Societe Generale, 2016 Outlook - Mind The Gaps

7/24/2019 Societe Generale, 2016 Outlook - Mind The Gaps

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| 2016 INVESTMENT STRATEGY

2016 OUTLOOK

MIND THE GAPSInvestmentStrategy

Alan MudieHead of Investment Strategy

FEBRUARY 2016 SOCIETE GENERALE PRIVATE BANKING


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GLOBAL OUTLOOKTHE OUTLOOK FOR THE GLOBAL ECONOMY REMAINS MIXED

The global economy will continue to grow

at a steady pace in 2016.

The US has been clearly the strongest

developed world economy, also lifting

those countries most exposed to strong

American momentum. The euro zone and

Japan should also expand next year.

Low commodity prices should continue to

weigh on inflation, and central bank

monetary policy should remain

accommodative overall.

Commodity importer countries will still

benefit from lower bills, while commodity

exporters will continue to suffer.

Global economic momentum has bottomed

Manufacturing PMI


Sources: Societe Generale Private Banking, Bloomberg

40

42

44

46

48

50

52

54

56

58

60

01.

2013

03.

2013

05.

2013

07.

2013

09.

2013

11.

2013

01.

2014

03.

2014

05.

2014

07.

2014

09.

2014

11.

2014

01.

2015

03.

2015

05.

2015

07.

2015

09.

2015

11.

2015

01.

2016

Global Eurozone US

UK Japan China

EXPANSION

CONTRACTION

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SOCIETE GENERALE PRIVATE BANKINGFEBRUARY 2016

Sources: Societe Generale Private Banking, Datastream

GLOBAL OUTLOOKWORLD TRADE REMAINS SLUGGISH

World trade continues to slow. Global

trade growth has been anchored below its

historical average since the Great

Recession, offering further evidence of

tepid world economic recovery.

Decreasing global demand, especially due

to slowing emerging markets, weighs on

the outlook for world trade.

We believe however that other factors are

also at play: capital expenditure is below

par, manufacturers have begun to

reshoreproduction, new processes

such as 3D printing reduce the need for

shipping

World trade is no longer underpinning global growth

96

97

98

99

100

101

102

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

1992

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2004

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2006

2007

2008

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2010

2011

2012

2013

2014

2015

World trade growth (yoy, %)

Historical average

Industrial confidence indicator (OECD + 6 major EM, rhs)

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REGIONAL OUTLOOKUNITED STATES: SOLID GROWTH PROSPECTS


US wage growth should finally begin to catch up

US growth is broadening but not

accelerating, with the long-awaited capex

pickup still sluggish, particularly

hampered by the energy sector.

Although salary growth has remained

modest so far, continued labour market

improvement should fuel wage inflation

eventually. On the other hand, the strong

USD will continue to cap headline

inflation.

Private consumption remains robust and

should be the main driver of US growth in

coming quarters. Housing recovery

should also lift the US business cycle.

0

2

4

6

8

10

12

14

16

18

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

U-6 underemployment rate (%)

U-3 unemployment rate (%)

Average hourly earnings change (private nonfarm, % YoY)

U-6 underemp loym ent < 9%

9%

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-4

-2

0

2

4

6

8

10

12

14


REGIONAL OUTLOOKEUROZONE: RECOVERY UNFOLDING FURTHER


Credit in the euro area is picking up

Credit to euro area residents (%, yoy)The euro zone has begun to recover from

the slowdown in late 2014, helped by the

weaker euro, lower energy prices and less

fiscal tighteningwe anticipate real GDP

growth around 1.6% in 2016.

Germany is showing steady signs of

improvement (unemployment at 6.3% in

December), helping lift the rest of the euro

zone.

With banks easing credit standards,

lending activity is finally showing signs of

recovery. Lending to the private sector is

edging further up (+1.2%YoY in

November).

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The Eurogroup head recently explained

that Greece had so far met its

commitments and that the pension reform

proposed by the country in early January

was a serious offer. He added however

that the upcoming first bailout review was

more likely to last months than weeks.

A successful review would unlock the next

loan tranche, and could lead to possible

and necessarydebt relief.

However, the country will have to repay

large amounts of debt in March, making

the process more urgent.

Greek debt due in 2016, excluding T-bills (EUR millions)

Sources: Societe Generale Private Banking, Financial Times

FOCUS ON GREECEWHERE DO WE STAND?

459

880

459

306

459 455

306

53

2268

0

500

1000

1500

2000

2500

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

IMF

ECB

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FOCUS ON GREECEDEBT BURDEN

Although the third Bailout programme will

help Greece meet its short-term liquidity

needs, it will also exacerbate the countrys

debt issue in the longer-run.

Upcoming discussions on debt relief will

prove key. At the moment, a haircut is offthe table, and a delay in principal

repayment and/or lower interest rates

seem more likely.

However, it is worth noting that Greece

already enjoys one of the lowest interest

bills as a % of GDP in the eurozone, as

well as one of the longest average

maturities.

Greecesdebt on the rise


175%

188%195%

0%

50%

100%

150%

200%

0

50

100

150

200

250

300

350

400

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Nominal GDP (EUR bn)

Government debt (EUR bn)

Debt-to-GDP ratio (%, rhs)

Forecasts

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FOCUS ON GREECEMACRO SNAPSHOT

Greek GDP growth is expected to come

out at -0.2% over the whole 2015.

The recovery should continue in 2016

thanks to an ambitious budget (pension

reform, privatizations, non-performing

loans, debt relief), although the GreekMinister of Economys1.5% growth target

seems overly optimistic.

Industrial confidence indicators bottomed

last summer and now seem well oriented.

Capital controls weighed on consumer

spending (retail sales -4.5% yoy in

November 2015, 6th month of decline),

with SMEs being the most affected.

Manufacturing activity bottomed last summer

GreecesManufacturing PMI


25

30

35

40

45

50

55

60

2013 2014 2015 2016

Eurozone

Greece

EXPANSION

CONTRACTION

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REGIONAL OUTLOOKJAPAN: DOMESTIC DEMAND GAINS PACE


Inflation has come down,

disposable income and employment have recoveredJapan GDP growth in Q3 was revised up

from -0.8% to +1.0% annualised. This

reading is particularly strong given that

the countrys population began to decline

in 2008, which has lowered potential

growth to 0.4-0.5%.

After the first consumption tax hike in

April 2014 dampened activity, the next one

has been postponed to April 2017.

Unemployment is also improving, at 3.3%

in November. Mr Abe recently announced

a 3% p.a. increase in minimum wages,

through to 2020.


-6

-5

-4

-3

-2

-1

0

1

2

3

4

Headline CPI (%, yoy)

Households real disposable income (%, yoy, 6m moving average)

2.5

3.5

4.5

5.5

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Unemployment rate (%)

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Sources: Societe Generale Private Banking, Bloomberg, FMI

REGIONAL OUTLOOKDIVERGENCE AMONG EMERGING MARKETS


An improved picture in 2016

Consensus growth forecasts (%)Chinas slowdown is unlikely to derail

global growth, thanks to fine-tuned

measures on fiscal and monetary policy.

The whole of emerging Asia should

benefit from Chinese measures to support

growth.

Commodity-exporter regions will continue

to suffer from low natural resource prices.

However, countries in recession (Russia,

Brazil) might be close to the low point in

the cycle.

More broadly, reforms remain essential to

prop up growth and lift investor

sentiment.

4.0 %

4.6 %

6.4 %

-4

-2

0

2

4

6

8

India China Brazil Russia

2015e

2016e

EM 2015e growth forecast

EM 2016e growth forecast

EM 2000-08 growth average

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CRUDE OIL OUTLOOKSUPPLY TO CONTINUE TO OUTSTRIP DEMAND


Sources: Societe Generale Private Banking, Datastream,

Although US oil rig count has decreased,

production has been slow to dropOil oversupply hovers around 1.4M b/d

and may not disappear before 2017.

Saudi Arabia is still pumping at full speed

and last summers nuclear deal is paving

the way for Iran to return to the oil export

market. In the US, efficiency gains haveallowed non-conventional oil producers to

slash production costs by 20%.

The EM slowdown has led to a series of

downward revisions in global oil demand.

In our view, oil prices should remain stuck

at low levelsbetween $30 and $40 in H1,

and between $40 and $50 in H2and any

upside is likely to be short-lived.

0

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4

5

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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Saudi Arabia oil production (mb/d)

US oil production (mb/d)

US oil rig count (rhs)

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GLOBAL INFLATION IN A NUTSHELLINFLATIONARY PRESSURES ARE GLOBALLY MUTED



Euro zone core inflation has edged up

As wage pressures begin to emerge in the

US and the impact of the slump in energy

prices fades, we anticipate a modest pick-

up in US consumer price inflation.

However, the global outlook will remain

dominated by disinflationary pressures.

Deflation risk has not yet been entirely

dispelled in the euro zone, although core

inflation looks quite resilient.

Finally, certain commodity-dependent

emerging economies (Brazil, Russia) face

high inflation. However, the structural

economic slowdown will have a lasting

impact on the outlook for EM inflation. -3

-2

-1

0

1

2

3

4

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6

2007 2008 2009 2010 2011 2012 2013 2014 2015

US core inflation (%, yoy)

US headline inflation (%, yoy)

Eurozone core inflation (%, yoy)

Eurozone headline inflation (%, yoy)

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DIVERGENCE ACROSS CENTRAL BANK POLICIESBASE RATES VERSUS ASSET PURCHASE PROGRAMMES



Libor rates (%)

After an unexpected no-change decision

in September 2015, the FOMC finally

announced its first 25bp rate hike in

December. We expect three more hikes in

2016.

On the other hand, the ECB recently cutits deposit rate by 10bp to -0.3% and

extended its EUR 60bn purchase

programme by at least six months to

March 2017.

The BoJsQuantitative and Qualitative

Easing is the most aggressive policy

compared to GDP. Further easing in 2016

remains possible if necessary.-1

0

1

2

3

4

5

6

2008 2009 2010 2011 2012 2013 2014 2015 2016

GBP Libor 1 month

USD Libor 1 month

JPY Libor 1 month

EUR Libor 1 month

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FOREIGN EXCHANGELIMITED DOWNSIDE RISK FOR THE EUR/USD



The EUR has become more resilient versus the USD

Following the announcement of the ECBs

QE in late 2014, the EUR weakened

sharply versus the USD.

Although we expect modest further

weakness for the EUR, a number of

factors should ensure the cross-rate doesnot dip below parity : the USD is already

overvalued, the weak EUR should attract

foreign investors, the euro zone enjoys a

3% current account surplus.

We expect the EUR/USD to weaken to 1.05

at 6 months with a possible overshoot in

the interim, before edging back up to 1.10

by late 2016. 1

1.1

1.2

1.3

1.4

1.5

1.6

2008 2009 2010 2011 2012 2013 2014 2015 2016

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FIXED INCOMEEUROZONE: PERIPHERY AT CORE



Peripheral spreads vs. German Bund (%)

ECB quantitative easing will last at least

until March 2017, maintaining all euro

zone yields under downward pressure. A

further extension of the programmes

timeframe and a broadening of its scope

remain possible.

We see little value in core countries, as

short rates should remain negative and

long yields will stay low around current

levels.

Non-core bond spreads should narrow

and we suggest holding medium-long

term duration bonds.

0

0.5

1

1.5

2

2.5

3

3.5

4

01-2014 07-2014 01-2015 07-2015 01-2016

Spread Portugal

Spread Spain

Spread Italy

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We believe US Treasury Inflation-

Protected Securities (TIPS) will outperform

fixed income Treasuries, as actual

inflation will exceed the breakeven rate.

First, as oil prices stabilise, the base

effect will start kicking in, reducingdownward pressure on inflation.

Also, we believe domestic forces will be

strong enough to support price increases.

If the Fed is too slow in the pace of hikes,

it may end up behind the curve later in

the cycle (i.e. too accommodative for too

long), thus raising the risk of higher

inflation.


US 5-year real rate and breakeven

FIXED INCOME INVESTMENT THEMEUSEFUL TIPS

-2

-1

0

1

2

3

2010 2011 2012 2013 2014 2015 2016

US 5-year Real rate, % US 5-year Breakeven, %

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CREDIT MARKETEURO ZONE: ECB SUPPORTED



Issuance by US companies invs US-EU yield differential

Credit markets benefit from an ultra-

accommodative monetary policy, positive

economic momentum and a credit-friendly

cycle.

We expect these factors to offset upward

pressures on spreads from increased non-European issuance in EUR.

Default rates should stay low and

corporate bonds offer a pick-up in yields

compared to depressed core government

bonds.

We suggest holding Investment Grade and

High Yield bonds without piling up

duration risk.

0%

5%

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15%

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25%

30%

-1.5

-1.0

-0.5

0.0

0.5

1.0

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2.0

2.5

2010 2011 2012 2013 2014 2015

% of US risk-based corporates issuance in EUR (rhs)

USD-EUR IG Yield difference (%, lhs)

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CREDIT MARKETUNITED STATES: WORSENING CREDIT METRICS


Sources: Societe Generale Private Banking, Moodys

Defaults to increase mainly in the Energy sector

US credit fundamentals have deteriorated

furthermainly because of corporate

activity (M&As, share buybacks). Defaults

should increase this year but to be

focused in the Energy sector.

After a period of spread widening, creditmarkets appear attractive in the short-

term. We prefer High Yield, non-energy,

short duration bonds, benefiting from a

good carry and low sensitivity to

underlying rates.

On a medium-term horizon however,

investors should take advantage of any

rally to begin to trim their positions.

0%

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16%

2002

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2009

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2012

2013

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2015

2016

US Moody's Trailing 12 month defaults

Moody's baseline US defaults forecast

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FIXED INCOME INVESTMENT THEMEUS CREDIT: PREFER BANKS TO CORPORATES, FLOATING TO FIXED



Banks improved their capital ratios

While non-financial companies will face

worsening fundamentals, the financial

sectorroughly 30% of the IG index today,

mainly in banksshould prove more

resilient.

Indeed, new rules (capital or liquidity ratios)

forced financial institutions to drastically

enhance their capital base after the 2008

financial crisis.

We expect banks to continue to outperform

non-financials in the near-term. Importantly,

it is advisable to cover duration exposureas higher underlying rates could weigh on

total return, for instance through floating-

rate bonds.

0

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12

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Wtd Avg Tangible Equity/Tangible Assets Ratio, %

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FIXED INCOMEEMERGING DEBT: CAUTION WARRANTED


Sources: Societe Generale Private Banking, BIS

Developing countries: outstanding amount of debt

securities (private sector)Most EM economies face major

headwinds:

Commodity price downturn

Falling currencies

Chinas structural growth slowdown

Macro imbalances (twin deficits)

Zero interest policies in the developed

world have bolstered debt issuance from

EM corporates.

Only a fraction of EM countries are

immune to the current adverse conditions.

A cautious approach to these markets is

advised. 0

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USD bn

x 3

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EQUITY MARKETSSOME EXPENSIVE VALUATIONS



CAPE* ratios per region (% of their long-term median)

Over the past few years, equity markets

have surged. In a context of rather low

earnings growth, this has pushed

valuations (P/E ratios) up. The correction

in global equity markets since summer

2015 has begun to improve valuation

metrics.

Corporate profit forecasts for 2016

continue to be cut. We believe that value

creation will come through careful

selection of securities and themes.

Volatility spiked last summer, then

subsided, before rising again in recent

weeks.

* CAPE: Cyclically Adjusted Price-to-Earnings ratio

20

40

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120

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160

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US

Eurozone

UK

Japan

Median since 1983

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-100

-80

-60

-40

-20

0

20

40

60

1981 1986 1991 1996 2001 2006 2011 2016

Eurozone US

EQUITY MARKETSPROFITS: US AND EUROZONE



USD strength combined with low oil prices

will continue to weigh on US company

profits in the near-term. Nevertheless, US

profits should recover gradually

throughout 2016.

The drop in energy prices and EURweakness will boost early 2016 company

profits in the euro area. However, we

believe these catalysts will begin to

dissipate by mid-2016, thus profit growth

should gradually slow.

Further, sluggish global trade will penalise

euro zone manufacturers.

EPS growth - our forecasts (%)

+8.4%+8.5%

-8

-4

0

4

8

12

16

20

Q32015

Q42015

Q12016

Q22016

Q32016

Q42016

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EQUITY MARKETSUNITED STATES



Expensive valuations coupled with a rise

in interest rates calls for a switch in US

sector allocation, from high cyclical

growth stocks to low-beta value sectors.

Further, the worlds largest economy is

buoyant. In particular, the improving jobmarket should continue to support the

Consumer Discretionary sector.

Finally, rising US yields should help banks

improve margins, and thus support

Financials. US banks should take

advantage of US credit growth

acceleration and are currently cheap, at

around 10.0x expected 2016 earnings.

Value stocks should be sustained by rising US bond yields

0.6

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1

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10-year US bond yield (%)

Value vs Growth (rhs)

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EQUITY MARKETSEUROZONE



The drop in energy prices and EUR

weakness will boost early 2016 euro area

company profits.

Although supports to the Consumer

Discretionary sector remain in place,

valuations of some sub-sectors such asHotels & Leisure, Media, or Luxury Goods,

are no longer attractive.

Also, we are becoming slightly more

optimistic about Energy. Mainly composed

of oil diversified majors, the sector seems

now attractively priced, and able to cope

with the new normal of crude oil prices

(USD 30-50).

Eurozone EPS growth

Consensus forecasts (%)

5.0

7.0

9.0

11.0

13.0

15.0

17.0

19.0

Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15

2015e

2016e

2017e

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EQUITY MARKETSJAPAN



Japan, one of the cheapest developed markets

Price-to-book ratios (x)Japan macro fundamentals are good, with

job creations and capital spending to

support the sputtering recovery.

The possible expansion of the QQE

should also support equity prices.

Further, corporate governance reforms

should underpin shareholder value

creation through higher dividends, share

buybacks and improved returns on equity.

On the valuation side, Japan is one of the

cheapest developed markets, trading at

13.9x the earnings expected for the next

fiscal year, a 15% discount to the 10-year

average.

0

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MSCI World

MSCI Japan

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EQUITY MARKETSEMERGING MARKETS



Emerging markets on a roller coaster

Volatility has eased as the structural

slowdown of China has begun to be

factored in by investorsin line with our

conviction that a hard landing is off the

table. The whole region has been hit by

Chinas slowdown, though with marked

differences between countries.

Commodity-exporters should still be

avoided, even though countries like

Russia may be hitting rock bottom.

India, currently our top pick within EMs,

should be driven by ambitious economic

plans, strong profit outlook and

accommodative monetary policies.

70

80

90

100

110

120

MSCI India

MSCI Emerging Markets

0.8

1

1.2

Jan-15 Apr-15 Jul-15 Oct-15 Jan-16

Relat ive performance: India v s EM

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7.0%

2.1%

3.2%1.8%

-25%

-15%

-5%

5%

15%

25%

35%

Trailing 12m performance

Average performance

Average real performance (vs Citi 3M USD)

HEDGE FUNDS INVESTMENT THEMEEDGE FUNDS



Hedge funds global performance

HRFXGL Global index In the past few years, the performance of

alternative investment managers has

proved disappointing when compared

with the period running up to the financial

crisis and Great Recession (2007-2009).

We identify a number of reasons for that:declining dispersion and correlation

between assets, low volatility, financial

repression and zero-interest rate policies.

As US interest rates begin to normalise,

we expect all these factors to gradually

reverse and translate into better returns

from hedge funds.

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EQUITY INVESTMENT THEMESURVIVING DISRUPTION


Sources: Societe Generale Private Banking

Disruptive newcomers on all fronts

Disruptive newcomers with innovative

business practices or technologies are

substantially impacting existing firms.

Disruptive newcomers are attacking more

and more business segments:

accommodation, household services,transportation, business services

Focusing on companies which are set to

continue to grow their top-line sales,

which generate a high cash-flow return on

investment and amply cover their cost of

capital is likely to help identify businesses

which seem well placed to survive the

disruption of their industry.

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0

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1000

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Exane Convertible Europe Index MSCI Europe (total return)

+18.2% p.a.

-6.8% p.a.

+20.5% p.a.

-14.2% p.a.

+7.9% p.a.

-21.4% p.a.

+25.0% p.a.

+15.2% p.a.

+10.2% p.a.

-38.4% p.a.

EQUITY INVESTMENT THEMECONVERTIBLE BONDS, THE BEST OF BOTH WORLDS



MSCI Europe vs European convertible bonds (base 100)

Converts generate higher total return than

classic fixed income securities, and are

less risky than equities.

In periods of bull market, convertible

bonds tend to capture the positive

performance of equities. Conversely,when markets decline, converts offer far

better capital protection as they gradually

resume their bond-like behaviour.

The timing seems right, as equities are

expensive, and bonds are even more over-

valued. As converts enjoy better risk-

adjusted performance than equities, they

should prove valuable in 2016.

ConvertibleEurope MSCIEurope (TR)

Ann. Performance 8.3% 8.6%

Ann. Volatility 8.0% 17.9%

Max. Draw-Down -31.4% -56.7%

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MIND THE GAPSKEY TAKEAWAYS


The global economy will continue to grow at a steady pace in 2016. The US is clearly the strongest developed world

economy, but the euro zone and Japan should also expand next year.

As wage pressures begin to emerge in the US and the impact of the slump in energy prices fades, we anticipate a modest pick-

up in US CPI. The global outlook however will remain dominated by disinflationary pressures.

The Feds FOMC finally announced a first rate hike (25bp) in December 2015. The ECB and BoJ on the other hand stand

ready to ease policy further if necessary. Globally, monetary policies will remain very accommodative.

With the Fed hiking US rates, bond yields should rise across all maturities. In this context, inflation-linked bonds and

floating-rate notes in dollars offer diversification benefits. The gradual deterioration of US balance sheet quality warrants a

gradual reduction in exposure to corporate bonds. In the euro zone, yields should remain low and investors will be better

rewarded in non-core sovereign bonds and corporate securities.

We see only modest further downside for the EUR against the USD. Similarly, the sharp devaluations in a number of

emerging economies have improved their competitive position and reduced the potential for further slides.

Potential upside in equity markets will be constrained by the current high valuations and the outlook for earnings

growth.Japanese and euro zone equities wil l remain supported by abundant liquidity.

Oil prices should remain stuck at low levels. The bulk of the correction in gold prices since 2011 seems now complete.

We continue to see potential in non-directional investment strategies.

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IMPORTANT DISCLAIMER

Societe Generale Private Banking (SGPB)is a division of Societe Generale, operating through subsidiaries, branches or departments of Societe Generale S.A. located in the countries mentioned hereafter which use the Societe Generale PrivateBankingbrand, and which distribute this document.

Subject of the documentThis document has been prepared by experts of Societe Generale S.A., and more particularly of Societe Generale Private Banking division, to provide you with information relating to certain financial and economic data. The names and functions of thepeople who prepared this document are indicated on the first pages of the document.This document is non-independent research and is a marketing communication. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and the investment

service provider is not subject to any prohibition on dealing ahead of the dissemination of investment research.In order to read and understand the financial and economic information included in this document, you will need to have knowledge and experience of financial markets. If this is not the case, please contact your advisor or Customer RelationshipManager so that you no longer receive the document. Unless you do this, we shall consider that you have the necessary skills to understand this document.Please note that this document consists only of information intended to help you in your investment or disinvestment decisions, and that it does not constitute a personalised recommendation. You remain responsible for the management of your assets,and you take your investment decisions freely. Moreover, the document may mention asset classes that are not authorised/marketed in certain countries, and/or which might be reserved for certain categories of investors. Therefore, should you wish tomake an investment, as the case may be and according to the applicable laws, your advisor or Customer Relationship Manager within the entity of Societe Generale Group, and more particularly of Societe Generale Private Banking division, of whichyou are a client, will check whether this investment is possible within your jurisdiction and whether it corresponds to your investment profile. Should you not wish to receive this document, please inform your private banker in writing, and he/she will takethe appropriate measures.

Conflicts of interestThis document contains the views of SGPB experts. Socit Gnrale trading desks may trade, or have traded, as principal on the basis of the expert(s) views and reports. In addition, SGPB experts receive compensation based, in part, on the qualityand accuracy of their analysis, client feedback, revenues of their entity of the Socit Gnrale group and competitive factors.As a general matter, Socit Gnrale may make a market or act as a principal trader in securities referred in this report. Entities within t he Socit Gnrale group may from time to time deal in, profit from tr ading on, hold on a principal basis, or act asmarket-makers, advisers or brokers or bankers in relation to securities, or derivatives thereof, or asset class(es) mentioned in this document. Socit Gnrale may provide banking services to the companies and their affiliates mentioned herein.Socit Gnrale may be represented on the board of such persons, firms or entities.Employees of the Socit Gnrale group, or persons/entities connected to them, may from time to time have position in or hold any of the investment products/ asset class(es) mentioned in this document.Socit Gnrale may have (or may liquidate) from time to time positions in the securities and/or underlying assets (including derivatives thereof) referred to herein, if any, or in any other asset, and therefore any return to prospective investor(s) maydirectly or indirectly be affected.

Socit Gnrale is under no obligation to disclose or take into account this document when advising or dealing with or on behalf of customers.In addition, Socit Gnrale may issue other reports that are inconsistent with, and reach different conclusions from the information presented in this report and is under no obligation to ensure that such other reports are brought to the attention of anyrecipient of this report.Socit Gnrale maintains and operates effective organisational and administrative arrangements taking all reasonable steps to identify, monitor and manage conflicts of interest. To help the Socit Gnrale Private Banking Entities to do this, theyhave put in place a management of conflicts of interest policy designed to prevent conflicts of interest giving rise to a material risk of damage to the interests of SGPB clients. For further information, SGPB clients can refer to the management ofconflicts of interests policy, which was provided to them by the SGPB entity of which there are clients.

General WarningThis document, which is subject to modifications, is provided for information purposes only and has no legal value.The contents of this document are not intended to provide investment advice nor any other investment service. The document does not constitute and under no circumstances should it be considered in whole or in part as an offer, a personalrecommendation or advice from any of the Societe Generale Private Banking entities, regarding investment in the asset classes mentioned therein. The information in this document does not constitute legal, tax or accounting advice.Certain asset classes mentioned may present various risks, including potential loss of the total invested amount or even potential unlimited loss. These asset classes may accordingly be reserved for a certain category of investors, and/or only adaptedfor investors who are sophisticated and familiar with these types of asset classes. Accordingly, before making an investment decision, as the case may be and according to the applicable laws, a potential investor will be questioned by his or her advisoror Customer relationship Manager within the Societe Generale Private Banking entity, of which the investor is a client, regarding his eligibility for the envisaged investment, and the compatibility of this investment with his investment profile andobjectives. Before any investment, the potential investor should also consult his own independent financial, legal and tax advisers in order to obtain all the financial, legal and tax information which will allow him to appraise the characteristics and therisks of the envisaged investment and the pertinence of the strategies discussed in this document, as well as the tax treatment of the investment, in the light of his own circumstances.Prior to any investment, a potential investor must be aware of, understand and sign the related contractual and informative information, including documentation relating to risks. The potential investor has to remember that he should not base anyinvestment decision and/or instructions solely on the basis of this document. Any investment may have tax consequences and it is important to bear in mind that the Societe Generale Private Banking entities, do not provide tax advice. A potentialinvestor should seek independent tax advice (where necessary).Investment in some of the asset classes described in this document may not be authorised in certain countries, or may be restricted to certain categories of investors. It is the responsibility of any person in possession of this document to be aware ofand to observe all applicable laws and regulations of relevant jurisdictions. This document is not intended to be distributed to people or in jurisdictions where such distribution is restricted or illegal. It is not to be published or distributed in the UnitedStates and cannot be made available directly or indirectly in the United States or to any US person.The price and value of investments and the income derived from them can go down as well as up. Changes in inflation, interest rates and exchange rates may have adverse effects on the value, price and income of investments issued in a differentcurrency from that of the client. The simulations and examples included in this document are provided for informational and illustration purposes alone. The present information may change with market fluctuations, and the information and viewsreflected in this document may change. The Societe Generale Private Banking entities disclaim any responsibility for the updating or revising of this document. The documentsonly aim is to offer information to investors, who will take their investmentdecisions without relying excessively on this document. The Societe Generale Private Banking entities disclaim all responsibility for direct or indirect losses related to any use of this document or its content. The Societe Generale Private Banking entitiesdo not offer no implicit or explicit guarantees as to the accuracy or exhaustivity of the information or as to the profitability or performance of the asset classes, countries and markets concerned.

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The historical data, information and opinions provided herein have been obtained from, or are based upon, external sources that the Societe Generale Private Banking entities believe to be reliable, but which have not been independently verified. TheSociete Generale Private Banking entities shall not be liable for the accuracy, relevance or exhaustiveness of this information. Information about past performance is not a guide to future performance and may not be repeated. Investment value is notguaranteed and the value of investments may fluctuate. Estimates of future performance are based on assumptions that may not be realised.This document is confidential. It is intended exclusively for the person to whom it is given, and may not be communicated or notified to any third party (with the exception of external advisors, on the condition they themselves respect this confidentialityundertaking). It may not be copied in whole or in part without the prior written consent of Societe Generale Group.

Specific warnings per jurisdictionFrance: Unless otherwise expressly indicated, this document is issued and distributed by Societe Generale, a French bank authorised and supervised by the Autorit de Contrle Prudentiel et de Rsolution, located at 61, rue Taitbout, 75436 ParisCedex 09 under the prudential supervision of the European Central Bank- ECB, and registered at ORIAS as an insurance intermediary under the number 07 022 493. Societe generale is a French Socit Anonyme with its registered address at 29boulevard Haussman, 75009 Paris, with a capital of EUR 1.007.625.077,50 on 31 March 2015 and unique identification number 552 120 222 R.C.S. Paris. Further details are available on request or can be found at www.

http://www.privatebanking.societegenerale.fr/..The Bahamas: This document has been distributed in The Bahamas to its private clients by Socit Gnrale Private Banking (Bahamas) Ltd., an entity duly licensed and regulated by the Securities Commission of the Bahamas (the SecuritiesCommission). This document is not intended for distribution to persons or entities that are Bahamian citizens or that have been designated as residents of The Bahamas under the Exchange Control Regulations, 1956 of The Bahamas. This documentis not, is not intended to be, and under no circumstances is to be construed as a distribution of any securities in The Bahamas. Neither the Securities Commission nor any similar authority in The Bahamas has reviewed or in any way passed upon thisdocument or the merits of the securities described, or any representations made herein.Belgium: This document has been distributed in Belgium by Socit Gnrale Private Banking NV, a Belgian credit institution according to Belgian law and controlled and supervised by the National Bank of Belgium (NBB) and the Financial Servicesand Markets Authority (FSMA), and under the prudential supervision of the European Central Bank- ECB. Socit Gnrale Private Banking NV is registered as an insurance broker at the FSMA under the number 61033A. Socit Gnrale PrivateBanking NV has its registered address at 9000 Ghent, Kortrijksesteenweg 302, registered at the RPM Ghent, under the number VAT BE 0415.835.337. Further details are available on request or can be found at www.privatebanking.societegenerale.be.Dubai: The present document has been distributed by Societe Generale, DIFC Branch. Related financial products or services are only available to professional clients with liquid assets of over $1 million, and who have sufficient financial experience andunderstanding to participate in the relevant financial markets, according to the Dubai Financial Services Authority (DFSA) rules. Societe Generale is duly licensed and regulated by the DFSA. Further details are available on request or can be found atwww. privatebanking.societegenerale.aeLuxembourg: This document has been distributed in Luxembourg by Societe Generale Bank and Trust (SGBT),a credit institution which is authorised and regulated by the Commission de Surveillance du Secteur Financier, under the prudentialsupervision of the European Central Bank- ECB, and whose head office is located at 11 avenue Emile Reuter L 2420 Luxembourg. Further details are available on request or can be found at www.sgbt.lu. No investment decision whatsoever mayresult from solely reading this document. SGBT accepts no responsibility for the accuracy or otherwise of information contained in this document. SGBT accepts no liability or otherwise in respect of actions taken by recipients on the basis of thisdocument only and SGBT does not hold itself out as providing any advice, particularly in relation to investment services. The opinions, views and forecasts expressed in this document (including any attachments thereto) reflect the personal views of theauthor(s) and do not reflect the views of any other person or SGBT unless otherwise mentioned. SGBT has neither verified nor independently analysed the information contained in this document. The Commission de Surveillance du Secteur Financierhas neither verified nor analysed the information contained in this document.Monaco: the present document is distributed in Monaco by Socit Gnrale Private Banking (Monaco) S.A.M ., located 13, 15 Bd des Moulins, 98000 Monaco, Principality of Monaco, governed by the 'Autorit de Contrle Prudentiel et de Rsolution'and the 'Commission de Contrle des Activits Financires'. The Financial products marketed in Monaco can be reserved for qualified investors in accordance with Law No. 1339 of 07/09/2007 and Sovereign Ordinance No 1.285 of 10/09/2007.Further details are available upon request or on www.privatebanking.societegenerale.mc.Switzerland: This document has been communicated in Switzerland by Socit Gnrale Private Banking (Suisse) S.A., whose head office is located at rue de la Corraterie 6, 1211 Genve, and by Socit Gnrale Private Banking (Lugano-Svizzera)S.A., whose head office is located at Viale Stefano Franscini 22, 6900 Lugano. Both companies (collectively SGPB Suisse) are banks authorised by the Swiss Financial Market Supervisory Authority (FINMA). Further details are available on requestor can be found at www.privatebanking.societegenerale.ch.This document (i) does not provide any opinion or recommendation on an issuer or a title, or (ii) has been prepared outside of Switzerland for the Private banking. Therefore, the ASBDirectives on the Independence of Financial Research do not apply to this document.This document has not been prepared by SGPB Suisse. SGPB Suisse has neither verified nor independently analysed the information contained in this document.SGPB Suisse accepts no responsibility for the accuracy or otherwise of information contained in this document. The opinions, views and forecasts expressed in this document reflect the personal views of the relevant author(s) and shall not engageSGPB Suisse's liability. This document is not a prospectus within the meaning of articles 652a and 1156 of the Swiss Code of ObligationsUnited Kingdom: This document has been distributed in the United Kingdom by SG Hambros Bank Limited, whose head office is located at 8 St. JamessSquare, London SW1Y 4JU (SGPBHambros). SGPB Hambros is authorised by the PrudentialRegulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The availability of the products or services described in this document in the United Kingdom may be restricted by law. Further details areavailable on request.Jersey : This document has been distributed in Jersey by SG Hambros Bank (Channel Islands) Limited (SGPBHambros CI Limited),whose registered office address is PO Box 78, SG Hambros House, 18 Esplanade, St Helier, Jersey JE4 8PR. Thisdocument has not been authorised or reviewed by the Jersey Financial Services Commission (JFSC). SGH CI Limited is authorised by the JFSC for the conduct of investment business.Guernsey: This document has been distributed in or from within the Bailiwick of Guernsey by SG Hambros Bank (Channel Islands) Limited Guernsey Branch, whose principal address in Guernsey is PO Box 6, Hambro House, St JuliansAvenue, StPeter Port, Guernsey, GY1 3AE. SG Hambros Bank (Channel Islands) LimitedGuernsey Branch is licensed under the Banking Supervision (Bailiwick of Guernsey) Law, 1994, and the Protection of Investors (Bailiwick of Guernsey) Law, 1987.Gibraltar: This document has been distributed in Gibraltar by SG Hambros Bank (Gibraltar) Limited, whose head office is located at Hambro House, 32 Line Wall Road, Gibraltar (SGPBHambros Gibraltar). SG Hambros Gibraltar is authorised andregulated by the Gibraltar Financial Services Commission for the conduct of banking, investment and insurance mediation business. The availability of the products or services described in the document in Gibraltar may be restricted by law. Further

details are available on request.Societe Generale Private Banking Hambros is part of the wealth management arm of the Societe Generale Group, Societe Generale Private Banking. Societe Generale is a French bank authorised in France by the Autorit de Contrle Prudentiel et deRsolution, located at 61, rue Taitbout, 75436 Paris Cedex 09, and under the prudential supervision of the European Central Bank - ECB. It is also authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority andthe Prudential Regulation Authority.Notice to US Investors: This document is not intended for US Persons under the US Securities Act of 1933, as amended and under the various laws of the States of the United States of America.

http://www.privatebanking.societegenerale.com.

Copyright Societe Generale Group 2016. All rights reserved. Any unauthorised use, duplication, redistribution or disclosure in whole or in part is prohibited without the prior consent of Societe Generale.The key symbols, Societe Generale, Societe Generale Private Banking are registered trademarks of SG. All rights reserved.

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