financial market outlook q2 2017 - julius baer group · global composite us dollar liquidity global...

Please find important legal information at the end of this document

FINANCIAL MARKET OUTLOOK Q2 2017

David Kohl, Chief Economist Germany & Head of Currency Research

Outlook Roadshow, 2nd quarter of 2017 7 March 2017 10:46 CET

2

AGENDA

Central Topic: Politics

• Europe: Policy risks and opportunities

• US: New political realities

• China: Leaning against the wind of

structural weaknesses

• The economy (p. 8)

• Currencies (p. 11)

• Fixed income (p. 15)

• Equities (p. 19)

• Commodities (p. 23 )

• Next Generation (p. 27 )

• Thematic & Cross Asset (p. 31)

• Technical Analysis (p. 34)

• Appendix (p. 37)

3

EUROZONE PEOPLE LIKE THE EURO Bond markets signal increasing nervousness about the upcoming elections in France.

Rising spreads will at a certain point curb anti-European rhetoric.

Source: Eurobarometer, Julius Baer Source: Datastream, Julius Baer

Weekly data as at: 24.02.2017

Opinion poll: Support for the euro 10-y government bond spreads against German Bunds

04 05 06 07 08 09 10 11 12 13 14 15 16 17

10

20

30

40

50

60

70

80

90

% for the euro

Italy FranceGermany SpainEurozone UK

0

20

40

60

80

100

120

140

160

2012 2013 2014 2015 2016 2017

50

100

150

200

250

300

350

400

450

500

550

BpsBps

Italy (left scale) France (right scale)

4

Source: Julius Baer

Fiscal laxness including tax cuts and infrastructure investment

‘Pragmatic’ protectionism pushing up import prices

Tighter immigration pushing up wages

Reflation

Disruption could become a burden for business and consumer confidence

Dirigisme towards businesses and ultimate monetary policy

Nationalism/rejection of supranational institutions could result in an international loss of trust

Unguided missile

POLITICAL REALITY – THE TRUMP FACTOR Trump’s policy is in the first place reflationary, with an emphasis on higher prices

(inflation) well before higher output (growth). The risk is an ‘unguided missile’.

GOOD TRUMP, BAD TRUMP The canaries in the coal mine: Disruption and dirigisme by Trump could at a certain

point undermine the safe-haven status of the USD and business confidence.

Source: : National Federation of Independent Business (NFIB), www.policyuncertainty.com, Julius Baer

Source: Datastream, www.policyuncertainty.com, Julius Baer; CDS: credit default swap; Data as at: 28.02.2017 16:00 CET

US business sentiment and policy stability* (* using the US policy uncertainty index at a reversed scale)

US policy uncertainty and trust in the US as a safe haven

5

0

10

20

30

40

50

60

70

80

90

0

50

100

150

200

250

300

350

03 05 07 09 11 13 15 17

IndexIndex

US policy uncertainty (left scale)

Treasury CDS (right scale)

75

80

85

90

95

100

105

110-100

-50

0

50

100

150

200

250

300

03 05 07 09 11 13 15 17

IndexIndex

US policy stability* (left scale)

US Small business optimism (right scale)

6

CHINA: SUCCESSFULLY LEANING AGAINST THE WIND Loosening credit conditions are used in 2017 to lean against the wind of slowing

economic growth. There are few constraints and a strong commitment to continue.

Source: People’s Bank of China, Julius Baer

Monthly data as at: 31.01.2017

Source: Datastream, Julius Baer

China real lending rates

(* average lending rate minus producer price inflation)

China real estate activity picking up

05 06 07 08 09 10 11 12 13 14 15 16 17

-20

-10

0

10

20

30

40

50

60

70

% Y/Y

Floor space sold (advanced by 6 mths)

Floor space started

05 06 07 08 09 10 11 12 13 14 15 16 17

-4

-2

0

2

4

6

8

10

12

14

% p.a.

Real bank lending rate*

7

CHINA’S CHALLENGES ARE SECULAR NOT CYCLICAL Credit boom had been used to address the global financial crisis

and the peaking of the working age population.

Source: Datastream, Julius Baer; GDP = gross domestic product Source: Oxford Economics, Julius Baer

China economic and credit activity China working age population and labour force dynamics

05 06 07 08 09 10 11 12 13 14 15 16 17

5

10

15

20

25

30

35

40

% Y/Y

Nominal GDP Total credit

00 05 10 15 20

-0.5

0.0

0.5

1.0

1.5

2.0

% Y/Y

Working age populat. forecast

Labour forces forecast

THE ECONOMY

8

9

ROBUST GROWTH BACKDROP TRUMPS EXPECTATIONS Global cyclical backdrop is strong with leading indicators pointing to further

acceleration. Positive surprises suggest only modest optimism.

Source: JP Morgan, Julius Baer; PMI = purchasing managers’ indices Source: Citi, Julius Baer

Global purchasing managers’ indices G10 economic surprise index

2012 2013 2014 2015 2016 2017

48

49

50

51

52

53

54

55

56

Index

Manufacturing PMI Services PMI

6m trend (+2.2) 6m trend (+2.8)

A O D F A J A O D F A J A O D F A J

2014 2015 2016 2017

-40

-30

-20

-10

0

10

20

30

40

50

Index

10

HIGHER INFLATION WITH DIVERGENCE Inflation is back. Stronger wage dynamics in the US point to a more persistent

reflation trend motivating divergence of monetary policy.

Source: Citi, Julius Baer Source: Datastream, Julius Baer

G10 inflation surprise index Wage dynamics in the US and the eurozone

09 10 11 12 13 14 15 16 17

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

% Y/Y

Eurozone USA

A O D F A J A O D F A J A O D F A J

2014 2015 2016 2017

-40

-30

-20

-10

0

10

20

30

Index

CURRENCIES

11

MORE UPSIDE FOR THE US DOLLAR Persisting policy divergence remains the major reason for the USD strength

despite fundamental overvaluation.

Source: Bloomberg, Julius Baer

Data as at: 28.2.2017 17:30 CET

Source: JP Morgan, Julius Baer

Data as at: 28.2.2017 17:30 CET

Implied US rate-hike probabilities and the US dollar

US dollar misalignment based on real effective exchange rates (REER)

12

94

96

98

100

102

104

106

O N D J F

2016 2017

0

10

20

30

40

50

Index%

Probability of 3 rate hikes in 2017 (left scale)

DXY (right)

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

95 97 99 01 03 05 07 09 11 13 15 17

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

z-scorez-score

+/- 1 std.dev. 95% confidence

USD misalignment +5% appreciation

(REER based)

GLOBAL COMPOSITE US DOLLAR LIQUIDITY Global USD liquidity tends to lead US dollar developments.

Source: Bloomberg, Fed, Julius Baer

Data as at: 28.2.2017 17:30 CET

Composite USD liquidity and real trade-weighted US dollar

13

70

80

90

100

110

120

130

140

80 85 90 95 00 05 10 15

-10

-5

0

5

10

15

20

25

30

Index% Y/Y

Composite USD liquidity (left scale) Broad real USD Major real USD (right scale)

SOME SUPPORT FOR THE EURO IN THE PIPELINE The euro could bottom after the first round of the French presidential elections on

April 23. Signs of repatriation are emerging.

Source: European Central Bank (ECB), Julius Baer Source: OpinionWay 7-9. Feb 17 survey, Julius Baer

Eurozone domestic portfolio flows Polls for 2nd-round constellations in the French presidential elections

14

35%

43%

65%

57%

Le Pen - Macron Le Pen - Fillon

30

35

40

45

50

55

60

65

%

Repatria-tion

Outflows

-800

-600

-400

-200

0

200

400

600

99 01 03 05 07 09 11 13 15 17

Net portfolio investments abroad

smoothed over 12 months

EUR bn

FIXED INCOME

15

16

EUROPEAN SUBORDINATED BANK DEBT Bank debt has not been on the shopping list of the ECB and is thus less distorted.

Better economic conditions (lower output gap) to restore banks’ asset quality.

Source: Merrill Lynch, Julius Baer; ECB = European Central Bank

Data as at 24.2.2017 15:00 CET

Source: Company data, Bloomberg Finance L.P., Organisation for Economic Co-operation and Development (OECD), Julius Baer

Subordinated bank debt yield is not as distorted as the segments the ECB buys

Better economic conditions to bring down ratio of non-performing loans, UK shows

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2013 2014 2015 2016 2017

Yield, %

Banks subordinated

BBB financials

BBB non-financials

Long-term AAA-AA sovereign

-10

-8

-6

-4

-2

0

2

40

2

4

6

8

10

12

14

16

00 02 04 06 08 10 12 14 16

Output gap, %NPL, %

Non-performing loans

Output gap, right

Periphery

UK

According to the Product Intervention (Contingent Convertible Instruments and Mutual Society Shares) Instrument 2015, enacted by the U.K. Financial Conduct Authority

(“FCA”), this/these product(s) must not be distributed to retail investors domiciled in the European Economic Area (“EEA” – EU, Liechtenstein, Norway and Iceland). Investors

who intend to buy this/these product(s) must have an annual income of at least GBP 100,000 (or equivalent) or net assets (excluding property, insurance and other benefits) of at least GBP 250,000 (or equivalent) at their disposal.

EUR billions Covered bonds

Govt. bonds

Non-financial bonds

Index 12/15 832.9 5,718.8 848.8

Index 01/17 835.6 5,830.3 1,006.6

Change 2.6 111.5 157.8

ECB holdings 12/15

14.3 39.4 0.0

ECB holdings 01/17

225.8 1326.0 59.5

Change 211.5 1,286.6 59.5

17

EUROPEAN SUBORDINATED BANK DEBT Bank debt has not been on the shopping list of the ECB and is thus less distorted.

Source: Bank of America Merrill Lynch, Julius Baer

Data as at 24.2.2017 15:00 CET

Source: Bank of America Merrill Lynch, ECB, Julius Baer

Everything the ECB is buying is low yield

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2013 2014 2015 2016 2017

Yield, %

FinancialsBanks subordinatedNon-financialsCovered bonds

ECB distortions

ECB has started its asset purchase programme (aka

Quantitative Easing) late but acts massively.

ECB plans to purchase more government bonds

than the member states will need to issue to finance

their revenue shortfalls. Situation also tight for

covered bonds, but also non-financial bonds.

Asset quality is a cyclical phenomenon

Asset quality of banks (shown with the ratio of

non-performing loans to total loans) is a

function of the output gap

• Positive output gap = full employment,

strong corporate profits = low loan losses

• Highly negative gap = default risk, ratio of

bad loans increases

Banks in periphery have room for

improvement

The output gap is set to become less negative,

which augurs well for a decline of the NPL

ratio.

Lower NPL ratio will translate into stronger

ratings and lower credit spreads.

Diversified instruments in subordinated debt

combine a decent return with limited risk.

18

ASSET QUALITY OF EUROPEAN BANKS TO IMPROVE Asset quality to improve thanks to lower jobless rates, better corporate profits.

Source: Bloomberg Finance L.P., Julius Baer

Non-performing loan (NPL) ratios and output gaps move in lockstep, as UK shows

-5

-4

-3

-2

-1

0

1

2

3

40

1

2

3

4

5

6

7

8

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

NPL, %

NPL UK Output gap UK

-10

-8

-6

-4

-2

0

2

4

60

2

4

6

8

10

12

14

16

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

NPL, %

NPL periphery Output gap periphery

Improvement of peripheral economies augurs well for a lower NPL ratio, better issuer ratings

EQUITIES

19

20

GLOBAL EARNINGS REVISIONS Earnings optimism and upside revisions continue to improve.


Data as at 13.02.2017 10:00 CET

6-months revisions (since 1992) 1m earnings revisions

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

Jan 92 Jan 96 Jan 00 Jan 04 Jan 08 Jan 12 Jan 16

%

6m Earnings revisions Earnings optimism

-3.5

-3

-2.5

-2

-1.5

-1

-0.5

0

0.5

Dec 15 Apr 16 Aug 16 Dec 16

-35

-30

-25

-20

-15

-10

-5

0

5

%

1m Earnings revisions Earnings optimism

21

USA: EARNINGS GROWTH AND VALUATIONS Double-digit earnings growth expected for 2017

Source: Datastream, Julius Baer; Cons Discr = Consumer Discretionary

Data as at 24.02.2017 15:00 CET

Source: Datastream, Julius Baer; P/E = price/earnings ratio

Data as at 24.02.2017 15:00 CET

EPS growth expectations for 2017 (in %) S&P 500 Composite

0

5

10

15

20

25

30

0

500

1000

1500

2000

2500

Feb 87 Feb 93 Feb 99 Feb 05 Feb 11 Feb 17

Price 12m fwd P/E (r.h.s.)

Index Multiplier

2%

2%

6%

6%

7%

9%

10%

11%

12%

12%264%

0% 20%

Utilities

Telecom

Healthcare

Industrials

Cons Staples

Cons Discr

IT

MSCI USA

Materials

Financials

Energy

EPS Growth expectations for 2017

22

A BALANCED APPROACH WITH A CYCLICAL BIAS… …based on a constructive macro environment, rising earnings and more.

We have upgraded insurance and downgraded telecom recently.

Source: Datastream, Julius Baer; st.dev. = standard deviation; P/BV = price/book value; P/E = price/earnings ratio

Data as at 24.02.2017 15:00 CET

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

8

10

12

14

16

18


P/BP/E

Global telecom: 12m fwd P/E… …and P/B (r.h.s.)

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0


st.dev.

Global Telecom - earnings indicator with range

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0


st.dev.

Global Insurance - earnings indicator with range

0.5

0.6

0.7

0.8

0.9

1

1.1

1.2

Feb 87 Feb 92 Feb 97 Feb 02 Feb 07 Feb 12 Feb 17

valuation

Insuranve vs. World P/BV Average

Overweight insurance Underweight telecom

COMMODITIES

23

24

CHINA’S TRANSITION China’s transition and old economy risks have moved out of focus.

Source: Statistics of British Commerce, United States Geological Survey (USGS), World Steel Association, Julius Baer

Source: Bloomberg Finance L.P, Julius Baer (* see appendix for details and longer history)

Steel: Share of global consumption

China: Risk barometer (Real-time, market based inputs*)

China: Fixed asset investment

Source: National Bureau of Statistics, Julius Baer

0

5

10

15

20

25

30

35

40

45

50

1860 1900 1940 1980 2020

% of global consumption

0

5

10

15

20

25

30

35

40

2011 2013 2015 2017

Total Infrastructure

% year-on-year

-100

-80

-60

-40

-20

0

20

40

60

80

100

Jan 14 Jan 15 Jan 16 Jan 17

Optimism

Pessimism

25

CRUDE OIL Last year’s output excess and the shale boom revival question the supply narrative.

Shale oil activity (Example Permian basin)

Source: Energy Intelligence Group; OPEC = Organisation of the Petroleum Exporting Countries

Source: Baker Hughes, Energy Information Administration

OPEC oil production

US oil production

Source: Energy Information Administration

0

100

200

300

400

500

600

700

2012 2013 2014 2015 2016 2017 2018

Drilling rigs

Productivity

Rigs / barrels per day

0

1

2

3

4

5

6

7

8

9

10

11

2006 2008 2010 2012 2014 2016 2018

Million barrels per day

20

22

24

26

28

30

32

34

36

2005 2007 2009 2011 2013 2015 2017

Million barrels per day

Quota

26

GOLD Stagflation in the United States would be very bullish for prices.

For other countries, gold’s inflation hedge is primarily dollar-driven.

Source: Bloomberg Finance L.P., Julius Baer; TIPS = Treasury Inflation-Protected Securities; Data as at 21.2.2017 7:28 CET


Gold and global inflation rates Gold and real US interest rates

-200

-150

-100

-50

0

50

100

150

200-40

-30

-20

-10

0

10

20

30

40

2011 2012 2013 2014 2015 2016 2017

Gold US 10-year TIPS yield (r.h.s.)

% (6-month change) Basispoints (6-month change)

Turkey

Russia

India

Iran

10

20

30

40

50

60

70

80

0 2 4 6 8 10 12 14 16 18 20

Gold performance related to currency depreciation (%)

Average annual inflation rate (%, 2007 - 2016)

Eurozone

UK

Argentina

NEXT GENERATION

27

28

CYBERSECURITY: THE TIMING IS RIGHT After the IT security spending boom in 2014/15 and consolidation in 2016

growth is stabilising. This points to an attractive entry point.

Source: Gartner, IDC, Forrester, Citigroup, Jefferies, Julius Baer; Note: market includes IT security services such as consulting. E=estimate

Source: Goldman Sachs, Morgan Stanley, Jefferies, Julius Baer

Cybersecurity growth is stabilising, which points to an attractive entry point

The most defensive spending area: Security ranks on top of IT spending priorities

65 67

73

79

86

92

99

106

114

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

50

60

70

80

90

100

110

120

2012 2014 2016E 2018E 2020E

% y/yUSD bn

Total IT Security Spending (l.h.s.)

Yearly growth (r.h.s.)

3%

3%

4%

4%

5%

5%

5%

5%

6%

11%

15%

0% 10% 20%

CRM software

Mobile applications

Data center

Storage software

Infrastructure hardware

Vertical app. software

Compliance software

Data analytics

Networking equipment

Cloud computing

Security software

% of respondents

Projects with largest spend increase for 2017

29

GROWTH DRIVERS FOR CYBERSECURITY SPENDING 1) Shift to cloud computing; 2) growing threat complexity

and connectivity; 3) regulation and public spending initiatives

Source: IDC, Julius Baer; E=estimate

Source: Ponemon Institute, Wall Street Journal, Julius Baer; Note: August 2015 Survey

Source: FISMA, Morgan Stanley, Julius Baer

13.3

15.6

10.3

12.712.7 14

19

0

2

4

6

8

10

12

14

16

18

20

2011 2013 2015 2017EUS federal spending incybersecurity

+ 35%

USD bn

36%

43%

52%

59%

66%

76%

97%

100%

0% 50% 100%

Denial-of-service attack

Maliciousinsiders

Malicious code

Phishing

Botnets

Web-basedattacks

Malware

Virus, worms,trojans

% of US companies experiencingcyberattacks types in 2015

57

75

97

119

141

166

195

0%

5%

10%

15%

20%

25%

30%

35%

0

20

40

60

80

100

120

140

160

180

200

14 16E 18E 20E

Public IT cloud market (l.h.s.)

Yearly growth (r.h.s.)

USD bn % y/y

1) Shift to the cloud lifts

cybersecurity spending

2) Corporates are constantly

under attack

3) Governments may lift

budgets for cybersecurity

30

CYBERSECURITY: TAKE A DIVERSIFIED APPROACH We recommend investors to take a diversified approach due

to considerable volatility, consolidation potential and technology risks.

Source: Bloomberg Finance L.P., Datastream, Julius Baer


10%

12%

8%

13%

12%

6%

4%

7%

6% 6%

4%

5%

3%

5% 5%

0%

2%

4%

6%

8%

10%

12%

14%

2014 2015 2016E 2017E 2018E

Cybersecurity IT sector S&P 500

Median sales growth (%)

50

100

150

200

250

300

350


Index

Cybersecurity price index

Growth is stabilising at above-average levels: a good entry point for investors

Cybersecurity has rebounded from the lows in 2016 and the outlook has improved

THEMATIC & CROSS ASSET

31

• The US corporate income tax rate of 35% is

one of the highest in the developed world.

• That’s why US companies park huge

amounts of cash abroad.

• Trump has proposed allowing repatriation

of this cash at a one-off 10% tax rate to

create jobs and boost the economy.

• That was also the idea in 2004. US

companies had the chance to repatriate

their offshore earnings at a 5.25% tax rate.

• And indeed repatriated earnings increased

by 270% to USD 300 billion in 2005, but

corporations had a different game plan as

hoped for by lawmakers.

• A significant amount of the capital ended

up being given back to shareholders by

means of share buybacks and dividends,

which directly increased shareholder value.

Source: Goldman Sachs, Julius Baer

Repatriated foreign earnings by US companies

(rolling 4-quarter sum)

299

100

0

50

100

150

200

250

300

350

'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16

USD billions

Annual share buyback activity

BENEFICIARIES OF A 2017 TAX HOLIDAY Donald Trump has promised to bring back billions of dollars to the US.

-100%

-50%

0%

50%

100%

150%

'03 '04 '05 '06 '07 '08 '09

Authorised Executed

% Change y/y

• Chances of a tax holiday in 2017 are very high and we expect repatriation of a significant

amount of the USD 2.6 trillion believed to be held offshore.

• US companies are very likely to use many of the repatriated foreign earnings to enrich their

shareholders in the same way as in 2004.

• Trump’s tax plan would benefit large US corporations holding huge amounts of accumulated

earnings abroad, either absolute amounts or as a proportion of their total market

capitalisation.

33

BENEFICIARIES OF A 2017 TAX HOLIDAY Invest in companies set to benefit from a US ‘tax holiday’.

US companies with largest estimated offshore cash

(USD million)

US companies with largest estimated offshore cash in

% of market capitalisation Company Sector Price Taget Rating Offshore Cash

Apple Info Tech 135.72 135.00 Hold 186,900

Microsoft Info Tech 64.62 75.00 Buy 94,400

Cisco Systems Info Tech 33.74 30.00 Hold 56,500

Oracle Info Tech 42.06 43.50 Hold 45,300

Alphabet Info Tech 846.55 940.00 Buy 42,900

Johnson & Johnson Health Care 118.86 115.00 Hold 38,200

Amgen Health Care 173.29 165.00 Hold 29,000

QUALCOMM Info Tech 56.46 56.00 Hold 27,900

Coca-Cola Cons. Staples 41.23 47.00 Buy 17,900

Medtronic Health Care 78.88 88.00 Buy 17,700

Company Sector Price Taget Rating Offshore Cash

HP Info Tech 15.95 14.30 Hold 58%

Cisco Systems Info Tech 33.74 30.00 Hold 36%

Apple Info Tech 135.72 135.00 Hold 30%

Western Digital Info Tech 74.91 89.00 Buy 29%

Oracle Info Tech 42.06 43.50 Hold 28%

QUALCOMM Info Tech 56.46 56.00 Hold 28%

HP Enterprise Info Tech 24.40 25.20 Buy 24%

Amgen Health Care 173.29 165.00 Hold 23%

Microsoft Info Tech 64.62 75.00 Buy 21%

eBay Info Tech 33.76 29.90 Hold 19%

Source: Bloomberg Finance L.P., UBS, Julius Baer; note: Ex-Financials, Gross Cash

Data as at: 20/02/2017 15:17 CET

Source: Bloomberg Finance L.P., UBS, Julius Baer; note: Ex-Financials, Gross Cash

Data as at: 20/02/2017 15:17 CET

TECHNICAL ANALYSIS

34

1990 2000 2010 2020

0

20

40

60

80

1.0

1.5

2.0

2.5

3.0

3.5

35

STICK WITH THE WINNER Climbing the wall of worry

Source: Bloomberg Finance L.P., Julius Baer ; Data as at 27.2.2017 7:50 CET 08.03.2017

Comments

The winner climbing the wall of

worry is still the US equity

market.

Thus, we re-iterate our call for an

Overweight.

The S&P 500 is approaching our

target of 2,400, which we issued

on 13 July 2016 in our publication

with a title not to miss: “S&P 500

– 2,400 – Are you ready?”1

Thus, as next major resistance

we can identify 2,544 for the

S&P 500 but would stress that the

overall trend remains positive and

US equities continue to

outperform and therefore should

have an Overweight in a global

equity portfolio.

Momentum

MSCI USA rel. MSCI World ex. USA

1) Please note that the above-mentioned Research publication may have a different distribution scope.

x10

Index

2015 2016 2017

10

0.80

0.85

0.90

0.95

1.00

1.05

CURRENCIES: SELL MORE EUROS USD/EUR ready to leave range for good –

sell more euros.

36 08.03.2017 Source: Bloomberg Finance L.P., Julius Baer; Data as at 27.2.2017 7:50 CET

Comments

The trading range from 2015 is

finally coming to an end after a

false break-out in December.

We recommend investors to sell

more euros.

We recommend selling the euro

against high-yielding currencies

like the Russian ruble and

Australian dollar.

We are already short the euro vs.

Brazilian real, Mexican peso and

Turkish lira.

USD/EUR

Momentum

x10

Index

APPENDIX

37

38

EUROPEAN POLICY: FRENCH ELECTIONS The gap between anti-euro Le Pen and her possible contenders is comfortably wide in

favour of the latter. Justified hopes for France to get a business-friendly president.

Source: Various polling institutes, Julius Baer Source: Various polling institutes, Julius Baer

Polls for 2nd-round constellations in the French presidential elections

Polls for 2nd-round constellations in the French -residential elections

30

35

40

45

50

55

60

65

70

30

35

40

45

50

55

60

65

70

Jan '17 Feb '17 Mar '17

Macron (En Marche!)

Le Pen (Front National)

Poll %, 3-day avg. Poll %, 3-day avg.

30

35

40

45

50

55

60

65

70

30

35

40

45

50

55

60

65

70

Jan '17 Feb '17 Mar '17

Fillon (Les Républicains)

Le Pen (Front National)

Poll %, 3-day avg. Poll %, 3-day avg.

Dollar positioning

Treasuries positioning US small-cap positioning

THE REFLATION TRADE MONITOR Positive speculative positioning in the dollar and US small-cap equities

and negative positioning in Treasuries reveal the popularity of the reflation trade.

* of open interest

Source: Commodity Futures Trading Commission (CFTC), Julius Baer; Weekly data as at: 24.02.2017

39

13 14 15 16 17

-12

-10

-8

-6

-4

-2

0

2

4

6

8

%*

10th-90th range 10y Treasuries

50th percentile

13 14 15 16 17

-20

-15

-10

-5

0

5

10

15

%*

10th-90th range Russel 2000

50th percentile

13 14 15 16 17

-30

-20

-10

0

10

20

30

40

50

60

70

%*

10th-90th range Dollar index

50th percentile

US: SCENARIOS FOR THE TRUMP PRESIDENCY The Trump presidency is expected to accelerate supply constraints and at the end

raise inflation. As a consequence a tighter Fed will support the USD.

Source: Julius Baer

The “Reflation policy” stance by the Trump administration is our Baseline Scenario

40

Real GDP growth

CPI inflation

President Donald Trump

Reflation policy

2.5% 2.3% 2.4% 2.5%

„Unguided missile“

1.0% 1.0% 2.7% 2.9%

85%

2017 2018 2017 2018

15%

Probability

41

LONG-TERM PAIN FOR CHINA Quantitative (ordered) credit expansion seems to depress productivity and

profitability over the medium-to-longer term

Source: Oxford Economics, Julius Baer Source: MSCI, Julius Baer

Monthly data as at: 28.02.2017 17:45 CET

China productivity growth Return on equity

(MSCI price-to-book divided by price-to-earnings)

02 04 06 08 10 12 14 16

9

10

11

12

13

14

15

16

17

18

%

US 2y trend China 2y trend

00 05 10 15 20

2

3

4

5

6

7

8

9

10

11

% Y/Y

Credit injection Productivity forecast

42

CHINA’S LAST YEAR’S POLICIES Enormous fiscal impulse had been used 2016 to lean against the wind of weaker

growth. Consolidation of shadow banking has ended.

Source: Datastream, Julius Baer Source: People’s Bank of China, Julius Baer

Annual change of fiscal spending in China China’s credit dynamics

06 07 08 09 10 11 12 13 14 15 16 17

500

1000

1500

2000

2500

3000

CNY bn

Government spending impulse

05 06 07 08 09 10 11 12 13 14 15 16 17

0

10

20

30

40

50

60

70

% Y/Y

Bank loans Non-bank credit

Total social financing

Focus on variable rate instruments

We still like credit risk in an environment of

trend- or even above-trend growth in 2017.

Focus is shifting on variable-rate instruments

given our outlook for 3 rate hikes in 2017

followed by 3 rate hikes in 2018.

US senior loan funds combine the credit spread

of non-investment grade (risky) instruments

with the return profile of variable (loan)

instruments.

43

US CREDIT RISK: FOCUS ON LEVERAGED LOANS US growth outlook heralds a lower default rate.

US leveraged loan funds offer exposure to variable-rate instruments.

Source: Moody’s, Bank of America Merrill Lynch, Julius Baer

Data as at 24.2.2017 15:00 CET

US non-investment grade default rate and credit spread

0

200

400

600

800

1'000

1'200

1'400

1'600

1'800

2'000

0%

2%

4%

6%

8%

10%

12%

14%

16%

97 00 03 06 09 12 15 18

Credit spread

1-year trailing default rate

US default rate Spread, right hand

Massive inflows drive spread compression

Credit spreads (yield advantage versus US

Treasury bonds) have fallen to cyclical lows.

Taking into account the higher leverage of the

EM issuers than in the pre-Lehman period, we

must note that “adjusted spreads” are at all-

time lows.

Time for consolidation

The combination of our US rate outlook and

our moderate view on commodity prices

argues against a further outperformance of the

segment.

We wait for confirmation of the US trade policy

before extending the existing exposure.

44

EMERGING MARKET DEBT: CONSOLIDATION Credit spreads are at or even below their cyclical lows.

Source: J.P. Morgan, Julius Baer; EM = emerging markets

Data as at 24.2.2017 15:00 CET

Credit spreads (yield differential to US Treasury bonds) of EM corporate bonds

0

200

400

600

800

1'000

1'200

2010 2011 2012 2013 2014 2015 2016 2017

Spread, basis

points

EM corporate bonds

Non-investment grade

investment grade

45

TRUMP’S IMPACT ON HEALTHCARE SECTOR Affected area accounts for only 12% share of total healthcare costs.

Source: CMS, Julius Baer Research

Data as at 13.02.2017 10:00 CET

Source: CS, Julius Baer Research

Data as at 13.02.2017 10:00 CET

Healthcare spending by type of service or product

List prices US branded drugs

38%

24%

3%

4%

3%

6%

4%

6%

12%

Hospital Care Physician and clinical services

Other professional services Dental services

Home Health Care Nursing Care Facilities

Medical Equipment Other

Prescription Drugs

0

2

4

6

8

10

12


List Prices US Branded Drugs

US drug price inflation in %

46

US-BORDER-TAX FOR AUTOS Negative impact for everybody but slight relative advantage for US OEMs.

Source: Bank of America Merrill Lynch, LMC Automotive, Julius Baer Research; OEM = Original equipment manufacturers; FCA = Fiat Chrysler; GM = General Motors

Source: Bloomberg Finance, L.P., Julius Baer Research

*estimates with a majority from Nissan

US sales and local sourcing by OEM US sales and workforce, % of total

Imported

Outside NAFTA US sourced Mexico sourced Canada sourced

Volkswagen 55% 12% 32% 0%

BMW 72% 28% 0% 0%

Daimler 50% 50% 0% 0%

Renault- Nissan 24% 54% 22% 0%

FCA 7% 54% 18% 21%

GM 7% 65% 14% 15%

Ford 2% 79% 12% 7%

High impact

Medium impact

Low impact

0%

10%

20%

30%

40%

50%

60%

70%

80%

US-Umsatz in %

# US-Mitarbeiter in % der gesamten Belegschaft

• US sales in % of total

• # US employees in % of total staff

47

APPENDIX Rating overview


Global sectors &

industry groups Rating

Developed

markets Rating

Investment

styles

Rating

USA

Rating

Europe

Energy overweight USA neutral Quality neutral neutral

Materials neutral Eurozone neutral Value neutral neutral

Industrials underweight UK neutral Growth neutral neutral

Capital Goods underweight Switzerland neutral Small caps overweight overweight

Commercial & Professional Services underweight Japan overweight Large caps underweight underweight

Transport overweight Emerging markets neutral High dividends neutral overweight

Consumer Discretionary overweight Dividend growers underweight neutral

Automobiles overweight

Consumer Durables overweight

Consumer Services neutral

Media neutral

Retailing neutral

Consumer Staples underweight

Food & Staples Retailing neutral

Food, Beverage & Tobacco underweight

Household & Personal Products underweight

Healthcare overweight

Healthcare Equipment & Services neutral

Pharma, Biotech & Life Science overweight

Financials overweight

Banks neutral

Diversified Financials neutral

Insurance overweight

Real Estate underweight

Info Tech overweight

Software overweight

Hardware overweight

Semiconductors overweight

Telecom underweight

Utilities underweight

48

EUROPE: EARNINGS GROWTH AND VALUATIONS Double-digit earnings growth expected for 2017

Source: Datastream, Julius Baer; Cons Discr = Consumer Discretionary

Data as at 13.02.2017 10:00 CET

Source: Datastream, Julius Baer; P/E = price/earnings ratio

Data as at 13.02.2017 10:00 CET

EPS growth expectations for 2017 (in %) MSCI Europe

0

5

10

15

20

25

30

0

500

1000

1500

2000

2500

Dec 87Dec 91Dec 95Dec 99Dec 03Dec 07Dec 11Dec 15

Price 12m fwd P/E (r.h.s.)

Index Multiplier

3%

9%

9%

9%

10%

11%

12%

12%

13%

20%

40%

0% 10% 20% 30%

Utilities

IT

Financials

Telecom

Cons Staples

Industrials

MSCI Europe

Cons Discr

Healthcare

Materials

Energy

EPS Growth expectations for 2017

50

CHINA’S TRANSITION The market-based perception of China’s old-economy risks is benign.

Source: Bloomberg Finance L.P, Julius Baer (* Inputs: CNY/USD, 5-year CDS, Relative performance between high yield and investment grade bonds, Shanghai composite absolute performance, MSCI China Materials/MSCI China relative performance, London Metal Exchange index, Steel producers raw materials margin); Data as at 21.2.2017 7:28 CET

China Risk Barometer (Real-time, market based inputs*)

-100

-80

-60

-40

-20

0

20

40

60

80

100

2010 2011 2012 2013 2014 2015 2016 2017

Optimism

Pessimism

51

IMPORTANT LEGAL INFORMATION (1/10)

This publication constitutes investment research material and has been produced by Bank Julius Baer & Co. Ltd., Zurich, which is authorised and regulated by the Swiss Financial Market Supervisory Authority (FINMA). This publication series is issued regularly. Information on financial instruments and issuers is updated irregularly or in response to important events.

IMPRINT

Authors: David Kohl, [email protected] 1)

1) This analyst is employed by Bank Julius Bär Europe AG, which is authorised and regulated by the German Federal Supervisory Authority (BaFin).

APPENDIX

Analyst certification The analysts hereby certify that views about the companies discussed in this report accurately reflect their personal view about the companies and securities. They further certify that no part of their compensation was, is, or will be directly or indirectly linked to the specific recommendations or views in this report.

Methodology: Please refer to the following link for more information on the research methodology used by Julius Baer analysts: www.juliusbaer.com/research-methodology

Structure: References in this publication to Julius Baer include subsidiaries and affiliates. For additional information on our structure, please refer to the following link: www.juliusbaer.com/structure

Price information Unless otherwise stated, the price information reflects the closing price of the previous trading day.

Disclosure No specific disclosures

http://www.juliusbaer.com/research-methodology



http://www.juliusbaer.com/structure


Equity research Frequently used abbreviations CAGR Compound annual growth

rate EPS Earnings per share P/B Price-to-book value

DCF Discounted cash flow EV Enterprise value P/E Price-to-earnings ratio

EBIT Earnings before interest and taxes FCF Free cash flow PEG P/E divided by year-on-year EPS growth

EBITDA Earnings before interest, taxes, depreciation and amortisation

MV Market value ROE Return on equity

Consensus rating

Consensus rating indicates the analysts' opinions on the security. It shows the number of analysts covering the security and the breakdown between Buy, Hold and Sell ratings.

Consensus target

The consensus target is the average price to which analysts expect the security to rise.

FY Fiscal year

Equity rating allocation as of 01/03/2017 Buy 31.4% Hold 65.7% Reduce 2.9%

Rating system for global equity research (stock rating)

Buy Expected to outperform the regional industry group by at least 5% in the coming 9-12 months, unless otherwise stated

Hold Expected to perform in line (±5%) with the regional industry group in the coming 9-12 months, unless otherwise stated.

Reduce Expected to underperform the regional industry group by at least 5% in the coming 9-12 months, unless otherwise stated.

Risk rating system for global equity research

The risk rating (High/Medium/Low) is a measure of a stock’s expected volatility and risk of losses in case of negative news flow. This non-quantitative rating is based on criteria such as historical volatility, industry, earnings risk, valuation and balance sheet strength.

Julius Baer does not provide investment banking services to the companies covered by Research.

52

Frequency of equity rating updates An update on Buy-rated equities will be provided on a quarterly basis. An update for Hold and Reduce-rated equities will be provided semi-annually or on an ad-hoc basis.

53


Equity rating history as of 28/02/2017 Company Rating History

Apple Hold Since 25/7/2014

Alphabet Buy Since 18/10/2010

Amgen Hold Since 29/10/2012

BMW Hold Since 20/3/2015

Cisco Systems Hold Since 10/7/2013

Coca-Cola Buy Since 17/7/2013

Daimler Buy Since 7/1072016

Hold Since 22/10/2015

eBay Hold Since 23/9/2015

Fiat Chrysler Reduce Since 3/2/2016


Ford Hold Since 26/11/2014

General Motors Hold Since 26/11/2014

Hewlett Packard Enterprise Buy Since 30/3/2016


HP Hold Since 27/11/2013

Johnson & Johnson Hold Since 18/7/2014

Medtronic Buy Since 8/9/2014

Microsoft Buy Since 29/4/2014

Oracle Hold Since 21/3/2013

Peugeot Hold Since 28/4/2016

Buy Since 5/8/2015

Renault Buy Since 5/3/2015

Qualcomm Hold Since 29/7/2014

Western Digital Buy Since 28/5/2015

Volkswagen Reduce Since 6/10/2015

54


Fixed income

Frequently used abbreviations FCF Free cash flow CFI Cash flow from investing EBIT Earnings before interest and taxes CFO Cash flow from operation FFO Funds from operation EBITDA Earnings before interest, taxes,

depreciation and amortisation CFF Cash flow from financing RCF Retained cash flow EM Emerging markets

Strategy research Countries, sectors and investment styles are rated “overweight”, “neutral” or “underweight”. These ratings are based on our expectations for relative performance versus regional and global benchmark indices.

Overweight Expected to outperform regional or global benchmark indices in the coming 9-12 months, unless otherwise stated.

Neutral Expected to perform in line with regional or global benchmark indices in the coming 9-12 months, unless otherwise stated.

Underweight Expected to underperform regional or global benchmark indices in the coming 9-12 months, unless otherwise stated.

Equity investments are divided into three different risk segments. Risk here is defined as the historical five-year volatility based on monthly returns in CHF. Based on the data of all segments considered (developed markets, emerging markets, global sectors, investment styles) the following distinction is made:

Conservative Investments whose historical volatility is in the bottom quartile of the universe described above.

Medium Investments whose historical volatility is in the middle two quartiles of the universe described above.

Opportunistic Investments whose historical volatility is in the top quartile of the universe described above.

55


Risk categories for fixed income research

Conservative Incorporates supranational issuers, top-rated sovereign issuers and bodies that are directly and fully guaranteed by these institutions. These issuers are most likely to preserve their top rating throughout the business cycle.

Quality Incorporates sovereigns and corporate issuers that are very likely to service and repay debt within a five-year credit scenario. They are likely to preserve their investment grade rating throughout a normal business cycle.

Opportunistic Incorporates issuers that are quite likely to service and repay debt within the five-year credit scenario. Such issuers have an attractive risk/return profile in the current credit scenario but are subject to rating downgrade risk and, thus, might be exchanged periodically.

Speculative Incorporates sub-investment-grade issuers in Europe and the USA as well as local issuers in emerging markets. Issuers are likely to service and repay debt in the current credit scenario. Investors must note that these issuers are subject to a higher downgrade and default frequency and that an active management of these positions is crucial.

Rating system for fixed income

Buy Within its risk category, the issuer is highly recommended due to its financial and business condition (strong balance sheet, income statement, cash flow and good position in the industry). Debt instruments of the issuer are regarded as an attractive investment from a risk/return perspective.

Hold Maintain position based on stable credit fundamentals and/or average expected return characteristics within peer group.

Sell The rating is changed to Sell, depending on a significant deterioration in the fundamental data of the issuer in relation to the industry peers. The investment is no longer justified from a risk/return perspective for the relevant category.

Julius Baer does not provide investment banking services to the issuers covered by Research.

Frequency of issuer rating updates An update on each issuer will be provided semi-annually, on a rating change or on an ad-hoc basis.

Issuer rating allocation as of 01/03/2017

Buy 53.4% Hold 42.7% Sell 3.9%

56


Credit rating definition Credit ratings used in our publications follow the definitions and systematic of Moody's (www.moodys.com).

Moody’s Standard & Poor's Fitch/IBCA Credit rating definition

Aaa AAA AAA Bonds rated Aaa are judged to be of the highest quality, with minimal credit risk.

Aa1 Aa2 Aa3

AA+ AA AA-

AA AA-

Bonds rated Aa are judged to be of high quality and are subject to very low credit risk.

Investment- grade

A1 A2 A3

A+ A A-

A+ A A-

Bonds rated A are considered upper-medium grade and are subject to low credit risk.

Baa1 Baa2 Baa3

BBB+ BBB BBB-

BBB+ BBB BBB-

Bonds rated Baa are subject to moderate credit risk. They are considered medium-grade and as such may possess certain speculative characteristics.

Ba1 Ba2 Ba3

BB+ BB BB-

BB+ BB BB-

Bonds rated Ba are judged to have speculative elements and are subject to substantial credit risk.

Non-

B1 B2 B3

B+ B B-

B+ B B-

Bonds rated B are considered speculative and are subject to high credit risk.

investment- grade

Caa1 Caa2 Caa3

CCC+ CCC CCC-

CCC+ CCC CCC-

Bonds rated Caa are judged to be of poor standing and are subject to very high credit risk.

Ca CC C

CC+ CC CC-

Bonds rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.

C D DDD Bonds rated C are the lowest rated class of bonds and are typically in default, with little prospect for recovery of principal or interest.

Fixed income market segment ratings

Attractive Segments that are expected to yield a return that is above the ten-year historical average.

Neutral Segments that are expected to yield a return that is in line with the ten-year historical average.

Unattractive Segments that are expected to yield a return that is below the ten-year historical average.

57


Technical analysis The information and opinions expressed were produced by Julius Baer Technical Analysis as of date of writing and are subject to change without notice. Julius Baer conducts primary technical analysis aimed at creating value through investment recommendations. Technical Analysis uses historic market prices in order to assess market conditions. The historic data is analysed by chart reading i.e. by following chart patterns and interpreting indicators calculated from historic price movements. Technical Analysis may be inconsistent with and reach different conclusions to fundamental analysis. It may vary at any time due to the different tools used to assess market conditions and recommendations. Besides individual investment recommendations, Technical Analysis also publishes technical indicator readings, which are mechanically calculated and only provide additional information to large sets of data, and are not intended as investment recommendations. These tables show current trends on an absolute price or relative basis using up, flat and downward pointing arrows. At the same time, support and resistance levels might be displayed which are calculated using Bollinger Bands.

Frequently used abbreviations C Closing price H High price L Low price

ST Short-term (2-8 weeks) MT Medium-term (8-26 weeks) LT Long-term (> 26 weeks)

MAV Moving average

Bollinger-band The middle Bollinger band is a 20 day simple moving average, the higher and lower bands are calculated as a 20-day simple moving average plus or minus two standard deviations on a 20-day period.

Momentum Momentum is derived from different rate of change calculations based on the underlying instrument.

RSI Relative strength index is a leading momentum indicator of prices, showing the strength of a stock by monitoring changes in closing prices in a 9-day period.

Rating system for global technical analysis (absolute) Buy Expected to advance by at least 10% in the coming 3-12 months, unless otherwise stated.

Hold Expected to perform in line (±5%) in the coming 3-12 months, unless otherwise stated.

Reduce Expected to decline by at least 10% in the coming 3-12 months, unless otherwise stated.

Rating system for global technical analysis (relative) Overweight Expected to outperform its benchmark by at least 5% in the coming 3-12 months, unless otherwise stated.

Neutral Expected to perform in line (±5%) against its benchmark in the coming 3-12 months, unless otherwise stated.

Underweight Expected to underperform its benchmark by at least 5% in the coming 3-12 months, unless otherwise stated.

For the history of Technical Analysis equity recommendations over the previous 12 months please view the document at: http://www.juliusbaer.com/tech-analysis-recom-history

58


DISCLAIMER

General: The information and opinions expressed in this publication were produced as of the date of writing and are subject to change without notice. This publication is intended for information purposes only and does not constitute an offer or an invitation by, or on behalf of, Julius Baer to buy or sell any securities or related financial instruments or to participate in any particular trading strategy in any jurisdiction. Opinions and comments of the authors reflect their current views, but not necessarily of other Julius Baer entities or any other third party. Other Julius Baer entities may have issued, and may in the future issue, other publications that are inconsistent with, and reach different conclusions from, the information presented in this publication. Julius Baer assumes no obligation to ensure that such other publications are brought to the attention of any recipient of this publication. Suitability: Investments in the asset classes mentioned in this publication may not be suitable for all recipients. This publication has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Before entering into any transaction, investors should consider the suitability of the transaction to individual circumstances and objectives. Any investment or trading or other decision should only be made by the client after a thorough reading of the relevant product term sheet, subscription agreement, information memorandum, prospectus or other offering document relating to the issue of the securities or other financial instruments. This publication should not be read in isolation without reference to the full research report (if available) which may be provided upon request. Nothing in this publication constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to individual circumstances, or otherwise constitutes a personal recommendation to any specific investor. Any references to a particular tax treatment depend on the individual circumstances of each investor and may be subject to change in the future. Julius Baer recommends that investors independently assess, with a professional advisor, the specific financial risks as well as legal, regulatory, credit, tax and accounting consequences. Information / forecasts referred to: Although the information and data herein are obtained from sources believed to be reliable, no representation is made that the information is accurate or complete. In particular, the information provided in this publication may not cover all material information on the financial instruments or issuers of such instruments. Bank Julius Baer & Co. Ltd., its subsidiaries and affiliated companies do not accept liability for any loss arising from the use of this publication. Important sources for the production of this publication are e.g. national and international media, information services (e.g. Thomson Reuters, Bloomberg Finance L.P.), publicly available databases, economic journals and newspapers (e.g. Financial Times, Wall Street Journal), publicly available company information, publications of rating agencies. Ratings and appraisals contained in this publication are clearly marked as such. All information and data used for this publication relate to past or present circumstances and may change at any time without prior notice. Statements contained in this publication regarding financial instruments or issuers of financial instruments relate to the time of the production of this publication. Such statements are based on a multitude of factors which are subject to continuous change. A statement contained in this publication may, thus, become inaccurate without this being published. Potential risk regarding statements and expectations expressed in this publication may result from issuer specific and general (e.g. political, economic, market, etc.) developments. Risk: The price and value of, and income from investments in any asset class mentioned in this publication may fall as well as rise and investors may not get back the amount invested. Risks involved in any asset class mentioned in this publication may include but are not necessarily limited to market risks, credit risks, currency risks, political risks and economic risks. Investments in emerging markets are speculative and may be considerably more volatile than investments in established markets. Past performance is not a reliable indicator of future results. Performance forecasts are not a reliable indicator of future performance. The Julius Baer fixed-income ratings apply exclusively to bonds of the specific issuer ranked senior unsecured or higher. They are therefore not valid for debentures junior to the mentioned ranking unless mentioned explicitly. Particular risks in connection with specific investments featured in this publication are disclosed prominently hereinabove in the text of this publication. Any investment should only be made after a thorough reading of the current prospectuses and/or other documentation/information available. Miscellaneous: We are required to disclose important information about our interests and potential conflicts. In order to prevent conflicts of interest from adversely affecting the interests of its clients, Julius Baer has implemented the necessary organisational and administrative arrangements to manage conflicts of interests. Julius Baer's arrangements include putting in place information barriers that ensure the separation of its research departments from other areas of the business so that no other area of the business will know the contents of any planned research until the research has been distributed to clients. Adherence to these procedures is monitored by the Julius Baer Compliance Department.

59


Unless explicitly stated in this publication, its information and analysis has not been disclosed to the issuer of the securities referred to herein or a Julius Baer entity before the publication has been published or disseminated. A Julius Baer entity may, to the extent permitted by law, participate or invest in other financing transactions with the issuer of the securities referred to herein, perform services or solicit business from such issuers, have a position or effect transactions in the securities or options thereof, have any other significant financial interest regarding the issuers of the securities referred to herein and/or may have done so in the past. For further information about our interest in the investments featured in this publication, see the company-specific disclosures above.

Important distribution information

This publication may only be distributed in countries where its distribution is legally permitted. This information is not directed to any person in any jurisdiction where (by reason of that person’s nationality, residence or otherwise) such publications are prohibited.

External Asset Managers/External Financial Advisors: In case this research publication is provided to an External Asset Manager or an External Financial Advisor, Julius Baer expressly prohibits that it is redistributed by the External Asset Manager or the External Financial Advisor and is made available to their clients and/or third parties. By receiving any research publication the External Asset Managers or the External Financial Advisors confirm that they will make their own independent analysis and investment decisions, if applicable.

Austria: Julius Baer Investment Advisory GesmbH, authorised and regulated by the Austrian Financial Market Authority (FMA), distributes research to its clients. Chile: This publication is for the intended recipient only. Dubai International Financial Centre: This publication has been distributed by Julius Baer (Middle East) Ltd. It may not be relied upon by or distributed to Retail Clients. Please note that Julius Baer (Middle East) Ltd. offers financial products or services only to Professional Clients who have sufficient financial experience and understanding of financial markets, products or transactions and any associated risks. The products or services mentioned will be available only to Professional Clients in line with the definition of the DFSA Conduct of Business Module. Julius Baer (Middle East) Ltd. is duly licensed and regulated by Dubai Financial Services Authority (DFSA). Germany: Bank Julius Bär Europe AG, authorised and regulated by the German Federal Financial Supervisory Authority (BaFin), disseminates research to its clients. Guernsey: This publication is distributed by Bank Julius Baer & Co Ltd., Guernsey Branch, which is licensed in Guernsey to provide banking and investment services and is regulated by the Guernsey Financial Services Commission. Hong Kong: This publication is distributed in Hong Kong by and on behalf of, and is attributable to, Bank Julius Baer & Co. Ltd., Hong Kong branch, which holds a full banking licence issued by the Hong Kong Monetary Authority under the Banking Ordinance (Chapter 155 of the Laws of Hong Kong SAR). The Bank is also a registered institution under the Securities and Futures Ordinance (SFO) (Chapter 571 of the Laws of Hong Kong SAR) to carry on Type 1 (dealing in securities), Type 4 (advising on securities) and Type 9 (asset management) regulated activities with Central Entity number AUR302. This document must not be issued, circulated or distributed in Hong Kong other than to ‘professional investors’ as defined in the SFO. The contents of this publication have not been reviewed by any regulatory authority. If you have any queries concerning this publication, please contact your Hong Kong relationship manager. Bank Julius Baer & Co. Ltd. is incorporated in Switzerland with limited liability. India: This is not a publication of Julius Baer Wealth Advisors (India) Private Limited (JBWA) (a group company of Julius Baer, Zurich) or any of its Indian subsidiaries under the SEBI Research Analyst Regulations, 2014. This publication has been produced by Bank Julius Baer & Co. Ltd. (Julius Baer), a company incorporated in Switzerland with limited liability and it does not have a banking license in India. This publication should not be construed in any manner as an offer, solicitation or recommendation by JBWA or any Julius Baer entity globally. Israel: This publication is distributed by Julius Baer Financial Services (Israel) Ltd. (JBFS), licensed by the Israel Securities Authority to provide investment marketing and portfolio management services. Pursuant to Israeli law, "Investment Marketing" is the provision of advice to clients concerning the merit of an investment, holding, purchase or sale of securities or financial instruments, when the provider of such advice has an affiliation to the security or financial instrument. Due to its affiliation to Bank Julius Baer & Co. Ltd., JBFS is considered to be affiliated to certain securities and financial instruments that may be connected to the services JBFS provides, and therefore any use of the term "investment advice" or any variation thereof, in this publication should be understood as Investment Marketing, as explained above. This


publication does not constitute investment advice and has been prepared by Bank Julius Baer & Co. Ltd. and distributed by JBFS for information purposes only, without taking into account the objectives, financial situation or needs of any particular client, and does not constitute an offer, a recommendation or an invitation by or on behalf of JBFS to make any investment. Kingdom of Bahrain: Julius Baer (Bahrain) B.S.C.(c), an investment business firm, which is licensed and regulated by the Central Bank of Bahrain (CBB), distributes this publication to its expert and accredited investor clients. Please note that Julius Baer (Bahrain) B.S.C.(c) offers financial products or services only to expert and accredited investor clients in line with the definition of the CBB’s rulebook that contains regulations, directives and rules pursuant to the CBB rulemaking powers under the CBB law. This publication may not be relied upon by or distributed to retail clients. The CBB does not take any responsibility for the accuracy of the statements and information contained in this publication nor shall it have any liability to any person for any damage or loss resulting from reliance on any statement or information contained herein. Lebanon: This publication has been distributed by Julius Baer (Lebanon) S.A.L., which is a duly licensed financial intermediation institution, supervised by the Lebanon Capital Markets Authority (CMA). It has not been approved or licensed by the Lebanon CMA or any other relevant authority in Lebanon. It is strictly private and confidential and is being issued to a limited number of individual and institutional investors upon their request and must not be provided to, or relied upon, by any other person. The information contained herein is as of the date referenced and Julius Baer (Lebanon) S.A.L. shall not be liable to periodically update said information. The quotes and values provided herein are for indicative purpose only and shall in no way refer to tradable levels. Luxembourg: This publication is distributed by Bank Julius Baer Luxembourg S.A., authorised and regulated by the Commission de Surveillance du Secteur Financier (CSSF) 283, route d’Arlon L-1150 Luxembourg. This publication has not been authorised or reviewed by the CSSF and it is not intended to file it with the CSSF. Monaco: Bank Julius Baer (Monaco) S.A.M., an institution approved by the Minister of State for Monaco and the Bank of France, is sending to its clients this publication. Julius Baer Wealth Management (Monaco) S.A.M., an asset management company authorised in Monaco, is distributing to its clients this publication. Netherlands: Julius Baer (Netherlands) B.V., authorised and regulated by the Netherlands Authority for the Financial Markets (AFM) and authorised to (i) receive and transfer orders from clients; and (ii) provide investment advice, disseminates this publication to its clients. Bank Julius Bär Europe AG is authorised and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and authorised to provide banking and certain investment services in the Netherlands on a passported basis. This publication has been produced by Bank Julius Baer & Co., which is not authorised to provide regulated services in the Netherlands. Requirements regarding (i) the independence of investment research and (ii) the prohibition of trading prior to the announcement of financial analysis are not applicable. Panama: The relevant services and/or products mentioned in this publication shall only be provided in Panama by a Julius Baer entity authorised to provide such services/products in Panama. This publication is for the intended recipient only. Financial instruments mentioned in this publication are neither registered with nor under the supervision of the Superintendence of the Securities Market (formerly the National Securities Commission). The exemption from registration is based on Article 129 of Decree Law 1 of 8 July 1999 as amended and organised into a single text by Title II of Law 67 of 2011 (the “Securities Law”). In consequence, the tax treatment established in Articles 334 to 336 of the Securities Law does not apply to them. Republic of Ireland: Julius Baer International Limited, Ireland branch, is authorised and regulated by the Financial Conduct Authority (FCA) in the UK and regulated by the Central Bank of Ireland (CBI) for conduct of business rules. Some of the services mentioned in this publication that are available to clients of the Ireland branch may be provided by members of the Julius Baer Group based in other EU jurisdictions. Rules made by the FCA and/or CBI for the protection of retail clients do not apply to such services and the Financial Services Ombudsman will not be able to resolve complaints in respect of such services. Singapore: This publication is available from Bank Julius Baer & Co. Ltd., Singapore branch, for accredited investors only. As Bank Julius Baer & Co. Ltd., Singapore branch, has a Unit exemption under Section 100(2) of the Financial Advisers Act, Cap. 110 of Singapore (the FAA), it is exempted from many of the requirements of the FAA, amongst others, the requirement to disclose any interest in, or any interest in the acquisition or disposal of, any securities or financial instruments that may be referred to in this publication. Further details of these exemptions are available on request. This publication has not been reviewed by and is not endorsed by the Monetary Authority of Singapore (MAS). Any document or material relating to the offer or sale, or invitation for subscription or purchase, of securities or investment funds (i.e. collective investment schemes) may not be circulated or distributed, nor may such securities or investment funds be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 or 304 respectively of the

60

61


Securities and Futures Act, Cap. 289 of Singapore (the SFA), (ii) to a relevant person (which includes an accredited investor), or any person pursuant to Section 275(1A) or 305(2) respectively, and in accordance with the conditions, specified in Section 275 or 305 respectively of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. In particular, for investment funds that are not authorised or recognised by the MAS, units in such funds are not allowed to be offered to the retail public; any written material issued to persons as aforementioned in connection with an offer is not a prospectus as defined in the SFA and, accordingly, statutory liability under the SFA in relation to the content of prospectuses does not apply, and investors should consider carefully whether the investment is suitable for them. Please contact a representative of Bank Julius Baer & Co. Ltd., Singapore branch, with respect to any inquiries concerning this publication. Bank Julius Baer & Co. Ltd. is incorporated in Switzerland. Spain: Julius Baer Agencia de Valores, S.A.U. and Julius Baer Gestión S.G.I.I.C, S.A., both authorised and regulated by the Comisión Nacional del Mercado de Valores (CNMV), disseminate research to their clients. Switzerland: This publication is distributed by Bank Julius Baer & Co. Ltd., Zurich, authorised and regulated by the Swiss Financial Market Supervisory Authority (FINMA). The Bahamas: This publication has been distributed by Julius Baer Bank & Trust (Bahamas) Ltd., an entity licensed by the Central Bank of The Bahamas and also regulated by the Securities Commission of The Bahamas. This publication does not constitute a prospectus or a communication for the purposes of the Securities Industry Act, 2011 or the Securities Industry Regulations, 2012. In addition, it is only intended for persons who are designated or who are deemed “non-resident” for the purposes of Bahamian Exchange Control Regulations and rules. United Arab Emirates: This publication has not been approved or licensed by the UAE Central Bank, the UAE Securities and Commodities Authority or any other relevant authority in the UAE. It is strictly private and confidential and is being issued to a limited number of sophisticated individual and institutional investors upon their request and must not be provided to, or relied upon, by any other person. Uruguay: In the case this publication is construed as an offer, recommendation or solicitation for the sale or purchase of any securities or other financial instruments, the same are being placed relying on a private placement exemption (“oferta privada”) pursuant to Section 2 of Law No°18,627 and are not and will not be registered with the Financial Services Superintendence of the Central Bank of Uruguay to be publicly offered in Uruguay. In the case of any closed-ended or private equity funds, the relevant securities are not investment funds regulated by Uruguayan Law No.°16,774 dated September 27, 1996, as amended. If you are located in Uruguay, you confirm that you fully understand the language in which this publication and all documents referred to herein are drafted and you have no need for any document whatsoever to be provided in Spanish or any other language.

United States: NEITHER THIS PUBLICATION NOR ANY COPY THEREOF MAY BE SENT, TAKEN INTO OR DISTRIBUTED IN THE UNITED STATES OR TO ANY US PERSON.

This publication may contain information obtained from third parties, including ratings from rating agencies such as Standard & Poor’s, Moody’s, Fitch and other similar rating agencies. Reproduction and distribution of third-party content in any form is prohibited except with the prior written permission of the related third party. Third-party content providers do not guarantee the accuracy, completeness, timeliness or availability of any information, including ratings, and are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such content. Third-party content providers give no express or implied warranties, including, but not limited to, any warranties of merchantability or fitness for a particular purpose or use. Third-party content providers shall not be liable for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees or losses (including lost income or profits and opportunity costs) in connection with any use of their content, including ratings. Credit ratings are statements of opinions and are not statements of fact or recommendations to purchase, hold or sell securities. They do not address the market value of securities or the suitability of securities for investment purposes and should not be relied on as investment advice.

© Julius Baer Group, 2017

financial market outlook q2 2017 - julius baer group · global composite us dollar liquidity global...

Documents