Societe Generale, 2016 Outlook - Mind The Gaps

FEBRUARY 2016
SOCIETE GENERALE PRIVATE BANKING
2016 OUTLOOK
MIND THE GAPS

Investment Strategy
Alan Mudie
Head of Investment Strategy
| 2016 INVESTMENT STRATEGY
FEBRUARY 2016
GLOBAL OUTLOOK
THE OUTLOOK FOR THE GLOBAL ECONOMY REMAINS MIXED
Global economic momentum has bottomed
Manufacturing PMI
The global economy will continue to grow
at a steady pace in 2016.

The US has been clearly the strongest
developed world economy, also lifting
60
58
EXPANSION
56
54
those countries most exposed to strong
US
UK
Japan
China
42
Sources: Societe Generale Private Banking, Bloomberg

P.2
01.2016
11.2015
09.2015
07.2015
05.2015
03.2015
01.2015
11.2014
09.2014
07.2014
40
05.2014
exporters will continue to suffer.
Eurozone
03.2014
benefit from lower bills, while commodity
Global
01.2014
Commodity importer countries will still
44
11.2013
accommodative overall.
CONTRACTION
09.2013
monetary policy should remain
46
07.2013
weigh on inflation, and central bank
48
05.2013
Low commodity prices should continue to
50
03.2013
Japan should also expand next year.
52
01.2013
American momentum. The euro zone and
FEBRUARY 2016
GLOBAL OUTLOOK
WORLD TRADE REMAINS SLUGGISH
World trade is no longer underpinning global growth
World trade continues to slow. Global
trade growth has been anchored below its

historical average since the Great
25%
102
20%
101
15%
Recession, offering further evidence of

tepid world economic recovery.
10%
Decreasing global demand, especially due
5%
to slowing emerging markets, weighs on
0%
the outlook for world trade.

We believe however that other factors are
98
-10%
-15%
-20%
such as 3D printing reduce the need for
-25%
World trade growth (yoy, %)

97
Historical average
Industrial confidence indicator (OECD + 6 major EM, rhs)
96
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
reshore production, new processes

shipping
99
-5%
also at play: capital expenditure is below

par, manufacturers have begun to
100
Sources: Societe Generale Private Banking, Datastream

P.3
FEBRUARY 2016
REGIONAL OUTLOOK
UNITED STATES: SOLID GROWTH PROSPECTS
US wage growth should finally begin to catch up
US growth is broadening but not
18
accelerating, with the long-awaited capex
16
pickup still sluggish, particularly
14
hampered by the energy sector.

Although salary growth has remained
U-6 underemployment < 9%
12
9%
10
modest so far, continued labour market

improvement should fuel wage inflation
eventually. On the other hand, the strong
USD will continue to cap headline
inflation.
Private consumption remains robust and

should be the main driver of US growth in
coming quarters. Housing recovery
should also lift the US business cycle.
0
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
U-6 underemployment rate (%)

U-3 unemployment rate (%)
Average hourly earnings change (private nonfarm, % YoY)
P.4
FEBRUARY 2016
REGIONAL OUTLOOK
EUROZONE: RECOVERY UNFOLDING FURTHER
Credit in the euro area is picking up
Credit to euro area residents (%, yoy)
The euro zone has begun to recover from
the slowdown in late 2014, helped by the
14
12
weaker euro, lower energy prices and less

fiscal tightening we anticipate real GDP
growth around 1.6% in 2016.
10
Germany is showing steady signs of

improvement (unemployment at 6.3% in
December), helping lift the rest of the euro
6
4
zone.
2
With banks easing credit standards,

lending activity is finally showing signs of
recovery. Lending to the private sector is
-2
edging further up (+1.2%YoY in

November).
-4

P.5
FEBRUARY 2016
FOCUS ON GREECE
WHERE DO WE STAND?
Greek debt due in 2016, excluding T-bills (EUR millions)
The Eurogroup head recently explained
that
Greece
had
so
far
met
2500
2268
IMF
its
ECB
commitments and that the pension reform

2000
proposed by the country in early January

was a serious offer. He added however
that the upcoming first bailout review was
1500
more likely to last months than weeks.

A successful review would unlock the next
loan tranche, and could lead to possible
1000
880
and necessary debt relief.
However, the country will have to repay

500
459
459
455
459
large amounts of debt in March, making
306
306
the process more urgent.

53
0
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Sources: Societe Generale Private Banking, Financial Times

P.6
FEBRUARY 2016
FOCUS ON GREECE
DEBT BURDEN
Greeces debt on the rise
Although the third Bailout programme will
help Greece meet its short-term liquidity
400
Nominal GDP (EUR bn)
Government debt (EUR bn)
350
needs, it will also exacerbate the countrys

debt issue in the longer-run.
Forecasts
Debt-to-GDP ratio (%, rhs)
188%
195% 200%
175%
300
150%
Upcoming discussions on debt relief will

prove key. At the moment, a haircut is off
the
table,
and
delay
in
principal
250
200
100%
repayment and/or lower interest rates

seem more likely.
150
However, it is worth noting that Greece

already enjoys one of the lowest interest
bills as a % of GDP in the eurozone, as
100
50%
50
well as one of the longest average

maturities.
0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
P.7
FEBRUARY 2016
FOCUS ON GREECE
MACRO SNAPSHOT
Manufacturing activity bottomed last summer
Greeces Manufacturing PMI
Greek GDP growth is expected to come
60
out at -0.2% over the whole 2015.
EXPANSION
The recovery should continue in 2016
55
thanks to an ambitious budget (pension

reform,
privatizations,
non-performing
50
loans, debt relief), although the Greek

Minister of Economys 1.5% growth target
45
CONTRACTION
seems overly optimistic.

40
Industrial confidence indicators bottomed

last summer and now seem well oriented.
Eurozone
35
Greece
Capital controls weighed on consumer

spending
(retail
sales
-4.5%
yoy
in
30
November 2015, 6th month of decline),

with SMEs being the most affected.
25
2013
2014
2015
2016

P.8
FEBRUARY 2016
REGIONAL OUTLOOK
JAPAN: DOMESTIC DEMAND GAINS PACE
Inflation has come down,
disposable income and employment have recovered
Japan GDP growth in Q3 was revised up
from -0.8% to +1.0% annualised. This
reading is particularly strong given that
the countrys population began to decline
in 2008, which has lowered potential
growth to 0.4-0.5%.
After the first consumption tax hike in
-1
-2
-3
April 2014 dampened activity, the next one

has been postponed to April 2017.
-4
Headline CPI (%, yoy)
-5
Households real disposable income (%, yoy, 6m moving average)
Unemployment is also improving, at 3.3%
-6
in November. Mr Abe recently announced
5.5
a 3% p.a. increase in minimum wages,
4.5
through to 2020.
3.5
Unemployment rate (%)
2.5
2005 2006 2007 2008 2009 2010
2011
2012 2013 2014 2015

P.9
FEBRUARY 2016
REGIONAL OUTLOOK
DIVERGENCE AMONG EMERGING MARKETS
An improved picture in 2016
Consensus growth forecasts (%)
Chinas slowdown is unlikely to derail
8
EM 2000-08 growth average
global growth, thanks to fine-tuned

measures on fiscal and monetary policy.
6.4 %
6
EM 2016e growth forecast
The whole of emerging Asia should
4.6 %
benefit from Chinese measures to support

growth.
4.0 %
EM 2015e growth forecast
Commodity-exporter regions will continue

to suffer from low natural resource prices.
However, countries in recession (Russia,

Brazil) might be close to the low point in
the cycle.
2015e
More broadly, reforms remain essential to
-2
2016e
prop up growth and lift investor

sentiment.
-4
India
China
Brazil
Russia
Sources: Societe Generale Private Banking, Bloomberg, FMI

P.10
FEBRUARY 2016
CRUDE OIL OUTLOOK

SUPPLY TO CONTINUE TO OUTSTRIP DEMAND
Although US oil rig count has decreased,
production has been slow to drop
Oil oversupply hovers around 1.4M b/d
11
1800
and may not disappear before 2017.

Saudi Arabia is still pumping at full speed
and last summers nuclear deal is paving
1600
10
1400
9
1200
the way for Iran to return to the oil export

market. In the US, efficiency gains have
allowed non-conventional oil producers to
1000
800
slash production costs by 20%.

The EM slowdown has led to a series of
downward revisions in global oil demand.
600
6
400
5
200
In our view, oil prices should remain stuck

at low levels between $30 and $40 in H1,
4
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
and between $40 and $50 in H2 and any
Saudi Arabia oil production (mb/d)
upside is likely to be short-lived.
US oil production (mb/d)

US oil rig count (rhs)
Sources: Societe Generale Private Banking, Datastream,
P.11
FEBRUARY 2016
GLOBAL INFLATION IN A NUTSHELL

INFLATIONARY PRESSURES ARE GLOBALLY MUTED
Euro zone core inflation has edged up
6
As wage pressures begin to emerge in the
US and the impact of the slump in energy
US core inflation (%, yoy)

US headline inflation (%, yoy)
Eurozone core inflation (%, yoy)
prices fades, we anticipate a modest pickup in US consumer price inflation.

However, the global outlook will remain
Eurozone headline inflation (%, yoy)
4
3
dominated by disinflationary pressures.

2
Deflation risk has not yet been entirely

dispelled in the euro zone, although core
inflation looks quite resilient.

0
Finally, certain commodity-dependent

emerging economies (Brazil, Russia) face
-1
high inflation. However, the structural

economic slowdown will have a lasting
impact on the outlook for EM inflation.
-2
-3
2007
2008
2009
2010
2011
2012
2013
2014
2015

P.12
FEBRUARY 2016
DIVERGENCE ACROSS CENTRAL BANK POLICIES

BASE RATES VERSUS ASSET PURCHASE PROGRAMMES
Libor rates (%)
After an unexpected no-change decision
6
GBP Libor 1 month
in September 2015, the FOMC finally

5
USD Libor 1 month
announced its first 25bp rate hike in

December. We expect three more hikes in
JPY Libor 1 month
2016.
On the other hand, the ECB recently cut
EUR Libor 1 month

3
its deposit rate by 10bp to -0.3% and

extended its EUR 60bn purchase
programme by at least six months to

March 2017.
The BoJs Quantitative and Qualitative

Easing is the most aggressive policy
compared to GDP. Further easing in 2016

remains possible if necessary.
-1
2008
2009
2010
2011
2012
2013
2014
2015
2016

P.13
FEBRUARY 2016
FOREIGN EXCHANGE
LIMITED DOWNSIDE RISK FOR THE EUR/USD
The EUR has become more resilient versus the USD
Following the announcement of the ECBs
1.6
QE in late 2014, the EUR weakened

sharply versus the USD.
1.5
Although we expect modest further

weakness for the EUR, a number of
1.4
factors should ensure the cross-rate does

not dip below parity : the USD is already
1.3
overvalued, the weak EUR should attract

foreign investors, the euro zone enjoys a
3% current account surplus.
1.2
We expect the EUR/USD to weaken to 1.05

at 6 months with a possible overshoot in
1.1
the interim, before edging back up to 1.10

by late 2016.
1
2008
2009
2010
2011
2012
2013
2014
2015
2016

P.14
FEBRUARY 2016
FIXED INCOME
EUROZONE: PERIPHERY AT CORE
Peripheral spreads vs. German Bund (%)
ECB quantitative easing will last at least
until March 2017, maintaining all euro
4
Spread Portugal
3.5
zone yields under downward pressure. A

further extension of the programmes
Spread Spain
3
Spread Italy
timeframe and a broadening of its scope

remain possible.
We see little value in core countries, as
2.5
short rates should remain negative and

long yields will stay low around current
1.5
levels.
Non-core bond spreads should narrow
and we suggest holding medium-long

term duration bonds.
0.5
0
01-2014
07-2014
01-2015
07-2015
01-2016

P.15
FEBRUARY 2016
FIXED INCOME INVESTMENT THEME

USEFUL TIPS
US 5-year real rate and breakeven
We believe US Treasury Inflation-
Protected Securities (TIPS) will outperform

fixed income Treasuries, as actual
inflation will exceed the breakeven rate.

First, as oil prices stabilise, the base
effect will start kicking in, reducing
downward pressure on inflation.

Also, we believe domestic forces will be
strong enough to support price increases.

If the Fed is too slow in the pace of hikes,
it may end up behind the curve later in
-1
the cycle (i.e. too accommodative for too

long), thus raising the risk of higher
inflation.
-2
2010
2011
2012
US 5-year Real rate, %
2013
2014
2015
2016
US 5-year Breakeven, %
P.16
FEBRUARY 2016
CREDIT MARKET
EURO ZONE: ECB SUPPORTED
Issuance by US companies in vs US-EU yield differential
Credit markets benefit from an ultra-
2.5
30%
accommodative monetary policy, positive

economic momentum and a credit-friendly
cycle.
We expect these factors to offset upward
2.0
25%
1.5
20%
1.0
pressures on spreads from increased nonEuropean issuance in EUR.

Default rates should stay low and
corporate bonds offer a pick-up in yields
0.5
15%
0.0
10%
-0.5
compared to depressed core government

bonds.
We suggest holding Investment Grade and
High Yield bonds without piling up
duration risk.
5%
-1.0
-1.5
2010
0%
2011
2012
2013
2014
2015
% of US risk-based corporates issuance in EUR (rhs)
USD-EUR IG Yield difference (%, lhs)
P.17
FEBRUARY 2016
CREDIT MARKET
UNITED STATES: WORSENING CREDIT METRICS
Defaults to increase mainly in the Energy sector
US credit fundamentals have deteriorated
further mainly because of corporate
16%
14%
activity (M&As, share buybacks). Defaults

should increase this year but to be
focused in the Energy sector.
After a period of spread widening, credit
12%
10%
8%
markets appear attractive in the shortterm. We prefer High Yield, non-energy,

short duration bonds, benefiting from a
6%
4%
good carry and low sensitivity to
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
investors should take advantage of any
0%
2003
On a medium-term horizon however,
2%
2002
underlying rates.
US Moody's Trailing 12 month defaults
rally to begin to trim their positions.
Moody's baseline US defaults forecast

Sources: Societe Generale Private Banking, Moodys
P.18
FEBRUARY 2016
FIXED INCOME INVESTMENT THEME

US CREDIT: PREFER BANKS TO CORPORATES, FLOATING TO FIXED
Banks improved their capital ratios
While non-financial companies will face
12
worsening fundamentals, the financial

sector roughly 30% of the IG index today,
10
mainly in banks should prove more

resilient.
Indeed, new rules (capital or liquidity ratios)

forced financial institutions to drastically
enhance their capital base after the 2008
financial crisis.
4
We expect banks to continue to outperform

non-financials in the near-term. Importantly,
it is advisable to cover duration exposure
as higher underlying rates could weigh on

total return, for instance through floatingrate bonds.
0
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Wtd Avg Tangible Equity/Tangible Assets Ratio, %

P.19
FEBRUARY 2016
FIXED INCOME
EMERGING DEBT: CAUTION WARRANTED
Developing countries: outstanding amount of debt
securities (private sector)
Most EM economies face major
headwinds:
Commodity price downturn
Falling currencies
USD bn
2200
2000
1800
1600
x3
Chinas structural growth slowdown

1400
Macro imbalances (twin deficits)

Zero interest policies in the developed
world have bolstered debt issuance from
1200
1000
800
EM corporates.
600
Only a fraction of EM countries are

400
immune to the current adverse conditions.
Sources: Societe Generale Private Banking, BIS

P.20
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
0
1996
advised.
200
1995
A cautious approach to these markets is
FEBRUARY 2016
EQUITY MARKETS
SOME EXPENSIVE VALUATIONS
CAPE* ratios per region (% of their long-term median)
Over the past few years, equity markets
have surged. In a context of rather low
180
160
earnings growth, this has pushed

valuations (P/E ratios) up. The correction
in global equity markets since summer
140
Median since 1983
120
2015 has begun to improve valuation

metrics.
Corporate profit forecasts for 2016
100
80
continue to be cut. We believe that value

creation will come through careful
60
US
Eurozone
selection of securities and themes.

40
Volatility spiked last summer, then

subsided, before rising again in recent
UK
Japan
20
weeks.
* CAPE: Cyclically Adjusted Price-to-Earnings ratio
P.21
FEBRUARY 2016
EQUITY MARKETS
PROFITS: US AND EUROZONE
EPS growth - our forecasts (%)
USD strength combined with low oil prices
will continue to weigh on US company
60
Eurozone
US
40
profits in the near-term. Nevertheless, US

profits should recover gradually
20
throughout 2016.
The drop in energy prices and EUR
weakness will boost early 2016 company
-20
profits in the euro area. However, we

believe these catalysts will begin to
20
-40
dissipate by mid-2016, thus profit growth
should gradually slow.
12
+8.5%
+8.4%
8
4
-60
0
-4
Further, sluggish global trade will penalise

euro zone manufacturers.
16
-8
-80
-100
1981
Q3
2015
Q4
2015
1986
Q1
2016
1991
Q2
2016
Q3
2016
1996
Q4
2016
2001
2006
2011
2016

P.22
FEBRUARY 2016
EQUITY MARKETS
UNITED STATES
Value stocks should be sustained by rising US bond yields
Expensive valuations coupled with a rise
1.3
in interest rates calls for a switch in US

sector allocation, from high cyclical
1.2
growth stocks to low-beta value sectors.

Further, the worlds largest economy is
1.1
4
buoyant. In particular, the improving job

market should continue to support the
1
3
Consumer Discretionary sector.

Finally, rising US yields should help banks
0.9
2
improve margins, and thus support
0.8
10-year US bond yield (%)
Financials. US banks should take

1
0.7
Value vs Growth (rhs)
acceleration and are currently cheap, at
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2004
0.6
2003
0
2002
around 10.0x expected 2016 earnings.
2005
advantage of US credit growth

P.23
FEBRUARY 2016
EQUITY MARKETS
EUROZONE
Eurozone EPS growth
Consensus forecasts (%)
The drop in energy prices and EUR
19.0
weakness will boost early 2016 euro area

company profits.
2015e
17.0
2016e
Although supports to the Consumer

Discretionary sector remain in place,
15.0
2017e
valuations of some sub-sectors such as

Hotels & Leisure, Media, or Luxury Goods,
13.0
are no longer attractive.

11.0
Also, we are becoming slightly more

optimistic about Energy. Mainly composed
9.0
of oil diversified majors, the sector seems

now attractively priced, and able to cope
7.0
with the new normal of crude oil prices

(USD 30-50).
5.0
Feb-15
Apr-15
Jun-15
Aug-15
Oct-15
Dec-15

P.24
FEBRUARY 2016
EQUITY MARKETS
JAPAN
Japan, one of the cheapest developed markets
Price-to-book ratios (x)
Japan macro fundamentals are good, with
4.5
job creations and capital spending to

support the sputtering recovery.
The possible expansion of the QQE
should also support equity prices.
MSCI World
4
MSCI Japan
3.5
3
Further, corporate governance reforms

2.5
should underpin shareholder value

creation through higher dividends, share
buybacks and improved returns on equity.
2
1.5
On the valuation side, Japan is one of the

1
cheapest developed markets, trading at
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
average.
0
1997
fiscal year, a 15% discount to the 10-year
0.5
1996
13.9x the earnings expected for the next

P.25
FEBRUARY 2016
EQUITY MARKETS
EMERGING MARKETS
Emerging markets on a roller coaster
Volatility has eased as the structural
slowdown of China has begun to be
factored in by investors in line with our
conviction that a hard landing is off the
120
110
100
table. The whole region has been hit by

Chinas slowdown, though with marked
90
differences between countries.

Commodity-exporters should still be
MSCI India
80
MSCI Emerging Markets
avoided, even though countries like

Russia may be hitting rock bottom.
India, currently our top pick within EMs,
should be driven by ambitious economic
70
1.2
Relative performance: India vs EM
1
plans, strong profit outlook and

accommodative monetary policies.
0.8
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16

P.26
FEBRUARY 2016
HEDGE FUNDS INVESTMENT THEME

EDGE FUNDS
In the past few years, the performance of
35%
Hedge funds global performance

HRFXGL Global index
Trailing 12m performance
alternative investment managers has

proved disappointing when compared
Average performance
25%
with the period running up to the financial

crisis and Great Recession (2007-2009).
Average real performance (vs Citi 3M USD)

15%
7.0%
We identify a number of reasons for that:

declining dispersion and correlation
2.1%
5%
between assets, low volatility, financial

repression and zero-interest rate policies.
-5%
3.2%
1.8%
As US interest rates begin to normalise,

we expect all these factors to gradually
-15%
reverse and translate into better returns

from hedge funds.
-25%

P.27
FEBRUARY 2016
EQUITY INVESTMENT THEME

SURVIVING DISRUPTION
Disruptive newcomers on all fronts
Disruptive newcomers with innovative
business practices or technologies are

substantially impacting existing firms.
Disruptive newcomers are attacking more
and more business segments:
accommodation, household services,
transportation, business services
Focusing on companies which are set to
continue to grow their top-line sales,
which generate a high cash-flow return on
investment and amply cover their cost of
capital is likely to help identify businesses
which seem well placed to survive the
disruption of their industry.
Sources: Societe Generale Private Banking
P.28
FEBRUARY 2016
EQUITY INVESTMENT THEME

CONVERTIBLE BONDS, THE BEST OF BOTH WORLDS
MSCI Europe vs European convertible bonds (base 100)
1000
Convertible
Europe
MSCI
Europe (TR)
900
Ann.
Performance
8.3%
8.6%
Ann. Volatility
8.0%
17.9%
-31.4%
-56.7%
Converts generate higher total return than
classic fixed income securities, and are

less risky than equities.
800
Max. Draw-Down
In periods of bull market, convertible

bonds tend to capture the positive
700
-38.4% p.a.
+15.2% p.a.
+25.0% p.a.
-21.4% p.a.
600
performance of equities. Conversely,

when markets decline, converts offer far
500
better capital protection as they gradually
400
resume their bond-like behaviour.
+7.9% p.a.
+20.5% p.a.
300
-14.2% p.a.
-6.8% p.a. +10.2% p.a.
The timing seems right, as equities are

expensive, and bonds are even more overvalued. As converts enjoy better riskadjusted performance than equities, they
should prove valuable in 2016.
200
100
+18.2% p.a.
0
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Exane Convertible Europe Index
MSCI Europe (total return)

P.29
FEBRUARY 2016
MIND THE GAPS

KEY TAKEAWAYS
The global economy will continue to grow at a steady pace in 2016. The US is clearly the strongest developed world
economy, but the euro zone and Japan should also expand next year.
As wage pressures begin to emerge in the US and the impact of the slump in energy prices fades, we anticipate a modest pickup in US CPI. The global outlook however will remain dominated by disinflationary pressures.
The Feds FOMC finally announced a first rate hike (25bp) in December 2015. The ECB and BoJ on the other hand stand
ready to ease policy further if necessary. Globally, monetary policies will remain very accommodative.
With the Fed hiking US rates, bond yields should rise across all maturities. In this context, inflation-linked bonds and
floating-rate notes in dollars offer diversification benefits. The gradual deterioration of US balance sheet quality warrants a
gradual reduction in exposure to corporate bonds. In the euro zone, yields should remain low and investors will be better
rewarded in non-core sovereign bonds and corporate securities.

We see only modest further downside for the EUR against the USD. Similarly, the sharp devaluations in a number of
emerging economies have improved their competitive position and reduced the potential for further slides.
Potential upside in equity markets will be constrained by the current high valuations and the outlook for earnings
growth. Japanese and euro zone equities will remain supported by abundant liquidity.
Oil prices should remain stuck at low levels. The bulk of the correction in gold prices since 2011 seems now complete.
We continue to see potential in non-directional investment strategies.
P.30
FEBRUARY 2016
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P.31
FEBRUARY 2016
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FEBRUARY 2016

SOCIETE GENERALE PRIVATE BANKING

MIND THE GAPS

| 2016 INVESTMENT STRATEGY

SOCIETE GENERALE PRIVATE BANKING

at a steady pace in 2016.

those countries most exposed to strong

Sources: Societe Generale Private Banking, Bloomberg

exporters will continue to suffer.

benefit from lower bills, while commodity

Commodity importer countries will still

monetary policy should remain

weigh on inflation, and central bank

Low commodity prices should continue to

Japan should also expand next year.

American momentum. The euro zone and

SOCIETE GENERALE PRIVATE BANKING

trade growth has been anchored below its

Recession, offering further evidence of

Decreasing global demand, especially due

to slowing emerging markets, weighs on

the outlook for world trade.

such as 3D printing reduce the need for

World trade growth (yoy, %)

reshore production, new processes

also at play: capital expenditure is below

Sources: Societe Generale Private Banking, Datastream

SOCIETE GENERALE PRIVATE BANKING

accelerating, with the long-awaited capex

pickup still sluggish, particularly

hampered by the energy sector.

U-6 underemployment < 9%

modest so far, continued labour market

eventually. On the other hand, the strong

USD will continue to cap headline

Private consumption remains robust and

U-6 underemployment rate (%)

SOCIETE GENERALE PRIVATE BANKING

the slowdown in late 2014, helped by the

weaker euro, lower energy prices and less

Germany is showing steady signs of

With banks easing credit standards,

recovery. Lending to the private sector is

edging further up (+1.2%YoY in

Sources: Societe Generale Private Banking, Datastream

SOCIETE GENERALE PRIVATE BANKING

commitments and that the pension reform

proposed by the country in early January

more likely to last months than weeks.

and necessary debt relief.

However, the country will have to repay

large amounts of debt in March, making

the process more urgent.

Sources: Societe Generale Private Banking, Financial Times

SOCIETE GENERALE PRIVATE BANKING

help Greece meet its short-term liquidity

needs, it will also exacerbate the countrys

Debt-to-GDP ratio (%, rhs)

Upcoming discussions on debt relief will

repayment and/or lower interest rates

However, it is worth noting that Greece

well as one of the longest average

| 2016 INVESTMENT STRATEGY

SOCIETE GENERALE PRIVATE BANKING