DGAP-News: Silvia Quandt&Cie. AG, Merchant&Investment Banking: In-between the lines - Bernhard Eschweiler
(firmenpresse) - DGAP-News: Silvia Quandt&Cie. AG, Merchant&Investment Banking /
Key word(s): Miscellaneous
Silvia Quandt&Cie. AG, Merchant&Investment Banking: In-between the
lines - Bernhard Eschweiler
24.03.2011 / 16:16
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- Risk of larger global economic impact from Japan declining but not zero
- Policy normalization likely to continue
- Impact on energy strategies differs
Two weeks have passed since the catastrophic earthquake in Japan and the
world is still trying to understand the full extent of the fallout.
Conditions on the ground are not yet stable. The area hit by the
earthquake and the Tsunami remains in a stage of emergency, the situation
in the Fukushima nuclear plant is not under control and radioactive
contamination is spreading. Nevertheless, the absence of escalating bad
news from Fukushima is cause for hope.
Financial markets are reflecting this positive sentiment. At this stage,
it is impossible to assess the full impact of events in Japan on the global
economy with high certainty. Nevertheless, we can outline the paths of
likely effects and come to some basic assessments of the overall economic
impact. For Germany, we believe the economic impact is small. More
material is the effect on Germany's energy strategy.
Economic fallout from Japan
After a soft fourth quarter, Japan was heading for solid 2% growth in the
first half of this year. Power cuts, disruptions in transportation and
supply chains as well as destruction of facilities and equipment have led
to significant production losses that will reduce overall economic activity
in March and April. The net effect on Japanese GDP for the first half will
range between stagnation and recession. Judging by past experience, both
in Japan as well as other areas struck by natural disasters, the initial
production loss should be offset by the impact of the subsequent
reconstruction effort. Rebuilding will take several years, but the
positive impetus will be most visible within the first twelve months after
the downturn. The risk is that the situation in Fukushima worsens and
leads to a widespread contamination that paralyses daily life and business
activities and inhibits the reconstruction efforts.
The impact of a recession in Japan and the disruption of supply chains will
be most felt in the rest of Asia. Japan accounts for roughly 9% of Asian
exports and 13% of Asian imports. Within Asia, the exposure is also mixed,
with the Philippines on the high side, South Korea on the low side and
China in the middle. For Western OECD economies, Japan accounts for less
than 3% of exports and less than 4% of imports. For Germany, the exposure
is only 1.3% of exports and 2.7% of imports.
Overall, the Japanese economy accounts for roughly 8% of global GDP. The
direct impact of a recession in Japan should reduce global growth by only a
couple tenths of a percentage point. Asia will feel the pinch the most,
but the effect should be transitory, similar to an inventory adjustment.
For Germany, the aggregated effect is not significant. Some firms have to
deal with supply bottlenecks, but other firms should temporarily profit
from less competition from Japan in global markets. In aggregate, we see
no reason to revise our 3% growth outlook for 2011 given current
information.
The situation looks different if a widespread nuclear contamination leads
to a prolonged slump in Japan. This is not the most likely outcome given
current information, but remains a significant risk that could have larger
multiplier effects on the global economy, especially if it has a more
prolonged impact on the rest of Asia and unsettles financial markets.
The impact of events in Japan on the global economy also depends on the
environment. Pessimists fear that Japan is another shock in a string of
negative events (rising oil prices, European debt crisis, etc.) that could
bring a still fragile global economy to its knees. The actual data,
however, is telling a different story. The JPMorgan global manufacturing
PMI, for example, rose to its second-highest ever level in February despite
a 30% increase in oil prices over the previous six months. The improved
confidence is not only reflected in higher production and orders, but also
in rising employment. Even the most fragile parts, such as the Euro-area
periphery, are doing better. The resilience shows that the global economy
is not in a late cyclical stage. Excesses and leverage have been reduced.
Furthermore, economic policies, especially monetary policy, are still very
supportive.
This is also reflected in financial conditions. Yes, equity markets have
sold off in response to events in Japan, but that has not resulted in a
liquidity squeeze. Dollar and Euro Libor rates have not responded to the
events in Japan. Dollar Libor remained essentially unchanged. Euro Libor
moved higher before the earthquake in anticipation of ECB tightening, but
was stable since then. The stability in liquidity conditions means that
financial markets are not compounding the negative impact from Japan.
Monetary policy normalization to continue
Bottom line, the global economy will most likely stay on track unless the
situation in Japan takes a significant turn for the worse. That means the
policy normalization will also continue. Indeed, several emerging markets
have tightened monetary policy since the Japanese earthquake, notably China
and India. ECB board members may have had second thoughts for a short
moment, but have probably resumed their pre-earthquake tightening bias.
Thus, spring still stays on our calendar for the first ECB rate move.
Having said that, we reiterate our view that the ECB will probably raise
rates by only 50 basis points this year.
Impact on energy strategies
Fukushima is a reminder that mankind is not in full control of nature. A
common response around the globe is to review nuclear safety standards.
Higher safety standards will result in higher cost and make nuclear energy
on the margin less attractive versus fossile and renewable energy.
Indeed, Fukushima will give the development and use of renewable energy a
big push world wide. However, not many countries are likely to
follow
Germany and accelerate the exit from nuclear energy. With roughly¾of
the population opposed, nuclear energy is no longer politically feasible in
Germany. Moreover, Germany is in a better position to afford an early
exit, thanks to no longer rising energy needs and the advanced use of
renewable energy. Most of the large emerging markets, in contrast, will
continue to expand their nuclear energy programs, albeit with higher safety
standards, as their industrilization and shift to modern consumer societies
will boost energy requirements.
Germany's decision to accelerate the exit from nuclear energy is not
costless. Electricity forward prices jumped 10% on the news, although the
move was moderate by past standards (forwards spiked 50% in 2008H1). On
the other hand, Germany also stands to benefit. The development and use of
renewable energy technologies was already an important growth factor in
recent years. This trend will continue and possibly strenghten as
renewable energy becomes more important in both Germany and other parts of
the world. Germany is also a pioneer in energy efficiency. Whether
insulation or efficient furnaces, German producers of these and other
products in that area will see increased demand from home and abroad.
Growing demand for more efficient energy infrastructures, such as
intelligent grits and decentralized networks, will also play to the
strength and expertise of many German firms. Last but not least has
Germany many companies, large and small, that are experts in nuclear
safety.
Disclaimer
This analysis was prepared by Bernhard Eschweiler, Senior Economic Advisor,
and was first published 24 March 2011, 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 2011 the preceding twelve months
Buys: 92 30
Neutral: 39 2
Avoid: 4 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
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conduct or may have conducted transactions for their own account or for the
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Frankfurt am Main, 24.03.2011
Silvia Quandt Research GmbH
Grüneburgweg 1860322 Frankfurt
Tel: + 49 69 95 92 90 93 -0
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116935 24.03.2011
Datum: 24.03.2011 - 16:16 Uhr
Sprache: Deutsch
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