20131017 citywire pictet emerging corporate bonds-final

Niche no more: emerging corporate debt

Pictet Asset Management | For professional investors only | Niche no more: emerging corporate debt

Alain-Nsiona Defise

17-18 October 2013 Citywire Miami

Q1. Which bar represents EM USD Corporate YTD 2013 performance?

A. Red

B. Grey

C. Blue

D. Green

E. Purple

2 Pictet Asset Management | For professional investors only | Niche no more: emerging corporate debt

Source: JP Morgan, as at 30.09.2013

-8.0%

-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

EM USD Corporate YTD 2013 performance

D. Green


EMERGING CORPORATE PERFORMANCE VS USD AND LOCAL CURRENCY SOVEREIGNS


-8.0%

-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

EM LC Sovereigns EM USD Sovereigns EM IG Corps (USD)

EM USD Corporates EM HY Corps (USD)

How has Bernanke’s talk impacted EM Fixed Income so far?


EMERGING CORPORATE PERFORMANCE VS USD AND LOCAL CURRENCY SOVEREIGNS


EM Fixed Income YTD to end Aug YTD to end Sep Duration YTM

EM USD Corporates -3.9% -2.5% 5.2yrs 5.8%

EM USD Sovereigns -9.0% -6.7% 6.8yrs 5.9%

EM LC Sovereigns -11.5% -7.6% 4.7yrs 6.6%

EM IG Corps (USD) -4.4% -2.8% 5.4yrs 4.9%

EM HY Corps (USD) -2.7% -1.6% 4.6yrs 7.8%

EM has sold off since May but bounced back in September

Q2. What has been the biggest component of EM Corporate return YTD?

A. Carry

B. US Treasury Yield Return

C. Spread Return


Q2. What has been the biggest component of EM Corporate return YTD?

A. Carry


CEMBI YEAR-TO-DATE RETURNS BY COMPONENT

YTD losses have been driven by US Treasuries and spread widening


Source: Estimates from JP Morgan CEMBI Broad Diversified index, as at 30.09.2013

But high carry has partially compensated

CEMBI HISTORICAL RETURNS BY COMPONENT

Source: Estimates from JP Morgan CEMBI Broad Diversified index, as at 30.09.2013

Q3. Valuations – where is CEMBI BBB spread now?

A. 1x the spread of US IG

B. 2x the spread of US IG

C. 1x the spread of US HY

D. 2x the spread of US HY


Q3. Valuations – where is CEMBI BBB spread now?

A.

B. 2x the spread of US IG


CEMBI IG vs US IG SPREADS CEMBI BBB SPREAD AS MULTIPLE OF US BBB SPREAD

Emerging corporates look attractive relative to US IG

10


CEMBI IG rising discount to US IG


0.8

1.0

1.2

1.4

1.6

1.8

2.0

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

2.0x


CEMBI BBB Spread vs US BBB spread

Media offline

Q4. How many countries are in the EMBI but not in the CEMBI?

A. 5

B. 16

C. 33

D. 45


Q4. How many countries are in the EMBI but not in the CEMBI?

A. 5

B. 16

C. 33


EM corporate vs EM sovereign country comparison



Country % of CEMBI % of EMBI

Angola 0.3%Azerbaijan 0.5%Bahrain 0.5%Barbados 0.3%Belarus 0.5%Belize 0.1%Bolivia 0.1%Bulgaria 0.4%Costa Rica 1.0%Cote D'Ivoire 0.7%Czech Republic 0.4%Ecuador 0.2%Gabon 0.3%Georgia 0.3%Ghana 0.5%Honduras 0.1%Hong Kong 5.8%Iraq 0.7%Israel 3.3%Jordan 0.2%Korea 5.7%Kuwait 0.6%Latvia 0.9%Lebanon 3.3%Lithuania 2.4%

Country % of CEMBI % of EMBI

Macau 0.7%Morocco 0.6%Namibia 0.2%Oman 0.3%Pakistan 0.4%Panama 2.6%Qatar 4.6%Romania 1.2%Saudi Arabia 1.1%Senegal 0.2%Serbia 1.3%Singapore 4.5%Slovak Republic 0.5%Sri Lanka 1.4%Taiwan 1.0%Tanzania 0.2%Thailand 3.5%Trinidad & Tobago 0.5%UAE 5.1%Uruguay 2.0%Venezuela 3.9%Vietnam 0.6%Zambia 0.2%

TOTAL 37% 28%

CEMBI vs EMBI COMPARISON

EM corporate vs EM sovereign comparison

15


CEMBI AND EMBI SPREADS

Optically similar but with marked differences


in CEMBI in EMBI

Asia 39% 18% 6 6 3

Europe 14% 34% 7 1 9

Latam 27% 36% 11 1 9

MEA 20% 12% 3 7 12

Total 27 15 33

% of CEMBI

% of EMBI

No. of common countries

No. of unique countries


+25bps

Alain-Nsiona Defise (London) Head of Emerging Corporate

Vincent Ferraton (Singapore) Head of Asian Credit Research

Teck Hoon Low (Singapore) Senior Credit Analyst, Asia

Rosemary Fu (Singapore) Senior Credit Analyst, Asia

Anya Kopyleva (London) Senior Credit Analyst, EMEA

Ivan Fernandez (London) Senior Credit Analyst, LatAm

Karen Lam (London) Client Portfolio Manager

INVESTMENT TEAM

Emerging Corporate Bonds team and investment resources


Investment team with extensive experience Based in London and Singapore Dedicated EM credit traders in London and Singapore Dedicated resources in risk management

Other investment teams: • Emerging Debt • Emerging Equities • Credit Long/Short • Global Bonds • Investment Grade • High Yield 2 Economists Quantitative Analysis Pictet Asset Management Strategy Unit Input

Q5. A country’s currency has depreciated by 17% YTD. Would you:

A. Avoid all corporates in that country

B. Do nothing because it has no impact

C. Believe it’s a great opportunity for security selection


YEAR-TO-DATE FX PERFORMANCE FOR TOP 20 CEMBI COUNTRIES EFFECT OF FX DEPRECIATION ON CREDIT METRICS (BRAZIL EXAMPLE)

EM macro provides credit-picking opportunities

18

Source: JP Morgan, Bloomberg, as at 30.09.2013

Depreciating FX not necessarily negative for credit metrics

Source: Barclays Capital, as at 19.06.2013

Better Worse

Revenues USD USD BRL BRLCosts BRL USD BRL USDDebt USD USD USD USD

Margins Improved No effect No effect Worsened

Credit metricsOnly initially

worsenedOnly initially

worsened

Leverage worsened; cost of

debt increased

Leverage worsened; cost of

debt increased

MiningPulp / Paper

Sugar / ProteinInfrastructure

PetrochemicalsSteel (Post 12mo)

Drill shipsOil & Gas(except

Petrobras)

Consumer/Retail Telecom/MediaPetrobras

Steel (First 12mo)

Effective currency of income statement and balance sheet components

Effects upon BRL depreciation

Broadly categorized sectors


-20%

-15%

-10%

-5%

0%

5%

10%

Sout

h Af

rica

Indo

nesi

aIn

dia

Turk

eyPe

ruBr

azil

Colo

mbi

aM

alay

sia

Russ

iaPh

ilipp

ines

Chile

Sing

apor

eTh

aila

ndM

exic

oKo

rea

Hong

Kon

gUA

EQa

tar

Chin

aIs

rael

Media offline

US tapering discussions have induced a significant discounting of the EM corporate asset class

− Effectively retracing the last 18 months of gains

− Carry has provided a sizeable buffer to rising yields

Summary- Key elements for EM corporates


The asset class continues to offer material value and robust mitigants to near-term market concerns

− Spread buffer remains significant

− Increased differentiation has led to greater credit-picking opportunities

Know your names

− Bottom-up credit research comes first

− Local knowledge is key

Biographies


Vincent Ferraton Head of Asian Credit Research Fixed Income team Vincent Ferraton joined Pictet Asset Management’s Fixed Income team in 2007 and is Head of Asian Credit Research. Before assuming his current position in 2012, Vincent was a Senior Investment Manager for Investment Grade Credit portfolios, a role he took on in 2009 after having previously been Senior Investment Manager for Swiss Rates.

Before joining Pictet, he worked for nine years at UBS Investment Bank in both Zurich and London. His last position at UBS was Head of the Swiss Fixed Income Credit Research team, with a focus on multinational and medium sized Swiss / European corporate credits. His earlier experience at UBS included Debt Capital Markets Origination and Credit Risk Management in London. Previously he worked for Moody’s Investors Services and for First National Bank of Chicago.

Vincent graduated with a BSc (Hons) in International Business and Modern Languages from Aston University, Birmingham.

Rosemary Fu Senior Credit Analyst Fixed Income team Rosemary Fu joined Pictet Asset Management in 2007 as a Senior Credit Analyst in the EM Credit Research team based in Singapore.

After working as a tax specialist in the US, Rosemary joined the credit department of Goldman Sachs, initially in New York City, and then in Hong Kong. Between 1997 and 2002, she held several credit research positions with Merrill Lynch, the Equitlink Group and Standard Chartered Bank. Before joining Pictet, Rosemary worked for Axa IM in Singapore in charge of buy-side credit research on Asian corporate bond issuers.

Rosemary holds a BSc from Rider University and an MBA from the Leonard N. Stern School of Business – NYU. She is a CPA and is fluent in English and Mandarin, with some knowledge of Cantonese and Japanese.

Alain Nsiona Defise Head of Emerging Corporate Fixed Income team Alain Nsiona Defise joined Pictet Asset Management in 2012 as Head of the Emerging Corporate team.

Previously, Alain was working at JPMorgan in London where he was in charge of managing the Emerging Corporate franchise, worth over USD 2bn. Prior to JPMorgan, he worked for nine years at Fortis Investments where he started as a senior credit analyst focusing on the high yield market. He later moved to Emerging Markets Fixed Income as a senior portfolio manager building the emerging corporate business.

He holds an Ingenieur Commercial (Masters) from Solvay Business School, Brussels and a Diploma in Financial Analysis from the European Federation of Financial Analysts Societies.

Biographies


Teck Hoon Low Senior Credit Analyst Fixed Income team Teck Hoon Low joined Pictet Asset Management in 2012, as a Senior Credit Analyst in the EM Credit Research team based in Singapore.

Prior to joining Pictet Asset Management, Teck worked for Macquarie Group as a desk analyst and RBS Bank in Singapore focusing on special situations for Asian corporates. Before joining RBS, Teck also worked for ABN Amro in fixed income credit research covering both High Yield and Investment grade credits. Earlier work experience included debt capital markets at Credit Agricole Indosuez and Price Waterhouse in both Singapore and China.

Teck holds a Bachelor of Accountancy from National University in Singapore. She is a CPA and is fluent in English and Mandarin.

Anya Kopyleva Senior Credit Analyst Fixed Income team Anya Kopyleva joined Pictet Asset Management in 2013 as a Senior Credit Analyst in the EM Credit Research team and is based in London.

Prior to joining Pictet Asset Management, Anya was a Vice President in Quantitative Investment Strategies at Goldman Sachs Asset Management in New York. In 2011 she moved to Goldman Sachs in London as an Emerging Markets Fixed Income Principal Investments Analyst and Trader. She followed closely 50 corporates and banks in Russia, CIS and CEE and took an active part in the investment process.

Anya holds a BS in Mathematics and in Management with a Finance concentration, and a minor in Economics from Massachusetts Institute of Technology. She is a CFA charterholder and is fluent in English and Russian and speaks conversational French.

Ivan Fernandez Senior Credit Analyst Fixed Income team Ivan Fernandez joined Pictet Asset Management in 2013 as a Senior Credit Analyst in the EM Credit Research team and is based in London.

Prior to joining Pictet Asset Management, Ivan spent three years at Barclays Capital in New York as a research analyst in the EM Corporate Credit Research department, with responsibility for five industry sectors. Previously, he worked for two years as an equities analyst at Bassini & Co in New York, covering all sectors across Latin American countries. Prior to that, Ivan worked at JP Morgan in Debt Capital Markets Origination (in New York) and Investment Banking (in Sao Paulo).

Ivan holds an MBA from the Yale School of Management and a BSc in Electrical Engineering from the University of Sao Paulo. He is a CFA charterholder and is fluent in Portuguese and English, and proficient in Spanish.

Photo TBC

Biographies


Karen Lam Client Portfolio Manager Fixed Income team Karen Lam joined Pictet Asset Management in 2013 as a Client Portfolio Manager in the Fixed Income Emerging Corporate team and is based in London.

Prior to joining Pictet Asset Management, Karen was an Executive Director at J.P. Morgan Asset Management working as a global rates portfolio manager and later as a senior client portfolio manager covering fixed income total return strategies and emerging market debt funds. Previously, Karen was the lead manager research analyst at J.P. Morgan Private Bank covering fixed income and commodity funds. Karen started her career in the industry with Mercer Investment Consulting.

Karen holds a BSc in Statistics from University College London and an MSc in Epidemiology from Imperial College London. She is fluent in English and Cantonese, with some knowledge of Mandarin and French.

Fixed income at Pictet Asset Management


PM: Portfolio Manager CA / A: Credit Analyst / Analyst 1 Deputy Head 2 Reporting to COO

October 2013

S. Eisinger – Head of Fixed Income N. Eyholzer – Team Assistant

Money Market

P. Billot PM J. Braun PM S. Mauron PM

Global Bond

M. Benhaim1 PM A. Sanchez Balcazar PM D. Bopp PM T. Hansen PM L. Jaccard A

Swiss Bond

E. Marika PM M. Junge PM O. Hildbrand PM

Investment Grade

F. Salmon PM M. Magnin PM J. Vroman PM E. Assamoi CA A-M. Jenkins CA C. McPherson CA F. Nicolas CA

Emerging Debt

S. Lue-Fong PM M-T. Barton PM G. Chamorro PM P. Petit PM W-M. Ting PM O. Yee PM S. Cundy A C. Roberts A E. Yeo A S. Zou A

Risk Management & Quantitative Analysis

Client Portfolio Managers Economic Analysis

E. Mendez A. Akadiri G. Cosson A. Junod N. Musolino

R. Oeuvray K. Tasellari Hug M. Rigo

C. Parisot (Gov.) S. Rüegg (Credit) S. Lee (Emerging)

E. Choi (Emerging) A. Grijns (Emerging) K. Lam (Emerging)

P. Zweifel A. Bélaz S. Khanniche N. Markov

Fixed Income Trading2

High Yield

R. Gaiser PM P. Agarwal PM A. Baskov PM M. Orschulik CA

Emerging Corporate

A. Defise PM V. Ferraton CA R. Fu CA A. Kopyleva CA T. Low CA I. Fernandez CA

Total Return

R. Sagayam PM K. Swiderski PM M. Hariri A

J-M. Manry P-E. Charlier J. Chavaillaz M. Gautschi P. Guesnet

S. Nejman J-P. Ruez A. Soucas S. Ho

M. Job S. Smadja S. Toh

For more information, please contact

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Past performance is not a guarantee or a reliable indicator of future performance. Performance data does not include the commissions and fees charged at the time of subscribing for or redeeming shares. This marketing material is not intended to be a substitute for the fund’s full documentation or any information which investors should obtain from their financial intermediaries acting in relation to their investment in the fund or funds mentioned in this document.

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20131017 citywire pictet emerging corporate bonds-final

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