EFTA02507465.pdf

From: Richard Kahn Sent: Wednesday, March 14, 2018 4:52 PM To: jeffrey E. Subject: Fwd: MEGA Trade --> Long Saudi... Richard Kahn HBRK Associates Inc. 575 =exington Avenue 4th Floor New York, NY 10022 tel fax cell Begin forwarded message: From: =/b>"Ens, Amanda" • a> Subject: =/b>MEGA Trade --> =ong Saudi... Date: March 14, 2018 at 12:45:33 PM EDT To: =/b>"rkahn"<as Reply-To: =/b>"Ens, Amanda" Global Equities MEGA — Europe Opening New MEGA Trade: Long Saudi Equities ( Buy M1SAP on Swap / Liquidity $100mm a =ay) - Potentially the EM Flow Story of 2018... if FTSE =ddition is announced on March 28th we expect an inflow of S5bn =n a basket which trades 100mm USD a day (50X ADV)... this is even =efore MSCI announcement in June where inflows could be substantially =igher - The Most Powerful Macro Trades are when Macro =undemantals + Flow Meet... This is Saudi in 2018 EFTA_R1_01638128 EFTA02507465 Key Points: 1. Saudi has significantly underperformed Oil by 14% last = months. With the recent introduction of the citizens account =rogramme, subsidy cuts, pushing out the budget balance to 2023, and the =ews of increased handouts, Saudi should re correlate with oil and move =igher from here. 2. Saudi equities remain under-owned globally a foreign ownership of Saudi equities is at 1.3% vs Russia 70%, Turkey 55%, =outh Africa 50%, Brazil 45%, UAE 20%, Qatar 10% 3. Good liquidity vs other EMs but volume trading at lows =elative to history a Tadawul ADV close to all-time lows at $lbn (10yr range =s $1-8bn) 4. Major index events in 2018/19 with FTSE announcement =n 28th March next =atalysta FTSE announcement could =rigger inflows of up to $5bn . =ombined with the MSCI announcement later this year, potential active =nd passive inflows can total $15-$40bn. So the =otential of at least $20bn inflows on a basket which trades 100mm USD a =ay (200 Days Volume) ? 5. In comparison, during the MSCI UAE and Qatar =nclusions, UAE was trading 10% below historic avg @14x PE and rerated to 22x =nto MSCI EM inclusion with 0ubai up +110% (vs +47% prey year). Qatar was =rading inline with historic avg @llx PE and rerated to 18x =SCI EM inclusion with Qatar up +60% (vs +9% prey year) 6. Saudi risk indicators at 2015 =re-crisis levels a Saudi Syr =DS is trading at 76 vs 40-210 3yr range; SAR 2yr fwd suggests market is less =orried about depeg fears and forward points can be used as a macro hedge 7. Valuations & dividend yields remain =ttractive a Market trades at a 10% =iscount (13.5x) to its historic PE (Saudi PE range is 10-26x). Avg dividend yield is 3.6% with =5 stocks yield more than 4%. Our Middle East Team ready for Calls - Hamdy Hamoudi in London next week =9th-23rd March. Talal marketing in US 23rd-27th =pril. Marwan in Trading MAR disclosure Saudi has =nderperformed both Oil and EM in the last 6 months Saudi equities =emain under-owned globally Risk indicators are back to 2015 pre-crisis =evels. Saudi Syr CDS down from 210 to 76 (note 40 was all time =ow) Valuations =emain attractive — Saudi trading at 10% below historic PE; =audi ERR now at 1.22 vs 0.4 in 2016 MEGA Open =rades 2 EFTA_R1_01638129 EFTA02507466 Theme/Trade Trade =xpression Entry Date Expiry Entry Level Current Level Hit Ratio We think Fed rates =xpectations for 2019 remain on the low side with just marginally more =han 1 hike priced. Buy Dec18 =urodollar Futures (EDZ8) vs Sell Dec19 Eurodollar Futures (EDZ9) 07/02/2018 97.63/97.31 97.455/97.125 We do not think the =oE will hike as much as the Fed next year when markets are pricing =arginally more from the BoE. Buy Dec19 Short =terling futures (L Z9) vs Sell Dec18 Short Sterling Futures (L Z8) 07/02/2018 98.76/99.09 98.67/98.98 The risk for =quities is a further rise in yields led by higher real rates. Last time =0y real rates were here S&P was closer to 2720. Long SPX Mar18 =640/2600 put spread 28/02/2018 16/03/2018 10 0.00 X We see asymmetry in =URGBP. We expect EUR to react positively if Italy/Germany is neutral/ =ositive this weekend and ECB pricing to become firmer. On GBP leg, UK =olitical risk remain underpriced with odds of early election in 2018 =ncreasing Long EURGBP 3m =.91/0.94 call spread 02/03/2018 0.62% 0.45% X MEGA Closed =rades (Hit=Ratio Closed Trades = 77%) Theme/Trade Trade =xpression Entry Date Close Date Entry Level 3 EFTA_R1_01638130 EFTA02507467 Close Level Hit Ratio Equities set up for hawkish BoE hike. =ignificant unwinds of FTSE longs into meeting. Dovish hike delivered =earls Long FTSE remains a catch up trade. Long FTSE Feb18 =550/7700 call spread for 42 offer (7476 ref) (rolled from Dec, 7460 =ef) 02/11/2017 11/01/2018 42 100 Dovish ECB priced in. With a 9x30bn =apering priced, risks skewed to higher core rates and/or tighter =preads both of which benefit SX7E Long SX7E Feb18 =40 calls (rolled from Jan, 134 fut ref) 24/10/2017 25/01/2018 0.9 3.3 We think Fed rates =xpectations for 2019 remain on the low side with just marginally more =han 1 hike priced. Buy Mar18 Eurodollar Futures (EDH8) vs Sell Dec19 Eurodollar =utures (EDZ9) 11/01/2018 07/02/2018 98.18/ 97.535 98.12/97.31 Positioning short/underweight. Positive =ews flow for Italy and Spain causing a squeeze in peripheral bonds and =quities Long equal =eighted basket of Telefonica; lberdrola; Enel; Unicredit & Santander 26/10/2017 15/02/2018 97.8 92.9 X Rates market =ontinues to re-price ECB. lyly Eonia is almost back at recent =ighs pointing to more upside for SX7E. Long SX7E Mar18 145 calls (40d, 142 ref) 25/01/2018 22/02/2018 2.85 0.2 X Russia is one of the =orst performing markets in 2017. Under-positioning and fundamentals =etting better Long equal =eighted basket of Russian Oil names: Gazprom, Lukoil, Rosneft 07/11/2017 22/02/2018 98.95 113.04 4 EFTA_R1_01638131 EFTA02507468 We think we are entering a period of =ncreasing volatility into the Italian Elections (4th March) and reduce =ur Long Equity exposure Long SXSE Mar18 =350 puts (35d vs 3406 ref) 22/02/2018 02/03/2018 39 58.40 We see Political =isk underpriced in Europe into 4 March (Italian elections and German =PD member vote) Short FTSEMIB Index via Mar18 futures (STH8 Index) 22/02/2018 02/03/2018 22505 22005 FTSE is the worst performing major =arket ytd. Moreover, we see asymmetry in GBP with UK =olitical risk underpriced and BoE hikes overpriced. We do not agree =hat the BoE can hike more than the Fed next year. Long UKX Mar18 =375 calls 07/02/2018 02/03/2018 55 1.50 X The risk for equities is a further rise =n yields led by higher real rates. Last time lOy real rates were here =&P was closer to 2720. Long SPX Mar18 =750/2700 put spread 28/02/2018 02/03/2018 15 30.40 This message, =nd any attachments, is for the intended recipient(s) only, may contain =nformation that is privileged, confidential and/or proprietary and =ubject to important terms and conditions available at http://www.bankofamerica.com/emaildisclaimer. If you are =ot the intended recipient, please delete this message. 2622642 5 EFTA_R1_01638132 EFTA02507469