credit suisse mexico breakfast meeting march v22012

BlackRock European Equity Team

2012 Outlook for European Equities

March 2012

FOR INSTITUTIONAL AND QUALIFIED INVESTORS IN MEXICO ONLY – NOT FOR PUBLIC DISTRIBUTION


• US was the outperformer amongst major markets

• Europe outperformed emerging markets

-MSCI Europe 2011 Total Return (€) -7.5%

-MSCI Emerging Markets 2011 Total Return (€) -15.4%

• UK and Switzerland outperformed in Europe

• Italy was the worst performer in Europe

-25.00% -20.00% -15.00% -10.00% -5.00% 0.00% 5.00% 10.00%

DOW JONES

S&P 500

NASDAQ

S&P/TSX

BRAZIL BOVESPA

MEXICO IPC

EURO STOXX 50

STOXX EUROPE 600

FTSE 100

FRANCE CAC 40

DAX 30

IBEX 35

FTSE MIB £

AEX INDEX

OMX STOCKHOLM 30

SWISS MARKET

HANG SENG

NIKKEI 225

100

110

120

130

140

150MSCI Europe - Tot Return Ind

2

Year 2011 in Review – Market Moves

Local Currency Index Performance 2011 (%)

A negative year except in USA


FOR INSTITUTIONAL AND QUALIFIED INVESTORS IN MEXICO ONLY – NOT FOR PUBLIC DISTRIBUTION 3

Year 2011 in Review – Styles & Sector Moves

•Defensives best performing sectors

•Financials suffer from Euro crisis

•Cyclicals suffer from worries over global growth

•Growth outperforms Value

•Large caps outperformed small caps

MSCI Europe Sector Performance 2011 (%)

A year of defensives, energy and non-cyclical growth

MSCI Europe

Grow th

MSCI Europe Value

Stoxx 200 Large

Stoxx Mid 200

Stoxx Small 200

MSCI Europe

-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0

Style/Size Index Performance 2011 (%)



0%

10%

20%

30%

40%

50%

60%

70%

80%

4

Year 2011 in Review – Volatility and Risk

A year of elevated volatility dominated by the risk on/risk off trade

European equity market volatility 2011 Explanatory Power of the Largest Principal Component

60% of returns

explained by ‘Risk

on, Risk off’

Source: BlackRock RQA as at March 2012


5

Europe remains under owned

Need investor confidence to unlock value

Asset Allocation to Europe

Source: Credit Suisse December 2011

10%

11%

12%

13%

14%

15%

16%

17%

18%

19%

20%

Ene-02 Jul-03 Ene-05 Jul-06 Ene-08 Jul-09 Ene-11

Global funds allocation to Cont Eur, Manager Simple (Germany, France, Spain, Italy, Greece) Average


6

The two sides of Europe

Source: Google images

Which way out of the crisis?



ECB is offering vital support

7

Source: Deutsche Bank February 2012, Barclays/Bloomberg March 2012

ECB Balance sheet (EUR, Billion)

Crisis has been averted for now

Growth of Balance sheets during the crisis


Ireland - the cost of fiscal austerity

Source: Goodbody, as at January 2012

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

Q1 0

6

Q2 0

6

Q3 0

6

Q4 0

6

Q1 0

7

Q2 0

7

Q3 0

7

Q4 0

7

Q1 0

8

Q2 0

8

Q3 0

8

Q4 0

8

Q1 0

9

Q2 0

9

Q3 0

9

Q4 0

9

Q1 1

0

Q2 1

0

Q3 1

0

Q4 1

0

Q1 1

1

Q2 1

1

Q3 1

1

GNP

Irish domestic demand continually declining since recession Irish GNP growth turned negative in Q3 2011

Nominal Irish GNP has fallen 25% since the end of 2007

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

Q1 0

6

Q2 0

6

Q3 0

6

Q4 0

6

Q1 0

7

Q2 0

7

Q3 0

7

Q4 0

7

Q1 0

8

Q2 0

8

Q3 0

8

Q4 0

8

Q1 0

9

Q2 0

9

Q3 0

9

Q4 0

9

Q1 1

0

Q2 1

0

Q3 1

0

Q4 1

0

Q1 1

1

Q2 1

1

Q3 1

1

Domestic demand

9

Global leading indicators - tentative signs of recovery?

Source: Barclays as at February 2012, GS as at March 2012

Global Leading indicators showing tentative signs of recovery


10

Positive signs emerging for Europe’s global leading franchises

Purchasing Manager Indices (PMI’s) inflecting upwards

Source: Barclays as at January 2012, GS as at December 2011

Weaker Euro benefits Europe’s international earners

MSCI Europe Geographical Revenue Exposure 2012

30

35

40

45

50

55

60

65

Ene-08Jul-0

8

Ene-09Jul-0

9

Ene-10Jul-1

0

Ene-11Jul-1

1

Ene-12

US Eurozone China



The corporate profit cycle

Source: Morgan Stanley March 2012 Credit Suisse, as at January 2012

Potentially positive, but this is not March 2009

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

US Europe

Pan-Europe and US net profit margins (%) Earnings revisions ratio becoming less negative

12

European valuation

Valuations cheap relative to history and USA

Pan-Europe Price to Earnings ratio

Source: Citigroup as at December 2011,

5

10

15

20

25

30

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

Pan Europe PE Average +1Stdev -1Stdev


13

Equity Yield vs. bond yield

Europe offers most attractive dividend yields

Traditional investments yields Developed World Dividend Yields

Source: Yield data as at 31 December 2011source Bloomberg, Societe Generale. Cash rate is UK 3M Libor. Citigroup as at December 2011

%

0

1

2

3

4

5

6

7

8

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

Japan US Europe ex UK UK



Year 2012 Outlook – Key themes

Stock selection essential to navigating turbulent environment

What are we emphasising in portfolios?

Quality Companies

- Strong balance sheet

- Proven management

- Reliable business model

Free Cash Flows

- Dividends

- Share buyback

- Capital returns

International Earnings

- Undervalued cyclical companies

- US and Emerging market exposure

Non-cyclical growth

What are we avoiding in portfolios?

Highly leveraged businesses

Companies exhibiting signs of financial distress

Large domestic peripheral earnings exposure

Overvalued stocks


Appendix



BlackRock European Equity Team

Extensive coverage across European markets

• Team AUM U$15.6bn as at 29 February 2011

• 13 sector analysts

• Average 19 years experience of senior PMs

Bottom-up fundamental investors with macro

awareness

• All Fund Managers & analysts conduct research

• Team produces proprietary research, not reliant on

broker recommendations

• Best ideas are delivered through team debate &

collaboration

• Leverage BlackRock’s Global resources

Portfolio construction that builds portfolios

around high conviction ideas

Highly Experienced, Rigorous Approach, Global Reach

Nigel Bolton

Head of European Equity Team

Real Estate

Stefan Gries

Energy

Brian Hall

Capital Goods/

Construction

Amy Dey

Banks

Andreas Zoellinger

Insurance

Michael Constantis

IT – Telecoms,

Media

Alice Gaskell

Other Financials

Vincent Devlin

Consumer /

Commercial Services

Anne Osborne

Healthcare

Utilities

Zehrid Osmani

Cons Staples &

Luxury Goods

Alister Hibbert

Banks

Simon Hunter

Autos, Tobacco, Retailing,

Transport

Hampus Lundh

Materials &

Mining

Kathleen Dickson

Product Specialist Dugal Bain

Product Specialist

Joe Williams

Product Specialist

Laurence Gallo

Product Specialist


BlackRock European Equity Team: Investment process overview

17

Structured, disciplined research framework

Idea

Generation In-Depth Company Analysis Portfolio

Construction

Sophisticated risk

systems to control

risks & maximise

rewards

Challenge

Assumptions

Financial

Modelling

Fundamental

Analysis

Company

Meetings

Team Sector Analysts

Screening

External Research

Macro/Thematic

Recommendation

& Rating Research Pipeline


16 June 2011 FOR INSTITUTIONAL AND QUALIFIED INVESTORS IN MEXICO ONLY – NOT FOR PUBLIC DISTRIBUTION 18



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