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DGAP-News: Silvia Quandt&Cie. AG, Merchant&Investment Banking: In-between the lines - Bernhard Eschweiler

ID: 731513

(firmenpresse) - DGAP-News: Silvia Quandt&Cie. AG, Merchant&Investment Banking /
Schlagwort(e): Sonstiges
Silvia Quandt&Cie. AG, Merchant&Investment Banking: In-between the
lines - Bernhard Eschweiler

28.09.2012 / 08:46

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- Aggregated policy stimulus is lifting asset prices and growth prospects

- But four risk areas persist

1- Insufficient private sector response

2- Trouble with Greece and Spain

3- US fiscal tensions after election

4- Conflict between Iran and Israel

The last two weeks have been more of the same: soft economic data and
bullish markets. The economic data has improved a tiny bit in the sense
that conditions failed to deteriorate further, but the level of global
activity remains sluggish. The best news comes from business sentiment
indicators, which point to some improvement in orders versus inventories
and hiring intensions. Asset prices, on the other hand, especially global
equity markets, have remained buoyant. This week has started weaker, but
there is a sense that underlying sentiment remains optimistic. The market
rally has been fueled by central bank action around the globe. Some fear
that this liquidity induced rally will not last long and have little impact
on real growth. There are notable risks, but we believe that the
aggregated impact of the global monetary action is still underestimated.

At the start of the year, we put out a DAX target of 7500 for this year.
We came close to the target in the first quarter and are even closer now.
Looking ahead, the fundamentals are in place for further upside in 2013.
However, volatility is also high as we had predicted and there are several
risk factors that could lead to a temporary correction in the fourth
quarter.

Uncoordinated policy impatience

To an outside observer it may seem that the series of monetary measures
over the last few weeks by central banks in both industrialized and
emerging economies was coordinated. That was probably not the case.
Instead, each central bank seems to be responding with growing impatience
(and in some cases concern) to its own do-

mestic economic conditions. And with interest rates near zero in the major
industrialized economies, that easing is coming through unconventional
'quantitative' measures. To the extent that there is a link between
central bank actions, this is more a sign of defense than coordination. A
good case in point is Brazil, which drastically cut reserve requirements to
boost liquidity and prevent currency appreciation. The easing is probably
also not yet over. We expect the ECB to lower the refi rate by at least
50bps. China has revived credit growth, but a further stimulus push is
likely to follow soon after the leadership change in October.

Finally, not just monetary policy is pushing for growth. The most
prominent case is last week's Swedish fiscal stimulus package. In the Euro
area, fiscal policy is not turning around, but the degree of tightening
seems to be easing, especially in the crisis economies. The aggregated
impact of all these monetary and fiscal actions is probably underestimated
by both policy makers and markets. The result is likely to be stronger
financial and economic performance. However, four key risks remain.

1- Battling the liquidity trap

The most general risk is that the easing fails to trigger an adequate
private-sector response. Output and business sentiment indicators exhibit
a downward bias. This needs to be reversed. There are some positive
demand indicators, like car sales, but they are not yet strong enough. The
impact of policy action is less of a concern for emerging markets, since
they are not in a deleveraging mode and have enough room to ease via
conventional policy tools. The concern applies mostly to the major
industrial central banks (Fed, ECB, BoE, BoJ). Some argue that the
quantitative easing only creates asset bubbles. However, asset markets are
the main transmission channel through which monetary policy can affect the
real economy (wealth effect and sentiment). So far, the track record has
been mixed. Especially the BoJ has struggled to gain traction. Halfway
measures are likely to fail. The Fed and the ECB have learned that lesson.
Their actions leave little doubt about their intensions and are likely to
have a significant impact.

2- Recurring Euro-area tensions

In the Euro area, the main concern is about risks outside of the direct
control of monetary policy. Markets are currently impressed by the ECB
announcement, but events can change this quickly.

- One event risk is Greece. The Troika report will probably fail to make
a clear recommendation. Realistically, Greece needs a third package
with a second restructuring. This is very unlikely to happen. On the
other hand, Greece will probably not leave the Euro voluntarily. It
could get pushed, but this is not the most likely scenario either. In
particular, Germany's chancellor Merkel fears the behavioral response
of depositors in other crisis countries. Thus, most likely is another
fudge (front-loading of the current program with some other EU aid),
which only postpones the tough issues.

- The second event risk is Spain. This could be triggered by Greece or
emerge separately (banking issues, regional issues, market impatience).
Ideally, Spain should apply for a precautionary credit line from the
EFSF/ESM as soon as possible to get ECB support when needed. However,
that seems not to be happening. Whether the reluctance is pride or a
tactical maneuver is not clear. Also unhelpful is that Germany is not
encouraging Spain as it tries to avoid another debate in the Bundestag
for domestic political reasons (especially as voting for a Spanish
program means giving the ECB the green light).

In our judgment, neither Spain nor Greece will trigger a full-blown crisis.
In particular, Spain will eventually request and get a precautionary credit
line and with it ECB support. However, the process to that outcome is
likely to be pumpy and could result in a significant (albeit temporary)
market correction.

- US fiscal tensions after the election

Another concern is that markets have become very sanguine about US election
and fiscal risks. Consensus growth forecasts for 2012 and 2013 imply no
significant change in the fiscal policy stance following the election,
especially no automatic implementation of the fiscal 'cliff'. Indeed, the
fiscal 'cliff' becoming just a 'speed pump' is the most likely outcome.
But the risks are biased to the downside if the election outcome is an
emboldened second Obama administration and a strong Republican majority in
the house. We have no insight how likely such an outcome is, but view this
scenario as an underestimated risk, which could soon after the election
lead to a conflict between the administration and the house over both the
handling of the fiscal 'cliff' as well as the approaching debt ceiling.
The result could be a similar impasse as in mid 2011 and whether the Fed's
new QE program is sufficient to overcome this is not clear.

- Escalating conflict in Middle East

Another area where markets seem to have become complacent is the Middle
East, especially the tensions with Iran. Again, we have no particular
insight, but clear is that Israel believes that the situation has come to
the point of no return. In other words, the question of an Israeli
airstrike against Iranian nuclear facilities is probably when and not if.
And with an airstrike for military reasons unlikely in the winter months,
the timing could be either in the next two months or later next year. A
second risk is the deployment of chemical weapons by the Assad regime
against the Syrian opposition and the likely military response by both the
US and Israel.

To be sure, our underlying scenario is positive. We believe that the
aggregated policy actions around the world will have a positive impact on
asset markets and growth prospects. In the transition before these
measures have an impact, however, we see substantial risks for a
correction, especially in the fourth quarter.

Disclaimer

This analysis was prepared by Bernhard Eschweiler, Senior Economic Advisor,
and was first published 28 September 2012, Silvia Quandt Research GmbH,
Grüneburgweg 18, 60322 Frankfurt is responsible for its preparation. German
Regulatory Authority: Bundesanstalt für Finanzdienstleistungsaufsicht
(BaFin), Graurheindorfer Str. 108, 53117 Bonn and Lurgiallee 12, 60439
Frankfurt.

Publication according to article 5 (4) no. 3 of the German Regulation
concerning the analysis of financial instruments (Finanzanalyseverordnung):

Number of recommendations Thereof recommendations for issuers to which
from Silvia Quandt Research investment banking services were provided
during
GmbH in 2012 the preceding twelve months
Buys: 75 26
Neutral: 59 8
Avoid: 8 0

Company disclosures

Article 34b of the German Securities Trading Act (Wertpapierhandelsgesetz)
in combination with the German regulation concerning the analysis of
financial instruments (Finanzanalyseverordnung) requires an enterprise
preparing a securities analysis to point out possible conflicts of interest
with respect to the company or companies that are the subject of the
analysis. A conflict of interest is presumed to exist, in particular, if an
enterprise preparing a security analysis:

(a) holds more than 5 % of the share capital of the company or companies
analysed;

(b) has lead managed or co-lead managed a public offering of the
securities of the company or companies in the previous 12 months;

(c) has provided investment banking services for the company or companies
analysed during the last 12 months for which a compensation has been or
will be paid;

(d) is serving as a liquidity provider for the company's securities by
issuing buy and sell orders;

(e) is party to an agreement with the company or companies that is the
subject of the analysis relating to the production of the recommendation;

(f) or the analyst covering the issue has other significant financial
interests with respect to the company or companies that are the subject of
this analysis, for example holding a seat on the company's boards.

In this respective analysis the following of the above-mentioned conflicts
of interests exist: none

Silvia Quandt Research GmbH, Silvia Quandt&Cie. AG, and its affiliated
companies regularly hold shares of the analysed company or companies in
their trading portfolios. The views expressed in this analysis reflect the
personal views of the analyst about the subject securities or issuers. No
part of the analyst's compensation was, is or will be directly or
indirectly tied to the specific recommendations or views expressed in this
analysis. It has not been determined in advance whether and at what
intervals this report will be updated.

Equity Recommendation Definitions Silvia Quandt Research GmbH analysts rate
the shares of the companies they cover on an absolute basis using a 6 -
12-month target price. 'Buys' assume an upside of more than 10% from the
current price during the following 6 - 12-months. These securities are
expected to out-perform their respective sector indices. Securities with an
expected negative absolute performance of more than 10% and an
under-performance to their respective sector index are rated 'avoids'.
Securities where the current share price is within a 10% range of the
sector performance are rated 'neutral'. Securities prices used in this
report are closing prices of the day before publication unless a different
date is stated. With regard to unlisted securities median market prices are
used based on various important broker sources (OTC-Market).

Disclaimer This publication has been prepared and published by Silvia
Quandt Research GmbH, a subsidiary of Silvia Quandt&Cie. AG. This
publication is intended solely for distribution to professional and
business customers of Silvia Quandt&Cie. AG. It is not intended to be
distributed to private investors or private customers. Any information in
this report is based on data obtained from publicly available information
and sources considered to be reliable, but no representations or guarantees
are made by Silvia Quandt Research GmbH with regard to the accuracy or
completeness of the data or information contained in this report. The
opinions and estimates contained herein constitute our best judgement at
this date and time, and are subject to change without notice. Prior to this
publication, the analysis has not been communicated to the analysed
companies and changed subsequently. This report is for information purposes
only; it is not intended to be and should not be construed as a
recommendation, offer or solicitation to acquire, or dispose of, any of the
securities mentioned in this report. In compliance with statutory and
regulatory provisions, Silvia Quandt&Cie. AG and Silvia Quandt Research
GmbH have set up effective organisational and administrative arrangements
to prevent and avoid possible conflicts of interests in preparing and
transmitting analyses. These include, in particular, inhouse information
barriers (Chinese walls). These information barriers apply to any
information which is not publicly available and to which any of Silvia
Quandt&Cie. AG and Silvia Quandt Research GmbH or its affiliates may have
access from a business relationship with the issuer. For statutory or
contractual reasons, this information may not be used in an analysis of the
securities and is therefore not included in this report. Silvia Quandt&Cie. AG and Silvia Quandt Research GmbH, its affiliates and/or clients may
conduct or may have conducted transactions for their own account or for the
account of other parties with respect to the securities mentioned in this
report or related investments before the recipient has received this
report. Silvia Quandt&Cie. AG and Silvia Quandt Research GmbH or its
affiliates, its executives, managers and employees may hold shares or
positions, possibly even short sale positions, in securities mentioned in
this report or in related investments. Silvia Quandt&Cie. AG in
particular may provide banking or other advisory services to interested
parties. Neither Silvia Quandt Research GmbH, Silvia Quandt&Cie. AG or
its affiliates nor any of its officers, shareholders or employees accept
any liability for any direct or consequential loss arising from any use of
this publication or its contents. Copyright and database rights protection
exists in this publication and it may not be reproduced, distributed or
published by any person for any purpose without the prior express consent
of Silvia Quandt Research GmbH. All rights reserved. Any investments
referred to herein may involve significant risk, are not necessarily
available in all jurisdictions, may be illiquid and may not be suitable for
all investors. The value of, or income from, any investments referred to
herein may fluctuate and/or be affected by changes in exchange rates. Past
performance is not indicative of future results. Investors should make
their own investment decisions without relying on this publication. Only
investors with sufficient knowledge and experience in financial matters to
evaluate the merits and risks should consider an investment in any issuer
or market discussed herein and other persons should not take any action on
the basis of this publication.

Specific notices of possible conflicts of interest with respect to issuers
or securities forming the subject of this report according to US or English
law: None

This publication is issued in the United Kingdom only to persons described
in Articles 19, 47 and 49 of the Financial Services and Markets Act 2000
(Financial Promotion) Order 2001 and is not intended to be distributed,
directly or indirectly, to any other class of persons (including private
investors). Neither this publication nor any copy of it may be taken or
transmitted into the United States of America or distributed, directly or
indirectly, in the United States of America.

Frankfurt am Main, 28.09.2012

Silvia Quandt Research GmbH
Grüneburgweg 1860322 Frankfurt
Tel: + 49 69 95 92 90 93 -0
Fax: + 49 69 95 92 90 93 - 11

Ende der Corporate News

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Datum: 28.09.2012 - 08:46 Uhr
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