Sector Trading

Titre de la présentation
BNPP Equity Derivatives
Technical and trading aspects of STOXX sector trading
Aurélien Cristini
[email protected]
Phone: + 33 1 55 77 69 29
June 4, 2009
Contents
1.
Futures vs. Swaps
2.
Agency vs. Risk
3.
Trading Futures with BNP Paribas
4.
Conclusion & Contacts
02 May 2009
2
1 – Futures vs. Swaps
02 May 2009
3
Futures vs. Swaps
n
n
n
Trading Sectors via Futures or Swaps ?
Div Exposure
Repo
Financing
Roll
FUTURES
Price Return
Implied
Implied
Every Quarter at
market level
SWAPS
Total Return
Explicit
Explicit
Once a year
Swaps are OTC products
n
Via a CFD agreement or OTC Equity Swap
n
Default maturity = 1 year
Futures are listed
n
Can unwind position with another counterpart
n
Roll markets 2/3 week before quarterly expiry
02 May 2009
4
Futures vs. Swaps – BPSO <GO>
02 May 2009
5
2 – Agency vs. Risk
02 May 2009
6
Agency vs. Risk
n
“Agency” trading : quote requests on basis / BNP bears no exec risk
n
BNP Paribas program trading setup for baskets (VWAP, TWAP, % Volume, best
effort, etc.)
n
Can guarantee Index close as cash reference
Size Limit ?
Agency
Risk
n
No. (need to
check Open
Interest)
Yes, depends
on index and
Time
Min. # contracts
Future Price
Hours
> 250 contracts
Quoted basis +
Cash executed
level
All trading session
< 250 if price within order
book B/A,
> 250 contracts otherwise
Future "all-in"
price
9h30 - 17h00 except
before Economic
figures
“Risk” trading : quote request in future level / BNP bears all exec risk
02 May 2009
7
Agency vs. Risk – BPSO3 <GO>
02 May 2009
8
3 – Trading Futures with BNP Paribas
02 May 2009
9
Trading Futures with BNP Paribas
n
Electronic order book only accounts for 45% of the total volume
n
BNP Paribas is the 1st market maker in the order book :
n
80% of the time posting liquidity on the touch
n
120M€ average daily volume
n
But 1st limits have small NNN (usually 800k€)
n
Eurex block trade size on Sector Futures is 250 (2.5M€ on average)
n
We can quote Agency / at Risk the 38 Sectorial Futures + 3 Sizes + Stoxx600
n
We can also quote EFPs and Roll markets
02 May 2009
10
Trading Futures with BNP Paribas
Electronic order book : Sectorial Futures
Number of lots traded & market share
400,000
52%
54%
0.6
53%
350,000
0.5
46%
300,000
37%
250,000
Paribas
30% Trading Futures with BNP
28%
27%
25%
31%
200,000
33%
0.4
42%
33%
34%
0.3
20%
150,000
13%
100,000
10%
0.2
26%
14%
14%
12%
0.1
50,000
5%
0
Ja
n-
07
Fe
b0
M 7
ar
-0
7
A
pr
-0
7
M
ay
-0
7
Ju
n07
Ju
l-0
7
A
ug
-0
Se 7
p07
O
ct
-0
7
N
ov
-0
D 7
ec
-0
7
Ja
n08
Fe
b0
M 8
ar
-0
8
A
pr
-0
8
M
ay
-0
8
Ju
n08
Ju
l-0
8
A
ug
-0
Se 8
p08
O
ct
-0
8
0
# lots traded
Market share
02 May 2009
11
Trading Futures with BNP Paribas
n
Capacity to trade any Stoxx Sectorial Future
SX3E
DJES FD&BV
SX3P
DJS FD&BV
SCXP
DJSEEP SC
SX4E
DJES CHEM
SX4P
DJS CHEM
MCXP
DJSEEP MC
SX6E
DJES UTIL
SX6P
DJS UTIL
LCXP
DJSEEP LC
SX7E
DJES BANKS
SX7P
DJS BANKS
SX8E
DJES TECH
SX8P
DJS TECH
SXXP
DJ STOXX 600
SXAE
DJES AUTO
SXAP
DJS AUTO
SXDE
DJES HEA CR
SXDP
DJS HEA CR
SXEE
DJES OIL&GAS
SXEP
DJS OIL&GAS
SXFE
DJES FI SV
SXFP
DJS FI SV
SXIE
DJES INSUR
SXIP
DJS INSUR
SXKE
DJES TELCOM
SXKP
DJS TELCOM
SXME
DJES MEDIA
SXMP
DJS MEDIA
SXNE
DJES IG&S
SXNP
DJS IG&S
SXOE
DJES CNS&MT
SXOP
DJS CNS&MT
SXPE
DJES BAS RS
SXPP
DJS BAS RS
SXQE
DJES PR&HO
SXQP
DJS PR&HO
SXRE
DJES RET
SXRP
DJS RET
SXTE
DJES TR&LS
SXTP
DJS TR&LS
SX86E
DJES REA ES
SX86P
DJS REA ES
02 May 2009
12
Titre de la présentation
BNPP Equity Derivatives Strategy
Sector Trading: New Trend or Natural Trade?
Edmund Shing
[email protected]
Phone: + 33 1 40 14 11 43
June 4, 2009
Contents
1.
How We Generate Ideas
2.
Short-Term Trading vs. Long-Term Strategy
3.
Short-Term Sector Trading
4.
Example Strategy: Oil & Gas vs. Construction
5.
Long-Term Sector Strategy: Key Themes
6.
Our Favoured Long-Term Strategy
7.
Conclusion
8.
A1. BNPP Custom Indices: Another Option To Play Themes
9.
A2. Sector/Cross-Asset Research: Our Product Range
02 May 2009
14
1 – How We Generate Ideas
02 May 2009
15
How EDS IS Differentiated: Leveraging Derivatives, Cross-Asset Expertise
EQD Cross-Asset Expertise
Volatility, Dividends, Convertibles
(Key differentiating factor)
Transversal Themes
(Sector/Industry drivers)
Credit, Commodities, FX
EDS Sector Strategy
(relative to market,
pair trades)
Technical Analysis
(Timing)
Macro-Economy
Company Analysis
Exane BNP-Paribas*
* Exane BNP-Paribas is an independent research-driven entity in European cash equities:
BNP-Paribas is a partner with Exane, with a 50% stake in Exane’s holding company
02 May 2009
16
2 – Short-Term Trading vs. Long-Term Strategy
02 May 2009
17
Short-Term Sector Trading vs. Long-Term Sector Strategy
Short-Term Trading
n
Can be driven by crossasset factors like FX,
Commodities, Seasonal
factors;
n
Can be Event-Driven
(Results, M&A);
n
Can focus on rebounds in
forecast earnings
momentum.
Long-Term Strategy
n
More driven by longer-term
macro trends in GDP growth,
inflation;
n
Driven more by top-line
growth, profit margin/ ROE
trends;
n
Focus more on relative
valuations;
n
More emphasis on total return,
hence dividends;
Technical factors:
n
Reversion to Mean plays;
Technical factors:
n
Oscillators e.g. Bollinger
Bands + RSI.
n
Long-term trend/ momentum
plays.
02 May 2009
18
3 – Short-Term Sector Trading
02 May 2009
19
Short-Term Trading: FX
FX: Autos, Industrials Correlated to EUR/USD
1.7
140
EUR/USD (lhs)
Indust . Gds. / Market (rhs)
A ut os / Market (rhs)
130
1.6
120
1.5
110
1.4
100
1.3
1.2
Jan 08
90
80
A pr 08
Jul 08
Oct 08
Jan 09
A pr 09
Source: BNP Paribas, Bloomberg
02 May 2009
20
Short-Term Trading: Commodities
Basic Resources vs. CRB Raw Industrials index
index
600
CRB Raw Industrials index (lhs)
Basic Resources / Market (rhs)
relative index
140
130
550
120
500
110
450
100
90
400
80
350
300
Jan 08
70
60
Apr 08
Jul 08
Oct 08
Jan 09
Apr 09
Source: BNP Paribas, Bloomberg
02 May 2009
21
Short-Term Trading: Event-Driven
Events: 3GSM and Technology sector
115
Technology / Market
110
Outperformance preGSM conf.
105
100
GSM Barcelona
conference
95
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Source: BNP Paribas, Bloomberg
02 May 2009
22
Short-Term Trading: Reversion To Mean
Oil & Gas/ Construction Ratio: Bollinger Bands + RSI
1.6
SXEP/ SXOP sector ratio
40wk moving average
RSI difference (rhs)
80
1.5
1.4
60
1.3
1.2
40
1.1
1.0
20
0.9
0.8
0
0.7
0.6
0.5
Jan 08
-20
Apr 08
Jul 08
Oct 08
Jan 09
Apr 09
Source: BNP Paribas, Bloomberg
02 May 2009
23
4 – Our Favoured Short-Term Strategy
02 May 2009
24
Example Short-Term Strategy: Oil & Gas vs. Construction
n
EPS Momentum: EPS upgrades
should follow from :
1.
Higher crude oil price,
2.
Higher R&M profits on better
refining margins,
Oil Price Not In Consensus EPS Yet
EPS
60
55
3.
Ongoing cost-cutting efforts at
majors like BP.
Brent crude oil, $/bbl (rhs)
SXEP: 2009e consensus EPS
SXEP: 2010e consensus EPS
$/bbl
160
140
50
120
45
100
40
80
35
60
30
40
25
n
Events to come: Onset of US
driving season to drive seasonal
gasoline demand.
20
Jan
20
Apr
Jul
Oct
Jan
Apr
Oil & Gas Relative Performance
n
n
FX: Weaker US Dollar helping
commodity prices, indirectly helping
Oil & Gas.
Dividends: A heavy dividend
payer, with dividends not at risk if
crude prices > $40/bbl.
index relative to STOXX
140
Oil & Gas
Brent crude oil, $/barrel (rhs)
$/bbl
160
140
130
120
120
100
110
80
60
100
40
90
20
Jul
Oct
Jan
Apr
Jul
Oct
Jan
Apr
Source: BNP Paribas Bloomberg, JCF Factset
02 May 2009
25
Example Short-Term Strategy: Oil & Gas vs. Construction (2)
n
EPS Momentum: EPS
downgrades continue on poor
recent results from heavyweight
Bouygues, with extra pressure on
Construction margins to come.
Net Debt Levels Still Very High
5
140
Const ruction: Net Debt/ EBITDA (lhs)
130
Const ruction: Gearing %(rhs)
120
4
110
100
90
3
n
Debt refinancing: recent capital
raising may not be sufficient to
tackle debt refinancing required.
80
70
2
60
50
1
n
Event – Rising Energy prices:
equals rising costs for Construction
companies, particularly for cement
makers.
40
1999
Valuations: Relatively expensive
vs. cycle averages on both
EV/EBITDA and EV/EBIT.
2003
2005
2007
2009e
Construction Valuations Not Cheap
15
14
13
n
2001
Construct ion: EV/ EBITDA
Construct ion: EV/ EBIT
12
11
10
9
8
7
6
5
1999
2001
2003
2005
2007
2009e
Source: BNP Paribas, Exane BNP Paribas
02 May 2009
26
5 – Long-Term Sector Strategy: Key Themes
02 May 2009
27
Macro Theme: Deflation or Reflation?
Euro Zone Debt Deflation Under Way
Inflation Coming Back?
%
4
%
4
3
3
%
18
16
2
2
1
1
0
0
-1
US 5-year breakeven inflation %
UK 5-year breakeven inflation %
French 5-year breakeven inflation %
-2
Jan 06 Jul 06 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09
Source: BNP Paribas, Bloomberg
-1
-2
%
18
Euro zone loans to households y/y
ECB M1 y/y
Euro zone loans to non-f inancial corporates y/y
16
14
14
12
12
10
10
8
8
6
6
4
4
2
2
0
0
-2
2003
-2
2004
2005
2006
2007
2008
2009
Source: BNP Paribas, Bloomberg
02 May 2009
28
Macro Theme: Deflation or Reflation? (2)
Nominal Bond Yields Falling
11
30-yr avg. US fixed mortgage rate %
US 10-year bond yield %
10
But Real Rates At Multi-Decade High!
11
9
8
8
7
7
6
6
5
5
3
Downtrend in
nominal yields
2
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Source: BNP Paribas, Bloomberg
8
10
9
4
8
4
3
2
But real rates
at 20yr peak!
6
6
4
4
2
2
0
0
Real 30y fixed mortgage rate %
Real 10y Bond Yield %
-2
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
-2
Source: BNP Paribas, Bloomberg
02 May 2009
29
Cross-Asset Theme: Dislocation Corrected, Now What?
Corporate Spread, Volatility Back to Q3 2008
%
2.5
iTraxx Europe 5Y CDS (lhs)
%
90
VIX volatility index (rhs)
80
2.0
70
Are Leading Indicators Running Out of Steam?
70
70
60
60
50
50
60
1.5
50
40
1.0
30
20
0.5
40
10
0.0
2006
0
2007
Source: BNP Paribas, Bloomberg
2008
2009
40
US ISM Non-Manufacturing survey
US ISM Manufacturing survey (rhs)
Chicago PMI survey
30
2005
30
2006
2007
2008
2009
Source: BNP Paribas, Bloomberg
02 May 2009
30
Commodities Theme: Oil, Metals, Grains Reviving Despite Growth Slump
CRB Commodities Index Cross 200-day MAV: Back To Bull Trend?
500
140
OECD Total leading indicator (rhs)
CRB Commodities index
CRB 200-day moving avg.
400
130
300
120
200
110
100
100
0
1975
90
1980
1985
1990
1995
2000
2005
Source: BNP Paribas, Bloomberg
02 May 2009
31
Dividend Theme: Dividends To Fuel Total Return In Future
Big Upside: 2010 Implied Dividend vs. BNPP
140
Dividends Back In Vogue Recently
130%
123
120
2010
107
2011
2012
120%
100
110%
79
73
80
100%
60
40
Bear
Source: BNP Paribas, Bloomberg
Base
Bloomberg
Implied
90%
Feb-09
Mar-09
Apr-09
Source: BNP Paribas, Bloomberg
02 May 2009
32
6 – Our Favoured Long-Term Strategy
02 May 2009
33
Example Long-Term Strategy: Retail vs. Personal Gds.
n
Retail Momentum: Despite the
clear trading-down trend in
consumer spending, Food retailers
have won both on own-brand
margins and non-food market share
gains, plus strong overseas growth.
Retail vs. P&H Goods: Long-Term Trend Breakout
relative index
100
Retail/P&H Goods
90
80
70
n
Personal Goods: Contrary to
conventional wisdom, this sector is
more exposed to consumer tradingdown, wealth destruction than
European Retail.
60
50
40
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Retail at Valuation Discount To Personal Goods
n
Valuation: Despite better EPS
momentum, Retail remains at a P/E
discount, div. yield premium to
Personal Goods.
30
PE premium: SXRP/SXQP (%, rhs)
SXQP: P & H. Gds. P/E +12m (lhs)
SXRP: Retail P/E +12m (lhs)
25
20
40
20
10
10
Break from LT Downtrend: after 8
years of relative underperformance, Retail has now
broken out to the upside.
50
30
15
n
60
0
5
0
1999
-10
-20
2001
2003
2005
2007
2009
Source: BNP Paribas Bloomberg, JCF Factset
02 May 2009
34
Example Long-Term Strategy: Retail vs. Personal Gds. (2)
Food Retail Like-for-Like Sales Growth Resilient
n
Top-Line Growth: More resilient in
Food Retailers (2/3rds of SXRP
weighting) than in Luxury Goods
(1/4 of SXQP weighting).
Luxury Goods, LFL sales y/y %
15
Food Retail, LFL sales y/y %
10
5
0
n
Personal Goods More
Economically-sensitive: Luxury
Goods, Home Electricals, Personal
Care products all more vulnerable
to a weak global consumer.
-5
-10
1999
2001
2003
2005
2007
2009e
Luxury Goods Profit Margins Suffer More
n
Profit Margins: Holding up well at
food retailers (own-brand products
carry higher margins), while
suffering at Luxury Goods, Home
Electricals on 2009e sales
declines.
5.0
25
4.5
20
4.0
15
3.5
Food Retail, EBIT mgn % (lhs)
Luxury Goods, EBIT mgn % (rhs)
3.0
10
1999
2001
2003
2005
2007
2009e
Source: BNP Paribas, Exane BNP Paribas
02 May 2009
35
7 – Conclusion
02 May 2009
36
Sectors: Short-Term Trading, Long-Term Strategy Both Valid Approaches
Short-Term Trading:
Long-Term Strategy:
Oil & Gas vs. Construction
Retail vs. Personal Goods
n
Oil & Gas helped by seasonal
factor (US driving season);
n
Valuation discount (P/E, DY)
of Retail to Personal Goods;
n
Oil & Gas EPS momentum to
turn more favourable on oil
price rebound, higher refining
margins;
n
While Retail has better, less
volatile top-line growth, profit
margin trends
n
n
Dividend yields, security
favour Oil & Gas (total return);
More macro sensitivity to
consumer wealth effect in
Personal Goods than Retail;
n
Sector Ratio Rebounding off
technical lows on Bollinger
Bands, RSI.
n
Breakout to upside from longterm downtrend in
Retail/Personal Goods ratio.
02 May 2009
37
A1 – Sector, Cross-Asset Research: Our Product Range
02 May 2009
38
EDS Sector, Cross-Asset Research
Cross-Asset Monthly (12 pgs)
Sector Strategy: Trade Ideas (3-4 pgs)
02 May 2009
39
A2 – Playing Themes via BNPP Custom Indices
02 May 2009
40
Playing Themes via BNP Paribas Custom Indices
Thematic Indices Return YTD and Since March 09
n
BNP Paribas custom indices
have outperformed “traditional”
sectors YTD (with the
exception of Basic Materials)
n
Thematic indices include
companies which tackle
tomorrow’s economic issues
and challenges:
1.
Alternative energy sources (ex:
Renewable Energy, Nuclear);
2.
Increase agricultural production
capacity (Agribusiness);
3.
Impact of economic recovery
plans (Infrastructure).
Ticke r
BNPIGAPR Index
BNPIEIPR Index
BNPIGNPR Index
BNPIEEPR Index
BNPIREPR Index
BNPIGIPR Index
Nam e
BNP Global Agribusiness
BNP Emerging Infrastructure
BNP Global Nuclear
BNP Global Energy Eff iciency
BNP Global Renew able Energy
BNP Global Inf rastructure
YTD
41.0%
30.8%
18.8%
18.6%
17.3%
17.0%
From 01Mar-09
31.9%
38.1%
25.7%
31.2%
36.7%
22.9%
MXWO Index
MXEF Index
SPX Index
SX5E Index
MSCI World
MSCI Emerging Markets
S&P 500
DJ EuroStoxx 50
4.4%
30.7%
1.1%
1.0%
16.0%
34.6%
12.6%
25.1%
MSCI Sectors Return YTD and Since March 09
Tick e r
MXWO0MT Equity
MXWO0IT Equity
MXWO0CD Equity
MXWO0EN Equity
MXWO0FN Equity
MXWO0IN Equity
MXWO0CS Equity
MXWO0HC Equity
MXWO0TC Equity
MXWO0UT Equity
Nam e
Materials
Inf ormation Technology
Consumer Discretionary
Energy
Financials
Industrial
Consumer Staples
Healthcare
Telecom
Utilities
Sectors Average
YTD
22.3%
16.0%
11.3%
8.0%
5.9%
2.1%
-0.7%
-4.9%
-7.6%
-8.9%
4.3%
Fr om 01M ar -09
29.6%
16.1%
18.9%
12.2%
41.1%
21.4%
5.1%
2.3%
-1.4%
0.1%
14.5%
Source: Bloomberg. Returns are calculated on a price return basis, in Euros, as of May 27, 2009
02 May 2009
41
“New” Sectors: BNP-Paribas’ Range of Thematic Indices
n
Global Infrastructure Indices
n
Paribas Global Renewable Energies Indices
n
Global Nuclear Indices
n
Global Water Indices
n
Global Waste Management Indices
n
Global Agribusiness Indices
n
Emerging Infrastructure Indices
n
Global Energy Efficiency Indices
n
Global Grey Gold Indices
n
Asian Plantation Indices
n
Asia Consumer Demand Indices
n
Next 11 Core 8 Indices
n
Ethibel Titan 15 Index
For more information, please contact your
BNPP Flow Sales contact or send us an
email at:
[email protected]
These indices are available either
in ETF or ETN formats
More information available on
our web site :
www.bnpparibasindex.com
02 May 2009
42
Conclusion & Contacts
5 – Conclusion & Contacts
n
Paris Flow Sales
§ Aymeric Aubry +33.1.57.43.86.05
n
London Flow Sales
§ Uriel Kutnowski +44.207.595.8733
n
Paris Sectors Trading (IDB)
§ Aurélien Cristini +33.1.55.77.69.29
Questions ?
02 May 2009
43
Disclaimer
Financial transactions involve risks of variation in interest rates, exchange rates, securities, commodities or indices. In view of these risks BNP Paribas’ clients should have the requisite knowledge and experience to assess the
characteristics and risks associated with each contemplated financial transaction. BNP Paribas will provide any additional information, reasonably requested by the client, in order to enable it to assess the risks and
characteristics of the transaction. Accordingly, when the client enters into the contemplated financial transaction, he will be deemed to understand and accept the terms, conditions and risks associated with it. The client will also
be deemed, to act for its own account, to have made its own independent decision to enter into that financial transaction and to declare that such transaction is appropriate or proper for it based upon its own judgment and upon
advice from such advisers as it has deemed necessary. BNP Paribas’ clients are finally required to undertake a detailed analysis of all financial, legal, regulatory, accounting and tax issues raised by any transaction they are
contemplating, so as to evaluate the merits and suitability of the transaction and should not rely on BNP Paribas for this.
The information contained herein is provided to the client by BNP Paribas on a strictly confidential basis. It may not be reproduced (in whole or in part) or delivered to any other person without the prior written permission of BNP
Paribas. Although the information in this document has been obtained from sources which BNP Paribas believes to be reliable, BNP Paribas does not represent or warrant its accuracy and such information may be incomplete or
condensed. Information in this publication is intended as a general outline of the subjects covered and should not be regarded as comprehensive or sufficient for making decisions, nor should it be used in place of professional
advice. Any prices or examples of possible transactions contained in this document are set out for illustrative purposes only and do not constitute any form of offer from BNP Paribas to trade on such terms or constitute an
indication that it is possible to trade on those precise terms. All estimates and opinions included in this document constitute the judgement of BNP Paribas as of the date of the document and may be subject to change without
notice. BNP Paribas does not accept responsibility for any loss arising from any action taken by anyone using this material. BNP Paribas and its affiliates may, from time to time, effect or have effected an own account transaction
in, or make a market or deal as principal in or for, the instruments mentioned herein, or in options, futures and other derivative instruments based thereon and may, to the extent permitted by law, have acted upon or used the
information herein contained, or the analysis upon which it is based. This document is prepared for professional investors and is not intended for Private Customers and should not be passed on to any such persons.
© BNP Paribas (2008). All rights reserved
02 May 2009
44