1. Healthcare

Weekly Market Update | 2 February 2015
WEEKLY MARKET UPDATE
2 February 2015
Still bullish on Europe despite geopolitical risks



Data out of Europe looks to be improving
Citi Economic Surprise Index
A general election in Greece showed the anti-austerity party Syriza won,
with 36% of the vote. The left-wing party has promised to ditch austerity
and renegotiate the country's €240bn bailout with the European Union and
International Monetary Fund.
While Syriza negotiations could run into months, with Greece surviving on
a possible combination of emergency liquidity issuance, arrears on debt
and bill issuance for the government, Citi analysts believe that Greece is
unlikely to spread contagion to other markets and the risk of Grexit is low.
Amidst the political noise, we still view the broad case for European asset
markets as positive with equities and higher-yield bonds being strong
beneficiaries as investors migrate to higher yields and riskier assets. The
recent €1.1 trillion stimulus from the ECB and addition consumption boost
from lower oil prices is likely to provide a tailwind to Europe through 2015.
CESIUSD Index
CESIEUR Index
CESICNY Index
60
30
0
-30
-60
Nov-14
Dec-14
Jan-15
Source: Bloomberg as of 30 January 2015
HY slowly recovering
Accumulated 3-month Bond Index Returns
World Govt Bonds Index
HY Index
Global EMD Index
1%
0%
-1%
-2%
Performance



-4%
The MSCI World index retreated 1.9% to 410.33 for the week. US markets
were also lower, as the Dow Jones Industrial Average dropped 2.9% and
the S&P 500 Index fell 2.8%.
Despite falling 0.46% for the week, the Stoxx Europe 600 still posted its
best January since 1989, climbing 7.2%. Japanese equities also rose with
the Nikkei225 and Topix gaining 0.9% and 0.8% respectively.



-5%
-6%
Nov-14
Dec-14
Equities — QE is generally good for equities. We are overweight in QE
markets although the ECB’s recent actions are priced in. We also prefer US
domestic earners vs. external earners.
Credit — QE episodes are usually supportive for credit spread tightening.
We prefer High Yield bonds over Investment Grade in both Europe and US.
Citi expects € spreads to tighten 20-25%.
Rates — A lower EUR and ECB QE mix likely lowers real yields, raises
breakevens, and sees Bunds underperform USTs and periphery Europe.
Commodities — Demand-supply and USD strength are dominating
commodities. With the outlook for a stronger dollar, upside appears limited
unless there is significant reduction in supply or demand recovery.
Jan-15
Source: Bloomberg as of 30 January 2015
EM equities worst performing
Accumulated 3-month Equity Index Returns
The MSCI Emerging Markets Index fell 3% to 961.61. Within the region,
Emerging Europe and Latin America took a beating, dropping 7% and 6.1%
respectively. The MSCI Asia ex Japan fared better in comparison, losing
1.6%. The Shanghai Composite Index was the biggest underperformer,
sliding 4.2% for the week.
Asset Allocation

-3%
MSCI World
MSCI EM
MSCI Asia
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
-12%
Nov-14
Dec-14
Jan-15
Source: Bloomberg as of 30 January 2015
Week Ahead Key Data and Event
Date
Country
Data & Event
2-Feb
EC
Markit Eurozone Manufacturing PMI
Jan F
51.0
51.0
2-Feb
US
Personal Income
Period Survey
Dec
0.2%
0.4%
Prior
Citi Fct
0.2%
2-Feb
US
Personal Spending
Dec
-0.2%
0.6%
-0.3%
2-Feb
US
ISM Manufacturing
Jan
54.5
55.5
56.0
4-Feb
EC
Markit Eurozone Services PMI
Jan F
52.3
52.3
52.3
4-Feb
EC
Markit Eurozone Composite PMI
Jan F
52.2
52.2
52.2
4-Feb
EC
Retail Sales MoM
Dec
0.0%
0.6%
0.3%
4-Feb
EC
Retail Sales YoY
Dec
2.0%
1.5%
2.4%
6-Feb
US
Change in Nonfarm Payrolls
Jan
235K
252K
275K
6-Feb
JN
Leading Index CI
Dec P
105.4
103.9
105.3
6-Feb
JN
Coincident Index
Dec P
110.5
109.2
110.5
6-Feb
IN
GDP YoY
4Q
--
5.3%
5.6%
51.0
Source: Bloomberg as of 30 January 2015
Page 1
Weekly Market Update | 2 February 2015
Drivers and Risk By Market
United States



Driver: The National Federation of Independent Business surveys still show an
appetite to grow capital investment in 2015 despite the hits coming from the energy
industry. Against this backdrop, expenditures on software and hardware may
continue to climb.
Risk: Recent earnings reports and guidance cuts by several major technology and
industrial companies not to mention the pressures in the oil patch have left investors
wondering about growth prospects, earnings and the economic future. These factors
may erode confidence.
Implication: Low oil prices may present some opportunity within the retailing and
consumer durable sectors. In addition, we continue to see opportunities in Financials
(Banks and REITs) as well as IT (Software & Hardware).
End-2015 Target: 2200
2200
2100
2000
1900
1800
1700
1600
Source: Bloomberg as of 30 January 2015
Europe



Driver: ECB QE is key ingredient in Citi’s bull case for European equities. We retain
our end-2015 Stoxx target of 400 as we see some scope for “double up” - positive
earnings growth & re-rating in Europe.
Risk: Deflation remains a risk but we think that much is already priced in. Political
risks in the Eurozone are rising more broadly as far-left opposition party Syriza won
the elections in Greece and difficult negotiations lie ahead to agree on a follow-up
bailout with Greece’s troika creditors. An agreement may eventually be found due to
the strong mutual incentives of both parties to avoid the worst-case scenarios of
Greek government default or Grexit, but the negotiations may likely be lengthy and
could fail.
End-2015 Target: 400
390
370
350
330
310
290


DJ Stoxx TMI
270
Source: Bloomberg as of 30 January 2015
Implication: To benefit from the QE, our strategy includes (1) Search for yield –
Dividend stocks (Insurance, Telecoms, Banks, Autos), (2) European high yield
bonds, (3) Cyclicals/Financials over Defensives and (4) Stocks with a strong
balance sheet and high sales exposure to the US.
Japan

S&P 500
1500
Driver: Japan’s economy has already escaped from the technical recession and has
returned to a positive growth track in Q4 last year. Japan’s Q4 real GDP likely grew
at 0.9% QoQ and BoJ’s real exports index rose a solid 3.3% MoM in December
2014. By item, information/communication-related goods and capital goods drove
the recent pickup. By destination, real exports to the US and Asia—even those to
China—grew at a solid pace. A rebound in the global tech cycle and solid growth in
US capex—are main drivers for the renewed pickup in exports.
Risk: While falling JGB yields are positive for Japanese equities boosting valuations,
rising risk premium due to uncertainty about the impact of the plunge in crude prices
or concerns on geopolitics may offset the benefit of falling yields.
End-2015 Target: 1650
1600
1500
1400
1300
1200
1100
Japan Topix
1000
Source: Bloomberg as of 30 January 2015
Implication: We prefer autos and tires exporters, brokerage and insurance.
Asia



Driver: China may enjoy benefits of low commodity price, together with reform
dividend in 2015 and beyond. The friendly oil price this year could save the cost of
imports equivalent to 0.9% of GDP. It may not notably lift the official GDP growth,
but could trim the downside risks to the economy and improve the underlying
growth momentum.
Risk: The Chinese economy is unlikely to stabilize unless the property sector
recovers in the near term or new growth drivers emerge in the longer term.
Combined policy easing and structural reforms are necessary to avoid the shortterm pain of transition.
Implication: Our end-2015 MXCN/ CSI300 index targets stand at 78/ 3,700 and in
terms of sectors, we prefer health care, I.T., Consumer discretionary,
Transportation, Insurance and Real Estate.
End-2015 Target: 630
620
600
580
560
540
520
500
MSCI Asia ex JP
480
Source: Bloomberg as of 30 January 2015
Page 2
Weekly Market Update | 2 February 2015
Currency Forecast
Currency 30-Jan-15
Weekly Market Performance
Forecasts
Last price
Mar-15
Jun-15
Sep-15
Dec-15
Mar-16
1.14
1.12
1.10
1.08
1.05
G10-US Dollar
Euro
Japanese yen
(04/07/2014~04/11/2014)
EURUSD
USDJPY
1.13
117.5
118
124
129
132
GBPUSD
1.51
1.52
1.50
1.47
1.44
1.41
Swiss Franc
USDCHF
0.92
0.85
0.90
0.95
0.99
1.03
Australian Dollar
AUDUSD
0.78
0.80
0.76
0.73
0.72
0.71
New Zealand
NZDUSD
0.73
0.75
0.71
0.68
0.67
USDCAD
1.27
1.20
1.22
1.25
1.26
5.8%
Oil
Japan TPX Index
0.8%
134
British Pound
Canadian Dollar
(26 – 30 January 2015)
0.7%
Korea KOSPI
0.7%
Citi Global Emerging Mkt Sovereigns
0.4%
Citi World Broad Inv Grade
0.3%
Citi High Yield
0.66
-0.8%
Gold
1.27
-0.9%
Europe Stoxx Europe 600
-1.2%
Taiwan TAIEX
EM Asia
-1.2%
UK FTSE 100
-1.4%
HK Hang Seng
Chinese Renminbi
USDCNY
6.25
6.23
6.26
6.29
6.27
6.23
Hong Kong
USDHKD
7.75
7.76
7.77
7.79
7.78
7.78
-1.6%
MSCI AsiaXJapan
Indonesian Rupiah
USDIDR
12672
12,830
12,999
13,170
13,167
13,127
-1.9%
MSCI AC World
Indian Rupee
USDINR
62
62.8
63.3
63.9
64.1
64.2
Korean Won
USDKRW
1093.68
1,107
1,122
1,137
1,140
1,140
Malaysian Ringgit
USDMYR
3.63
3.65
3.66
3.67
3.66
3.64
Philippine Peso
USDPHP
44.11
45.3
45.6
45.9
46.0
46.0
Singapore Dollar
USDSGD
1.35
1.35
1.36
1.37
1.37
1.37
Thai Baht
USDTHB
32.76
33.3
33.4
33.6
33.5
33.4
Taiwan Dollar
USDTWD
31.53
32.0
32.1
32.2
32.2
32.1
Russian Ruble
USDRUB
69.47
64.0
63.6
63.2
63.9
64.7
South African Rand
USDZAR
11.65
11.69
11.88
12.07
12.13
12.17
Brazilian Real
USDBRL
2.68
2.78
2.83
2.89
2.92
2.94
Mexican Peso
USDMXN
14.98
14.7
14.5
14.2
14.1
14.1
US S&P 500
-2.8%
China Shanghai Composite
-4.2%
China HSCEI
-4.4%
-6.1%
MSCI Latin America
-7.0%
MSCI Emerging Europe
-10%
0%
10%
Source: Bloomberg as of 30 January 2015
EM Europe
EM Latam
Market Performance (Year-To-Date)
(As of 30 January 2015)
8.3%
Source: Citi Research and Bloomberg as of 30 January 2015
HK Hang Seng
3.8%
UK FTSE 100
2.8%
Short Rates and 10-Year Yield Forecasts
Forecasts
Last price
30-Jan-15
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
Short Rates (End of Period)
US
0.25
0.25
0.25
0.25
0.50
0.50
Japan
0.1
0.1
0.1
0.1
0.1
0.1
0.1
Euro Area
0.05
0.05
0.05
0.05
0.05
0.05
0.05
1.64
1.95
2.20
2.35
2.55
2.65
2.65
Japan
0.29
0.25
0.35
0.40
0.45
0.50
0.50
Euro Area
0.30
0.55
0.55
0.65
0.65
0.75
0.75
MSCI AsiaXJapan
1.9%
Citi World Broad Inv Grade
1.8%
Korea KOSPI
1.2%
Citi Global Emerging Mkt Sovereigns
0.6%
Taiwan TAIEX
0.5%
Japan TPX Index
Citi High Yield
China Shanghai Composite
-0.8%
10-Year Yield (Period Average)
US
2.5%
0.4%
0.75
-1.6%
MSCI AC World
-2.1%
MSCI Emerging Europe
-2.2%
China HSCEI
US S&P 500
-3.1%
MSCI Latin America
-6.3%
Oil
-9.4%
-20%
Gold
Europe Stoxx Europe 600
7.2%
0%
20%
Source: Citi Research and Bloomberg as of 30 January 2015
Source: Bloomberg as of 30 January 2015
Page 3
Weekly Market Update | 2 February 2015
World Market At Glance
Historical Returns (%)
Last price
52-Week
52-Week
30-Jan-15
High
Low
1 week
1 month
1 year
Year-to-date
Year-to-date
(USD)
US / Global
MSCI World
410.33
434.24
382.57
-1.89%
-2.19%
4.17%
-1.63%
-1.63%
Dow Jones Industrial Average
17164.95
18103.45
15340.69
-2.87%
-4.55%
8.31%
-3.69%
-3.69%
S&P 500
NASDAQ
1994.99
4635.24
2093.55
4814.95
1737.92
3946.03
-2.77%
-2.58%
-4.10%
-2.98%
11.19%
12.42%
-3.10%
-2.13%
-3.10%
-2.13%
MSCI Europe
435.07
506.61
409.57
-0.91%
-0.37%
-6.69%
-0.19%
-0.19%
Stoxx Europe 600
367.05
372.78
302.48
-0.90%
7.63%
13.53%
7.16%
-0.04%
FTSE100
6749.40
6904.86
6072.68
-1.22%
3.09%
3.23%
2.79%
-0.91%
CAC40
4604.25
4679.26
3789.11
-0.79%
8.45%
10.15%
7.76%
0.53%
DAX
10694.32
10810.57
8354.97
0.42%
9.06%
14.09%
9.06%
1.27%
NIKKEI225
17674.39
18030.83
13885.11
0.93%
1.28%
17.77%
1.28%
3.04%
Topix
1415.07
1454.22
1121.50
0.84%
0.54%
15.60%
0.54%
2.28%
MSCI Emerging Market
961.61
1104.31
906.25
-2.95%
0.74%
2.70%
0.55%
0.55%
MSCI Latin America
2555.44
3720.81
2455.16
-6.11%
-6.10%
-11.50%
-6.31%
-6.31%
MSCI Emerging Europe
117.56
198.14
106.52
-6.97%
-6.18%
-36.21%
-2.13%
-2.13%
MSCI EM Middle East & Africa
271.12
341.09
248.54
-3.45%
-1.15%
-9.28%
0.13%
0.13%
46907.68
62304.88
44904.83
-3.83%
-6.20%
-0.71%
-6.20%
-7.47%
737.35
1421.07
578.21
-10.19%
-6.75%
-44.18%
-6.75%
-6.75%
Europe
Japan
Emerging Markets
Brazil Bovespa
Russia RTS
Asia
MSCI Asia ex-Japan
577.69
608.06
508.53
-1.61%
2.94%
10.44%
2.48%
2.48%
Australia S&P/ASX 200
5588.32
5679.50
5052.20
1.57%
3.17%
7.72%
3.28%
-1.81%
China HSCEI (H-shares)
11720.10
12400.40
9159.76
-4.40%
-1.05%
19.37%
-2.21%
-2.19%
China Shanghai Composite
3210.36
3406.79
1974.38
-4.22%
1.41%
57.91%
-0.75%
-1.47%
Hong Kong Hang Seng
24507.05
25362.98
21137.61
-1.38%
4.28%
11.22%
3.82%
3.84%
India Sensex30
29182.95
29844.16
19963.12
-0.33%
6.49%
42.37%
6.12%
8.08%
Indonesia JCI
5289.40
5325.04
4320.78
-0.65%
1.19%
19.70%
1.19%
-1.46%
Malaysia KLCI
1781.26
1896.23
1671.82
-1.21%
0.82%
-1.26%
1.14%
-2.67%
Korea KOSPI
1949.26
2093.08
1876.27
0.68%
1.76%
0.42%
1.76%
1.01%
Philippines PSE
7689.91
7736.97
5886.01
1.87%
6.35%
27.29%
6.35%
7.65%
Singapore STI
3391.20
3432.62
2953.01
-0.60%
0.75%
12.02%
0.77%
-1.43%
Taiwan TAIEX
9361.91
9593.68
8230.46
-1.15%
1.01%
10.63%
0.59%
0.19%
Thailand SET
1581.25
1610.78
1266.78
-1.07%
5.58%
25.09%
5.58%
6.04%
48.24
107.73
43.58
5.81%
-10.86%
-50.89%
-9.44%
-9.44%
1283.77
1392.22
1131.24
-0.80%
6.93%
3.20%
8.35%
8.35%
Commodity
Oil
Gold spot
Source: Citi Research and Bloomberg as of 30 January 2015
Page 4
Weekly Market Update | 2 February 2015
Disclaimer
“Citi analysts” refers to investment professionals within Citi Research (“CR”), Citi Global Markets Inc. (“CGMI”) and voting members of the Citi Global
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