This action might not be possible to undo. Are you sure you want to continue?
GLOBAL FIXED INCOME STRATEGY
NOMURA INTERNATIONAL PLC
The Macro Strategy Team Lefteris.Farmakis@nomura.com FIDMacroStrategy@nomura.com
11 July – 15 July 2011
Monday Gold, gold – get the real story, without taking the shine off
Our recent research on gold generally supports market intuition that gold prices are negatively correlated with the US dollar and real rates. In recent years Asian demand for gold has emerged as a key driver of gold‘s price. With our economists not expecting the Fed to hike interest rates until 2013, it seems reasonable to expect gold to continue to rise in the near future. However, the low likelihood of further Fed easing suggests that a move higher is likely to be measured.
Tuesday Where is the hedge?
We consider the best way to hedge against the euro area debt crisis becoming globally systemic is by considering options positions across a broad range of global assets. It appears that the best hedges are interest rates across G4, EM assets, some clear risk sentiment hedges such as USD/JPY and direct plays on European economic growth.
Wednesday Italy‘s long-term fiscal challenges
Despite Italy‘s stronger fiscal starting point relative to other periphery countries, its longer-term fiscal sustainability is primarily challenged by weak growth. In the short term, we think only a bold policy response from EU and Italian policymakers will restore confidence in sovereign debt markets before increased funding costs spill over to banks‘ provision of credit and, ultimately, growth.
Thursday C10: how to short USD when EUR is also in trouble
Just because Europe is in trouble does not mean investors should be long USD. It may make sense to be long the China bloc, short USD, and flat EUR. Nomura‘s C10 index provides this and recent performance has been encouraging.
Friday A hedge for disaster: OTM Schatz calls
We consider a possible European market-based trade to hedge against the ―unthinkable‖ euro area break-up. In such a scenario the bid for Schatz, as a proxy DEM-based asset, could be substantial. The increased bid for safe assets, a collateral squeeze and expectations of DEM appreciation post a break-up could all provide a strong bid for Schatz, leading to it trading as a price-based asset rather than a yield-based one. In such a scenario owning OTM calls on the Schatz appears to be a good hedge.
Chart of the week
Tuesday: Where is the hedge?
Implied sigma Greek Crisis: April - end of May 2010 Lehman: Sept - Dec 2008
Annualised average return during previous risk events standardised by current implied volatility
14 12 10
ED6 future L 6 future ER6 future Gold EURCHF 10y GBP rate 5y USD rate BOVESPA ZAR 5y rate USDJPY 5y EUR rate AUDNZD 10y JPY rate USDTRY PLN 5y rate 10y AUD rate ILS 5y rate EuroStoxx 50 LMEX USDKRW AUDUSD DJUBS Copper USDCAD EURPLN AUDJPY Oil USDINR FTSE HSCEI USDBRL EURGBP S&P 500 EQTY VOL EURUSD HANG SENG DAX YE2 future EURSEK EURNOK EuroStoxx Financials NIKKEI
Sources: Nomura, Bloomberg
Please see important analyst certifications and important disclosures on page 7 of this report.
kendrick@nomura. We have used the above observations to construct several active trading rules for gold. Indeed. gold has appreciated most during Asian trading hours (Figure 2). should spur Asian investors to buy gold as an inflation hedge.5 1 Asia LDN AM LDN PM NY PM 130 1. We look at real rates.57 and annualised returns of 6. As a result. Perhaps unexpectedly. as gold strength is generally accompanied by USD weakness. for example through higher food prices (see The coming surge in food prices). 13 June 2011). We find that on a day-to-day basis gold is most highly correlated with EUR/USD and AUD/USD. while the drawdowns from our active strategy are nearly half those of a static long-only gold position. it has a strong relationship with most G10 USD crosses. Nomura‘s proprietary risk indicator. gold has a statistically significant positive relationship with GRAM+. Our portfolio has an information ratio of 0. Asian inflation should impact gold more.5 4 2008 2010 70 60 2007 2008 2009 2010 US 10y real rate (rhs inverted) Our recently published Gold. The low likelihood of further easing by the Fed (QE Thoughts: 2‘s Company. With our economists not expecting the Fed to hike interest rates until 2013.com $ 1800 1600 1400 1200 rate Real rates are important for understanding the direction of gold 0 Index 160 150 140 Gold has appreciated most during Asian hours over the past few years 0. Figure 2. Indeed.amen@nomura.Macro Strategy Charts of the Week Monday 11 July 2011 Gold. suggests that a move higher is likely to be measured. Gold . 3‘s a Crowd. without taking the shine off Saeed Amen +44 (0) 20 710 37119 Geoffrey Kendrick +44 (0) 20 710 36589 Figure 1.5 600 400 Gold price 200 0 2006 Source: Nomura. saeed. Nomura 2 . we find that in the immediate aftermath of many recent market crises gold has behaved more like a risky asset than a safe-haven asset (with the exception of the period immediately following the Lehman Brothers bankruptcy). This is consistent with gold demand data showing that the majority of demand comes from Asia. however. as the opportunity cost of investing in gold diminishes in a low-rates environment (Figure 1). We also find that in recent years. We have also created a portfolio of active gold trading strategies. This suggests that Asian sentiment towards gold is likely to be increasingly important going forward. On a quarterly basis.com geoffrey. risk sentiment and the FX market to generate gold trading signals.What drives gold? (7 July 2011) generally supports market intuition on the behavior of gold. momentum. gold – get the real story.5 120 110 100 90 1000 2 800 2. it seems reasonable to expect gold to continue to rise in the near future.5% since 1997. Gold is also negatively correlated with real rates. Bloomberg 3 80 3. This is because higher levels of Asian inflation. real rates are one of the most important drivers for gold.
The sharp widening of Italian spreads in the past week reminds us that the euro area debt crisis has the potential to have far-reaching firstname.lastname@example.org olgay. For an approximation of potential market moves we consider two ―risk events‖: May 2010 when the eurozone debt crisis first threatened to become systemic and the collapse of Lehman.com Implied sigma Greek Crisis: April . In addition to this there is a large. The involvement of structured products and the opaque interconnected counterpart risk that they present provides a concerning reminder of the Lehman failure in 2008. European assets. The exact response of assets is unlikely to be a mirror image of a previous crisis as the interconnections of different markets and the different starting points before each crisis will always have idiosyncratic impact.job@nomura. A debt crisis and potential banking crisis in Italy poses a far larger risk to broader market risk sentiment than any previous leg of the European debt crisis. but such analysis provides a good starting point for considering hedges. Ireland and Portugal.kendrick@nomura. 12 July 2011 owen. The involvement of Italy and its large structured product market increases the systemic risks of the euro area debt crisis and hence increases the risk that the market reaction to the crisis morphs from a May 2010-style event into a Lehman-type risk. the collapse of Lehman was more systemic.end of May 2010 Lehman: Sept . Any crisis affecting Italy is likely to have a large and possibly outsized impact relative to the government debt market on investors globally.Macro Strategy Charts of the Week Tuesday Where is the hedge? Owen Job +44 (0) 207 103 4849 Olgay Buyukkayali +44 (0) 20 710 23242 Geoffrey Kendrick +44 (0) 20 710 36589 Figure 1. however. Nomura 3 . Their bailouts would be economically difficult or nearing impossible in the case of Italy. a few key risk metrics such as Gold and USDJPY and a couple of EM assets Bovespa and ZAR 5y rates. The conclusions are informative. And the size of Spain and Italy‘s debt markets are larger than those of the weaker periphery – Greece.Dec 2008 Annualised average return during previous risk events standardised by current implied volatility 14 12 10 8 6 4 2 0 ED6 future L 6 future ER6 future Gold EURCHF 10y GBP rate 5y USD rate BOVESPA ZAR 5y rate USDJPY 5y EUR rate AUDNZD 10y JPY rate USDTRY PLN 5y rate 10y AUD rate ILS 5y rate EuroStoxx 50 LMEX USDKRW AUDUSD DJUBS Copper USDCAD EURPLN AUDJPY Oil USDINR FTSE HSCEI USDBRL EURGBP S&P 500 EQTY VOL EURUSD HANG SENG DAX YE2 future EURSEK EURNOK EuroStoxx Financials NIKKEI Source: Nomura. With these risks in mind we consider where the best hedges may be to the euro area debt crisis becoming globally systemic. and a broader range of stock markets including the FTSE and S&P 500. To put these asset moves into the current context we normalise them by the current implied volatility of ATM options on the asset. but difficult to precisely quantify. in our view. May 2010 and Lehman‘s collapse were clearly two very different events. The widening of Portuguese. with the largest moves coming across a far broader range of global growth-related assets – commodities including copper and oil. This provides a metric of value for buying ATM options on these assets as a hedge of such risk events. structured product market in Italy. However. This meant that a bailout is at least economically possible if the politics remain challenging. the universe of assets most involved could increasingly reflect the aftermath of Lehman‘s collapse if the situation is not dealt with quickly. May 2010 remained relatively contained and major movers were interest rates. The market reaction is unlikely to be as severe because of the improved starting position of banks‘ balance sheets globally and the reduced leverage across the investor spectrum. First.com geoffrey. Italy and Spain are different. The limitation of substantial spread widening to the weaker periphery so far in 2011 has made it appear that broader market returns were less affected by the eurozone debt crisis. Bloomberg The widening of Italian spreads (Macro Insight .Italy entering the fray) to Bunds is a real systematic risk not just to the euro area but to broader markets. Greek and Irish spreads alone did not represent a systematic risk because their relative size in euro area GDP and debt markets was relatively small. However. We do this by considering option positions across a broad range of global assets.
This is a first blush assessment of potential hedges and does not delve into the detail of each position. Nomura 4 .) But this analysis suggests that deep outside hedges of the market reaction becoming systemic and a threat to global growth are probably best placed in purer risk sentiment and global growth-related trades: USDKRW. USD/PLN. AUDJPY. (PLN. the best hedges are probably those that were significantly involved in both the May 2010 and post Lehman crises. (Our analysis of Lehman history suggests that ZAR 5y rates and TRY would be much better candidates. USD/CZK. 5y USD rates. even though Poland‘s domestic economy is strong it suffers from having the most liquid currency and the PLN would probably be used as a proxy trade. short sterling and euribor all appear good hedges. EM assets. It makes the assumption that any ensuing risk event will reflect previous ones and although we have added a degree of discretionary overlay there is still room for further idiosyncratic analysis of each hedge. as leveraged plays on global growth and risk sentiment – Bovespa. However we have doubts that in a sharp global slowdown and / or as global growth proxy they would work as well for the simple reason that the current dynamic and positioning is very different. Some clearer risk sentiment hedges – USDJPY. PLN 5y vs EUR.) Direct plays on European economic growth – eurostoxx. there is a limit to the degree to which these rates can rally with the implied rate already below 1% in some cases. Note.Macro Strategy Charts of the Week Because of the uncertainty.10y GBP rates. we are including them in a discretionary way. RUB. 5y EUR rates and 10y JPY rates. USDBRL. given the current dynamics we would argue RUB and PLN 5y are better candidates. Even though our analysis of history did not yield PLN or CZK. USDCAD. Copper. South Africa is going through a softer recovery with the central bank not behind the curve and also TRY would trade better should oil prices plunge. although eurodollar. Hence. as they cover a large range of outcomes: Interest rates across G4 in longer tenors .
despite Italy’s stronger fiscal starting point relative to other periphery countries.0 primary surplus necessary to stabilize debt/GDP around 120% 1 0. has over the last three years created a precarious mix for their profitability. Having said email@example.com 50 0 Jul-08 Jul-09 Jul-10 Jul-11 250 200 150 0.9 0.8 Correlation of Italian Banks CDS to 10y gvt spread to Bunds 10y Italian gvt spread to Bunds (rhs) bp 400 350 300 2. Figure 2. Arguably. Political determination is required to resolve the continued lack of competitiveness and competition in many sectors of the economy. Italian banks look adequately retail funded in the context of the European banking sector (when including all retail deposits they have a loans-to-deposits ratio of 117%). depressing profitability further. a stronger fiscal consolidation effort would be needed. However. further exaggerating the problem. there is a risk of banks downsizing their lending books.0 1. despite Italy‘s stronger fiscal starting point the recent sharp rise in the cost of borrowing inevitably raises the issue of longer-term solvency.6 0. some 1.5 1.2% . Fundamentally.5pp less. Italy‘s main fiscal sustainability problem relates to poor growth. heavy regulation of the services and energy sectors and poor infrastructure) is of paramount importance. their 60-day correlation with bank CDS spiked from 0. its longer-term fiscal sustainability is primarily challenged by weak growth. political determination to implement long-term reforms aimed at tackling Italy‘s structural weaknesses (such as poor competitiveness. if current elevated spreads were to persist.5 firstname.lastname@example.org 100 0. Funding markets have always considered this as the weak link in the Italian banking system.plus inflation at or slightly above the ECB‘s 2% target). If funding conditions remain unfavourable or deteriorate further. Another worrying aspect of Italy‘s growth prospects is the possibility of a downward spiral between the sovereign and the banks. Figure 2 shows that as 10yr Italian spreads to Bunds rose nearly 100bp over the past week. At more ―normal‖ levels of funding rates email@example.com% 0 Jul-07 Source: Nomura. Bloomberg Note: Figure 2 looks at 60-day rolling correlation of daily changes in 10yr Italian government bond spread to Bunds and the average CDS spread of Italian banks included in the ITRAXX Senior Financial index. growth.5%. coupled with the still high level of net provisions. One striking feature of this analysis is the persistently low level of potential real growth that is assumed for Italy. a primary surplus of around 3-3. Unlike other periphery countries.4 0.2 0. 4. resulting in increasing spreads on banks‘ recent debt issues. The end result is a downward spiral that will ultimately weigh on growth through tighter credit conditions for households and corporates. The recent widening of sovereign spreads feeds through the banks‘ own cost of borrowing.5% (real growth of around 1% long-term average real GDP growth is at 1.com pp 3.Macro Strategy Charts of the Week Wednesday Italy‘s long-term fiscal challenges Lavinia Santovetti +44 (0) 20 710 26364 Peter Westaway +44 (0) 20 710 23991 Domenico Santoro +44 (0) 20 710 22375 Figure 1.8 currently. Our debt-dynamics analysis suggests that with interest rates on the outstanding level of debt at 6% and nominal growth of around 3-3.5-2% of GDP. European ministers‘ aims towards resolving the sovereign debt crisis and further austerity measures soon-to-be approved by the Italian parliament are expected to provide some relief in the short term.5 0.0 Interest rates at 6% Interest rates at 4. In conclusion. However. Nomura 5 . the low level of short-term rates. our economists continue to believe that Italy faces a solvency issue that is of a different magnitude to the other periphery countries (see Italy: Guilty as charged or innocent bystander?). Continued widening of sovereign spreads and a potential rating downgrade for Italy would increase the cost of funding for banks. In the short term we think only a bold policy response from EU and Italian policymakers would restore confidence in sovereign debt markets before increased funding costs spill over to banks’ provision of credit and.5 to 0.com domenico.5 2. say. Consequently.5% of GDP would be necessary to stabilise debt to around its current level of 120% of GDP (Figure 1). Italy has been hit hard by financial markets since last week.7 0. 13 July 2011 lavinia.com peter.5 3.0 0. ultimately. Italy would need to run a surplus of 1. amid speculation that Finance Minister Giulio Tremonti may resign ongoing political instability and a recent run of poor macro economic growth indicators.
in more than half the quarters in which short DXY was down. This is especially true as the Eurozone lurches from one crisis to another. C10 outperformed over the sample as a whole. Figure 1 shows how this dynamic has evolved over the last 10 years. Second. In other words. Nomura Research (June 2011). like the DXY itself. even if sometimes by less.morris@nomura. We believe the time has come to look beyond both USD and EUR. In a nutshell. dates from the Bretton Woods era in which Europe and Japan were the only relevant countries outside the US in economic terms. Chinese equities have languished and CNY carry remains repressed. returning over 10% above cash. C10 was also up. as we have highlighted in our latest publication . Gold is what the Chinese private sector is buying in a scale on par with India‘s.Macro Strategy Charts of the Week Thursday 14 July 2011 C10: how to short USD when EUR is also in trouble Swati Aggarwal +44 (0) 20 710 20583 Anthony Morris +44 (0) 20 710 29215 Figure 1. despite the evident problems in the US economy. in every quarter in which short DXY was up.com 250 200 150 100 32% 24% 16% 8% Cumulative exces returns (volatility-adjusted) Cumulative excess returns (vol-adjusted) 300 40% 140 130 120 110 100 90 80 Oct-09 Gold Short DXY futures 50 0 2001 2003 2005 2007 2009 2011 Short DXY down / C10 down Short DXY down / C10 up C10 outperformance (rhs) C10 Index (lhs) Short DXY futures (lhs) 0% -8% Apr-10 Oct-10 C10 Index Apr-11 EUR/USD returns Source: Bloomberg. no longer offering an obviously better alternative to USD. Second. Third. Nomura 6 .com anthony. currently running at approximately 9%. C10 was still up (see areas shaded grey). It has provided a reasonable proxy for Chinese growth. EUR/USD returns refers to the returns of holding a long-only position in EUR using the first futures contract and have been taken directly from the Nomura FX return indexes. Figure 2 looks at this dynamic in more recent times. But beyond its role as a China proxy. DXY and EUR have stayed within a broad range against USD since 2009. C10 (together with gold) has steadily pulled away from both USD and EUR. and short DXY fell. First. DXY is no longer enough and a tool like C10 is now essential. While it is fashionable to discuss the rise of Asia and EM economies in general. It is traditional to believe that short USD is essentially the same as long EUR or short DXY (about 60% of which is EUR exposure). few grasp the implications for FX positioning—in our view. but it also performed when USD was strong. C10 can add value in another way—as a tool to short USD without getting long EUR. It has performed relatively well thus far in its live period. C10 participated in USD weakness in the same way as short DXY. EURUSD returns appear to have driven DXY returns. First. EUR was weak. Nomura‘s C10 index recently celebrated its first birthday. C10 is the basket of currencies China‘s real economy is buying.aggarwal@nomura.Why C10 is better than short DXY. Short DXY futures refers to the return on a strategy of shorting the first DXY future contract and rolling the position at expiry. In contrast. But this belief. Third.Efficient Frontiers for a discussion of our other indexes). Both C10 and short DXY positions (here modelled as rolled futures) added value over time as USD deteriorated. swati. Figure 2. with a volatility around 5% (see Quantitative Strategies .
Manufacturing ULC in the GDP-weighted rest of Europe have risen 20% more than in Germany since monetary union (Figure 1). There would be a broad-based rise in risk aversion and bid for ―safe‖ assets. Intra-euro area Investors would likely flock to the strongest perceived European assets.g. Here we consider a possible European market-based trade to hedge against the market pricing in the possibility of the euro area debt crisis escalating and an eventual euro area break-up. in relative price terms. Bloomberg With the recent sharp widening of Italian bond spreads consideration of the ―unthinkable‖ – a euro area break-up – have become increasingly common. 15 July 2011 owen. In a European disaster situation we think three things (amongst many others) would happen: 1.job@nomura.Where is the hedge?) we have considered the cheapest hedges for the euro area debt crisis becoming a global systemic event. If the probability of a euro break-up were to become non-negligible.e.5 107 1. DEM-proxy assets such as the Schatz could begin to trade on a price basis not a yield basis.e. as ineligible collateral is replaced with collateral from the remaining smaller pool of acceptable collateral. There would be a search for an ever-shrinking pool of safe collateral. In previous publications (Macro Daily .5 1.4 Aust Spai Fran Ital Neth Esto Finl Gree Luxe Avg 108. This is an extreme example. it is a relative comparison and a sizeable share of this relative appreciation could be absorbed in non-DEM asset depreciation rather than DEM asset appreciating. This would provide a bid to all assets that remain ―safe‖ and acceptable collateral. 3. investors expecting a significant appreciation of a free-floating DEM vs its European counterparts would be prepared to own a DEM-proxy asset at a significant premium. To get a guide to the potential impact of the third factor we consider how much a free floating DEM could be expected to appreciate vs the rest of Europe. 2.5 1. There is also the question of convertibility.Macro Strategy Charts of the Week Friday A hedge for disaster: OTM Schatz calls Owen Job +44 (0) 207 103 4849 Sean Maloney +44 (0) 20 710 35954 Figure 1.com Px 110. DEM assets would probably appreciate in common currency terms because of expectations of a strong appreciation of a new free floating DEM post a break-up. proxy-Deutsch Mark (DEM) assets. all of these three effects would provide a strong bid to Schatz. In simple terms if the Schatz began trading as a DEM pricebased asset instead of a yield-based one and the DEM were expected to richen 20% relative to its European counterparts (to neutralise the ULC dispersion of the past 12 years) Schatz could appreciate up to 20%. Among other issues such as capital flight from the euro area altogether.8 Mar-99 Mar-02 Mar-05 Mar-08 Source: Nomura. As a rough guide we consider the evolution of manufacturing (so exportable) unit labour costs (ULC) throughout the euro area since the formation of the monetary union. This relative premium investors would be prepared to pay could in a most favourable scenario could be as high as the currency appreciation they were expecting. i. If there is a break-up. e. Figure 2.7 1.1 1 0. And the potential for repo squeezes because of the increase in volumes for German benchmarks this implies would also be significant.9 106. Even if there are only low expectations of this occurring the likelihood that the market has to move much closer to this before policymakers finally provide a solution is much higher. In our view.5 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 0.5 109 DU1 Strike Expiry Adjustment in manufacturing ULC relative to Germany 1.maloney@nomura. to other European assets.com sean.2 1. i.8 1.6 1.5 110 109. Bunds. BTPs may no longer be acceptable collateral (this has already started to occur).e.3 108 107. would the notional of a Schatz bond be converted Nomura 7 . in our view. i.
DEM assets. It seems increasingly likely.e. the thought experiment puts into context the potential high convexity price appreciation (an appreciation measured in points not ticks) that may occur if any sizeable probability of a euro area disaster scenario were priced.50 calls at 7. the furthest out with liquidity. the path to resolution will include a period of the markets pricing an increased probability of a euro break-up. but in the instance of market pricing this scenario the bid would certainly favour the strongest perceived asset. i. but once they do we would consider rolling into December OTM calls to prolong the period of the hedge.5 ticks. Nomura 8 . When all three of these strong factors are considered owning OTM calls on the Schatz appears a good hedge against such a scenario. even if the final outcome is not a euro break-up. The strike.Macro Strategy Charts of the Week to DEM one-to-one with its EUR value? Possibly not. is still within the range of the past year (Figure 2) and if this scenario materialises the Schatz is likely to trade several points through this level. The December calls are not liquidly traded for another month or so. We recommend buying the Schatz September expiry 109. All these caveats aside.
Ltd. Nomura International plc ('NIplc'). Madrid‘) and OOO Nomura. Inc. public appearances..kofia. The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues. Shivsagar Estate. and buy or sell. regulated by the Monetary Authority of Singapore). Nomura International (Hong Kong) Ltd. regulated by the Australian Securities and Investment Commission ('ASIC') and holder of an Australian financial services licence number 246412. AND (III) BASED UPON INFORMATION THAT WE CONSIDER RELIABLE. Indonesia. are subject to change without notice. Peter Westaway. Domenico Santoro. Saeed Amen. NSE INB231299034. Geoffrey Kendrick. the Nomura Group. may not be associated persons of NSI. TO THE MAXIMUM EXTENT PERMISSIBLE ALL WARRANTIES AND OTHER ASSURANCES BY NOMURA GROUP ARE HEREBY EXCLUDED AND NOMURA GROUP SHALL HAVE NO LIABILITY FOR THE USE. Nomura Financial Investment (Korea) Co. Nomura Securities International. Banque Nomura France (‗BNF‘). New York. and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies. (‗NFIK‘). Nomura is under no duty to update this publication. investment banking and non-investment banking compensation and securities ownership (identified in this report as 'Disclosures Required in the United States'). Anthony Morris and Sean Maloney hereby certify (1) that the views expressed in this report accurately reflect our personal views about any or all of the subject securities or issuers referred to in this report. P. Analyst Interactions with other Nomura Securities International. IMPORTANT DISCLOSURES Online availability of research and additional conflict-of-interest disclosures Nomura Japanese Equity Research is available electronically for clients in the US on NOMURA. Lavinia Santovetti. If you have any difficulties with the website. Bhd. AND WE ARE NOT SOLICITING ANY ACTION BASED UPON IT. Mumbai. Taipei Branch (‗NITB‘).S. including persons. Opinions expressed are current opinions as of the original publication date appearing on this material only and the information. involved in the preparation or issuance of this material may. (‗NIHK‘). directors and employees. Level 11.. ADDITIONAL DISCLOSURES REQUIRED IN THE U. other members of the Nomura Group may from time to time perform investment banking or other services (including acting as advisor. 2011 . include: Nomura Securities Co. Nomura Australia Ltd. India (Registered Address: Ceejay House. INE 231299034). and/or its officers. if any. MISUSE. Nomura Financial Advisory and Securities (India) Private Limited (‗NFASL‘). Inc and its affiliates will usually trade as principal in the fixed income securities (or in related derivatives) that are the subject of this research report. Principal Trading: Nomura Securities International.T. please email grpsupport-eu@nomura. with the sole or joint contributions of one or more Nomura entities whose employees and their respective affiliations are specified on page 1 herein or elsewhere identified in the publication.400 018.. (2) no part of our compensation was. Important disclosures may be accessed through the left hand side of the Nomura Disclosure web page http://www. Moscow (‗OOO Nomura‘). to the extent permitted by applicable law and/or regulation. Ltd. the 'Nomura Group'). REUTERS. Valuation Methodology . REUTERS and BLOOMBERG. INF231299034. SEBI Registration No: BSE INB011299030. unexpected trading activity or an unexpected upgrade (downgrade) by a major rating agency. ('NSC') Tokyo. the Nomura Group may buy and sell certain of the securities of companies mentioned herein. For clients in Europe. are specified in disclaimers and related disclosures in this report.COM. DISCLAIMERS This publication contains material that has been prepared by the Nomura entity identified at the top or bottom of page 1 herein. of companies mentioned herein. including but not limited to: credit fundamentals. or related securities or derivatives. macro/micro economic factors. if any. Singapore (Registration number 197201440E. United Kingdom.Macro Strategy Charts of the Week ANALYST CERTIFICATION We Owen Job. Inc. Unless otherwise noted. (II) NOT TO BE CONSTRUED AS AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE ILLEGAL. Nomura Securities Malaysia Sdn. Thailand. a portion of which is generated by Investment Banking activities. THIS MATERIAL IS: (I) FOR YOUR PRIVATE INFORMATION. referenced above). Olgay Buyukkayali Swati Aggarwal.com/research or requested from Nomura Securities International. Nomura International plc or any other Nomura Group company. Madrid Branch (‗NIplc. COMPLETE. Nomura Holdings Inc's affiliate or its subsidiary companies may act as market maker or liquidity provider (in accordance with the interpretation of these definitions under FSA rules in the UK) in the financial instruments of the issuer. Affiliates and subsidiaries of Nomura Holdings. Hong Kong. including the opinions contained herein. Annie Besant Road. ('NSI'). Nomura International (Hong Kong) Ltd. manager or lender) for. as agent for its clients. Mumbai. NSI's investment banking relationships. FIT FOR ANY PARTICULAR PURPOSE OR MERCHANTABLE AND DOES NOT ACCEPT LIABILITY FOR ANY ACT (OR DECISION NOT TO ACT) RESULTING FROM USE OF THIS PUBLICATION AND RELATED DATA. NIplc. Inc. Dubai Branch (‗NIplc.or. India. or derivatives (including options) thereof. (‗NAL‘). (collectively. Nomura Indonesia (‗PTNI‘).. Australia (ABN 48 003 032 513). Inc. the non-US analysts listed at the front of this report are not registered/qualified as research analysts under FINRA/NYSE rules. Plot F. In addition.. (‗NSL‘). companies mentioned herein. and/or. NIplc. Nomura 7 July 15. have long or short positions in.nomura. Japan.COM. is or will be directly or indirectly related to the specific recommendations or views expressed in this report and (3) no part of our compensation is tied to any specific investment banking transactions performed by Nomura Securities International. RELIABLE. a ―Buy‖ (Long) or ―Sell‖ (Short) recommendation on an individual security or financial instrument is intended to convey Nomura‘s belief that the price/spread on the security in question is expected to outperform (underperform) similarly structured securities over a three to twelve-month time period. Dubai‘). Taiwan. If and as applicable. (‗NSM‘). the securities (including ownership by NSI. b) Divergence between a country‘s underlying macro or micro-economic fundamentals and its currency‘s value and c) Technical factors such as supply and demand flows in the market that may temporarily distort valuations when compared to an equilibrium priced solely on fundamental factors. on 1-877-865-5752. Korea (Information on Nomura analysts registered with the Korea Financial Investment Association ('KOFIA') can be found on the KOFIA Intranet at http://dis. Furthermore.Global Strategy A ―Relative Value‖ based recommendation is the principal approach used by Nomura‘s Fixed Income Strategists / Analysts when they make ―Buy‖ (Long) ―Hold‖ and ―Sell‖ (Short) recommendations to clients. and trading securities held by a research analyst account. For financial instruments admitted to trading on an EU regulated market. Malaysia. NY. These recommendations use a valuation methodology that identifies relative value based on: a) Opportunistic spread differences between the appropriate benchmark and the security or the financial instrument. Worli. Capital Nomura Securities Public Company Limited (‗CNS‘). Inc Personnel: The fixed income research analysts of Nomura Securities International. Where the activity of liquidity provider is carried out in accordance with the definition given to it by specific laws and regulations of other EU jurisdictions. BLOOMBERG and THOMSON ONE ANALYTICS. this will be separately disclosed within this report. Japan and elsewhere in Asia it is available on NOMURA. or solicit investment banking or other business from. without limitation. In addition. OR DISTRIBUTION OF THIS INFORMATION. Inc and its affiliates regularly interact with sales and trading desk personnel in connection with obtaining liquidity and pricing information for their respective coverage universe.com for technical assistance. Furthermore.kr ). Dr. NOMURA GROUP DOES NOT WARRANT OR REPRESENT THAT THE PUBLICATION IS ACCURATE. Nomura Singapore Ltd. This outperformance (underperformance) can be the result of several factors.
therefore. or income derived from. If verification is required. Neither this publication nor any copy thereof may be taken or transmitted or distributed. the values of which are influenced by foreign currencies. by any means. which is authorized and regulated in Germany by the Federal Financial Supervisory Authority ('BaFin'). or immediately following. directors and employees may. NSL accepts legal responsibility for the content of this publication. quantitative analysis and short term trading ideas. photocopied. excluding NSI). a US-registered broker-dealer. NIplc or any other member of the Nomura Group.com/research under the 'Disclosure' tab. or contain viruses. whether as a result of differing time horizons. which may arise as a result of electronic transmission. directly or indirectly. arrive late or incomplete. as defined by the FSA. that may be associated with any investment decision. No part of this material may be (i) copied. which accepts responsibility for its contents in accordance with the provisions of Rule 15a-6. NSC and other non-US members of the Nomura Group (i.nomura. Additional information available upon request NIPlc and other Nomura Group entities manage conflicts identified through the following: their Chinese Wall. please contact your sales representative. Nomura 8 July 15. or take into account the particular investment objectives. London EC4R 3AB Caring for the environment: to receive only the electronic versions of our research. this publication has been distributed by NSL. in such case. the investment.e. corrupted. or except in compliance with an exemption from the registration requirements of such Act. which is authorized and regulated by the UK Financial Services Authority ('FSA') and is a member of the London Stock Exchange. as the case may be. or in connection with. direct or indirect. and may not. or needs of individual investors.nomura. Foreign-currency-denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of.com/research/pages/disclosures/disclosures. by any person other than those authorised to do so into the Kingdom of Saudi Arabia or in the United Arab Emirates or to any person located in the Kingdom of Saudi Arabia or to clients other than 'professional clients' in the United Arab Emirates. This publication has been approved for distribution in Australia by NAL. In addition. their officers. where it concerns securities. Further information on any of the securities mentioned herein may be obtained upon request. The securities described herein may not have been registered under the US Securities Act of 1933. please request a hard-copy version. Securities Act of 1933. this material is distributed in the United States.Macro Strategy Charts of the Week Investors should consider this report as only a single factor in making their investment decision and. which is authorized and regulated in Australia by the ASIC. have acted upon or used this material prior to. then such transmission cannot be guaranteed to be secure or error-free as information could be intercepted. under the US Securities Exchange Act of 1934. personal account dealing rules. This publication has also been approved for distribution in Malaysia by NSM. the report should not be viewed as identifying or suggesting all risks. Please see the further disclaimers in the disclosure information on companies covered by Nomura analysts available at www. you must contact a Nomura entity in your home jurisdiction if you want to use our services in effecting a transaction in the securities mentioned in this material. Recipients of this publication should contact NSL in respect of matters arising from. Nomura Group produces a number of different types of research product including. methodologies or otherwise. issued by their foreign affiliates in respect of recipients who are not accredited. which is regulated by the Hong Kong Securities and Futures Commission. effectively assume currency risk. financial situations. This publication may be distributed in Germany via Nomura Bank (Deutschland) GmbH. Unless prohibited by the provisions of Regulation S of the U. If this publication has been distributed by electronic transmission. by NSI. for distribution in Hong Kong by NIHK.S. It does not constitute a personal recommendation. This publication has been approved for distribution in the United Kingdom and European Union as investment research by NIplc. In Singapore. investors in securities such as ADRs. this publication. lost. This publication has been approved by NIHK. among others. you represent that you are not located in the Kingdom of Saudi Arabia or that you are a 'professional client' in the United Arab Emirates and agree to comply with these restrictions. to the extent it relates to non-US issuers and is permitted by applicable law. Any failure to comply with these restrictions may constitute a violation of the laws of the Kingdom of Saudi Arabia or the United Arab Emirates. its publication. Disclosure information is available at the Nomura Disclosure web page: http://www. such as e-mail. and. expert or institutional investors as defined by the Securities and Futures Act (Chapter 289). it is possible that individual employees of Nomura may have different perspectives to this publication. destroyed. Unless governing law permits otherwise. It is intended only for investors who are 'eligible counterparties' or 'professional clients' as defined by the FSA. may not be offered or sold in the United States or to US persons unless they have been registered under such Act. be redistributed to retail clients as defined by the FSA. This publication has not been approved for distribution in the Kingdom of Saudi Arabia or to clients other than 'professional clients' in the United Arab Emirates by Nomura Saudi Arabia. fundamental analysis. 2011 . or duplicated in any form. as such. confidentiality and independence policies. The sender therefore does not accept liability for any errors or omissions in the contents of this publication. maintenance of a Restricted List and a Watch List.aspx Nomura International plc. By accepting to receive this publication. recommendations contained in one type of research product may differ from recommendations contained in other types of research product. or (ii) redistributed without the prior written consent of the Nomura Group member identified in the banner on page 1 of this report. futures and foreign exchange. Tel: +44 20 7102 1000 1 Angel Lane. policies and procedures for managing conflicts of interest arising from the allocation and pricing of securities and impartial investment research and disclosure to clients via client documentation.