative to EM(RHS)0.00.61.21.82.43.03.62.0%3.0%4.0%5.0%6.0%7.0%8.0%Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18FMFM relative to EM(RHS)ppt0.60.80.91.11.21.41.50.5x1.0 x1.5x2.0 x2.5x3.0 x3.5xJan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18FMFM relative to EM(RHS)-4.0-3.0-2.0-1.00.01.02.03.04.08.0%10.0%12.0%14.0%16.0%18.0%20.0%Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18FMFM relative to EM(RHS)ppt 5 Equity Strategy Frontier Markets February 2019 MSCI FEM 12M trailing PE 12M trailing EPS growth(%)Source:MSCI,Refinitiv Datastream,HSBC Source:MSCI,Refinitiv Datastream,HSBC ADTV(USDm)Equity Risk Premium(%)Source:MSCI,Refinitiv Datastream,HSBC Source:MSCI,Refinitiv Datastream,HSBC Cumulative 5Y flows(USDm)FEM flows as%of AUM Source:EPFR Global,HSBC Source:EPFR Global,HSBC 12131415161718Feb-14 Nov-14Aug-15 May-16 Feb-17 Nov-17Aug-18MSCI FEM:12m trailing PE-15-10-5051015Feb-14 Nov-14Aug-15 May-16 Feb-17Nov-17Aug-18MSCI FEM:12m trailing EPS growth(%)10,00015,00020,00025,00030,00035,00040,000Feb-14 Nov-14 Aug-15 May-16 Feb-17 Nov-17 Aug-18MSCI FEM:ADTV(USDmn)2.53.03.54.04.55.05.56.06.5Feb-14Nov-14Aug-15 May-16Feb-17Nov-17Aug-18MSCI FEM:Equity Risk Premium-6,000-4,000-2,00002,0004,0006,0008,000Feb-14 Nov-14 Aug-15 May-16 Feb-17 Nov-17 Aug-18MSCI FEM:cumulative flows(USDmn)-3.0-2.0-1.00.01.02.0-1.0-0.50.00.51.0Feb-14 Dec-14Oct-15Aug-16Jun-17Apr-18MSCI FEM:6m avg Flows%of AuMMSCI FEM:cumulative flows(USDmn)Equity Strategy Frontier Markets February 2019 6 Country overview Positive Argentina Argentina is still in recession but the monetary policy implemented on 1 October 2018 has delivered very positive results,with local currency rate cuts accelerating in the last weeks and a stable FX rate.The central banks(BCRA)new monetary and FX market framework,introduced on 1 October 2018,managed to reduce exchange rate volatility,and more recently has been allowing for accelerated rate cuts while buying USD without sterilisation.Bangladesh The Bangladesh market has a negative correlation with Asian and global equities,and is more driven by domestic factors than global factors.In our view,the key reasons for the markets decline in 2018 were:a)uncertainty around elections;b)banking sector liquidity;and c)a rising current account deficit.As there is more clarity on these issues,especially with elections out of the way,we believe 2019 will shape up to be a good year for the equity market.Egypt The blend of constructive top-down and positive bottom-up factors continues to be an attractive combination.Disappointment on growth(particularly the delay in capex recovery)and inflation,alongside international capital withdrawal,weighed on the market in 2018;but in our view these influences should reverse somewhat in 2019.Kazakhstan Equity market valuations look cheap.Based on bottom-up IBES consensus aggregates,the market is currently trading at a 2019e PE of 7.5(vs 15.4 for FEM)with a 2019e earnings growth rate of 20.0%(vs 18.2%for FEM).3M EPS momentum has been positive.The presidents new policy measures will increase minimum wages in 2019 by 50%,consequently,nominal wages may grow by up to 10%this year,supporting private consumption.Kuwait In our view Kuwait is the most resilient of the FM oil-producing countries to oil price volatility.Kuwait is forecast to enjoy twin surpluses over 2019-20.The economy is further supported by a strong balance sheet,large sovereign wealth fund and a flexible currency basket peg.We remain positive on banks and the education sector.Nigeria HSBCs covering equity analyst considers Nigerian banks to be attractively valued(see:Nigerian Banks:Attractively valued,cash rich,Aybek Islamov,22 January 2019).Resilience in NIM,higher collective provisioning and discounted valuations are the three most important drivers of this view.Based on bottom-up IBES consensus aggregates,Nigerian equity markets currently trade at 10.8x 2019e PE(vs 15.4x for FEM aggregates),which is a c30%discount.Peru The equity market is supported by strong economic growth,significantly stronger reform momentum,and reasonable valuations.MSCI Perus NTM PE trades at a 14%premium to its 10-year historical mean and a high 23%premium to EM.We also believe there are opportunities among the non-MSCI constituents.Saudi Arabia We continue to see some off-benchmark opportunities in Saudi Arabia.Despite the fall in the oil price,macro growth should be supportive for domestic-facing stocks.The valuation and earnings profiles are reasonable,and liquidity should help.Nevertheless,solid performance coupled with a lower oil price,does suggest that the environment will be less positive than it was last year.7 Equity Strategy Frontier Markets February 2019 Vietnam A combination of strong economic growth,stable currency,well-managed inflation and strong FDI flows should help domestic equities.Trade tensions should bring more FDI into Vietnam and create more jobs as firms move manufacturing from China.The banking sector is seeing strong profitability and improving asset quality.Consumption also looks robust.Neutral Sri Lanka Macro-stability is a key issue for foreign investors in Sri Lanka,impacting currency