1. finance
2. bank

R B C W e a lt h M a n a g e m e n t
GLOBAL INSIGHT
W E E K L Y
MARCH 20, 2015
A C lo s e r Lo o k
Emerging Markets, Emerging Cracks
Kelly Bogdanov – San Francisco
As the dollar soars, currencies in some emerging markets (EM) are feeling the stress. Vulnerabilities could
widen—particularly in Brazil. But not all EMs are created equal.
Cracks have surfaced in emerging markets.
Money Has Been Flowing Out of Emerging Markets
As the dollar has strengthened, money has flowed out. On a
cumulative basis, EM bond fund flows have dipped 1.7% since
early October, and EM equity flows have dropped 3.8% (see
chart). In contrast, flows have increased into their developed
market cousins: 5.0% for bonds and 1.3% for stocks.
Cumulative Emerging Markets Fund Flows (% change)
A number of EM currencies are showing signs of strain.
But at this stage much of the risk resides in Latin America,
specifically in Brazil. Its currency has plunged 32% against
the dollar since September. Allegations of mismanagement,
kickbacks, and bribes at Petrobras, the country’s largest energy
firm, have created a web of problems because the Brazilian
treasury owns more than 50% of the company.
Latin American outflows have been much more pronounced
than other regions. For example, Asian EM equity flows are
down by only 1.9% since October, whereas Latin American
flows have dived 13.4%.
RBC Capital Markets’ global cross asset strategist recently
warned the combination of the severely weakened Brazilian
real, the ongoing weakness of EM currencies in general, and
inflated EM bond markets are “a potential 2015 storm cloud on
an otherwise stable market landscape.”
EM currencies could decline an additional 5%–10% from
current levels, according to Daniel Tenengauzer, head of EM
& global currency strategy at RBC Capital Markets, LLC. But
beyond the strong dollar, he does not see a common thread
Click here for authors’ contact information. Priced as of 3/20/15 market close, EST
(unless otherwise noted). All values in USD unless otherwise noted.
For Important and Required Non-U.S. Analyst Disclosures, see page 6.
0.5
Bond Flows
-1.0
-1.7%
-2.5
Equity Flows
-4.0
Oct-2014
-3.8%
Dec-2014
Feb-2015
Source - RBC Wealth Management, EPFR Global; weekly data from 10/1/14 to 3/18/15
m a r k et p u l s e
3
What the Fed really means by not being “patient”
3
Canadian dollar endures a topsy-turvy week
3
U.K. gov’t woos voters with last budget before election
4
China’s drive for a new “Silk Road”
tugging them lower. Most are being impacted by idiosyncratic,
country-specific cross-currents.
EM corporate leverage is Tenengauzer’s primary concern.
And Brazil’s Petrobras is the poster child. The company’s
predicament “could put this nascent EM corporate debt market
at risk.” If the Petrobras situation worsens it “may trigger
contagion to a market that is by now significantly larger than
the USD denominated EM sovereign.”
How to Position in EM Equities
For individual investors, it’s important to recognize not all
emerging markets are created equal. We would segment EM
holdings by region, rather than think of it as one homogeneous
group.
Overall, we believe the current risks call for holding EM
exposure no higher than a benchmark weighting in portfolios,
all the while tilting that exposure away from Latin America,
toward Asia. If additional cracks surface, an underweight
position may be justified.
Emerging Market Currencies Have Been Weak,
Particularly the Brazilian Real
Currency Performance Versus the U.S. Dollar
Sep-2014
5%
Nov-2014
Jan-2015
Mar-2015
0%
-5%
We prefer Asia EM equities. China is managing its economic
transition effectively so far, and India is supported by prudent
fiscal and monetary policies. Reforms could be catalysts for
both countries. We continue to carry an overweight stance on
Asia ex-Japan equities, which mostly represents Asia EM.
-10%
-25%
Mexican Peso
We would tilt away from Latin America. Brazil remains
vulnerable due to Petrobras and unrelated economic and fiscal
challenges. Latin American funds would likely suffer if the
situation deteriorates.
-30%
Turkish Lira
-15%
-20%
-35%
South African Rand
Brazilian Real
Source - RBC Wealth Management, Bloomberg; data from 9/1/14 to 3/19/15
WWhhatat’ s’ sMMoov vi ni nggmMa
a r rk ketets s
Looming Iran Deal Hits Oil Harder
At first markets reacted forcefully to the Federal Reserve’s highprofile meeting, particularly to its reduced rate forecasts and
tempered economic assessment. The euro rallied 2.5% against
the dollar that session, U.S. Treasury yields fell, the S&P 500
jumped, and crude oil bounced. Later in the week, some of the
excitement died down; performance varied by market.
China’s Shanghai Composite actually stole the show. It surged
7.2% for the week on expectations of additional stimulus and
positive sentiment about reforms (details on page 4).
WTI crude oil fell to a new cycle low as U.S. shale supply and
production concerns mounted. Also, oil prices continued to
adjust to the possibility an Iranian nuclear deal could occur,
which would add even more supply to an oversaturated market.
When it comes to putting new money to work in energy stocks,
we would stay on the sidelines for now. RBC Capital Markets,
LLC Technical Analyst Bob Dickey recently wrote, “When large
sectors of stocks are in a strong trend, they tend to go much
further in that trend than most would imagine … In general,
we think it is not a good idea to buy stocks that are making new
lows, but instead wait for a bottoming period to form, which can
take months or quarters to develop.”
GLOBAL INSIGHT WEEKLY
Bottoming Periods Can Take Months or Quarters to Form
Dow Jones U.S. Select Oil Equipment & Services Index
9500
9000
8500
8000
7500
7000
6500
6000
5500
5000
Mar-2013
Oil services stocks are down roughly 40% from
their peak of eight months ago. But, if they
break to another new low, we think the risk
could be for an additional 15% on the downside.
- Bob Dickey, technical analyst
Sep-2013
Mar-2014
Sep-2014
Mar-2015
Source - RBC Wealth Management, Bloomberg; data through 3/19/15
March 20, 2015
2
U n i t e d S t at e s
Craig Bishop – Minneapolis
■
■
■
■
■
While a June rate hike is still in play, it’s not a sure thing. In
what was undoubtedly the worst-kept secret, the “patient”
qualifier was removed from the Federal Reserve’s forward
guidance. So a rate hike could occur at a future meeting,
although the Fed ruled out April. The chances of a June rate
hike, however, appear to be diminishing.
The timing will still depend on economic data. Even
though employment is on cruise control and should show
further improvement, the Fed moved the goalposts for what
constitutes “full employment” to 5.0%–5.2% from 5.2%–
5.5%. This actually raises the bar for a rate hike.
Also, the Fed’s view of overall economic activity has
moderated. It cut its 2015 GDP growth outlook to 2.3%–2.7%
from 2.6%–3.0%. While it acknowledged the transitory impact
of oil prices on keeping inflation levels low, the statement had
a subtle change in language we think is notable. It stated that
inflation is “largely reflecting” low oil prices, which suggests
other long-term factors may be impacting the inflation
outlook. The statement acknowledged export growth
weakness, which Fed Chair Janet Yellen linked to dollar
strength in her press conference.
The Fed sharply lowered its forecasts for the Fed Funds
rate, bringing it closer to the market’s estimates. The
magnitude of the downward revisions was much more
than we expected. Specifically, year-end 2015 was revised
to 0.625% from 1.125%, and year-end 2016 was revised
to 1.875% from 2.50% (see chart). This is a key reason the
market interpreted the Fed’s actions as quite dovish.
Most importantly, we continue to believe the allencompassing focus on the first rate hike is misplaced.
The characteristics of the tightening cycle itself are far more
significant. In our view, the main takeaway from the Fed
meeting is that the rate hike cycle will be different this
time with slow growth, low inflation, and international
developments (including the strong dollar) allowing the
Fed time to assess each move’s impact. We expect a much
slower, longer tightening cycle than normal. Even after
employment and inflation reach the Fed’s mandated levels,
rates may stay below normal levels over the long run.
The Federal Reserve’s Forecast Moved Closer to the Market’s
Median Fed Funds Forecast - FOMC vs. Market
■
The S&P/TSX Composite advanced on broad-based
support across sectors. Resource sectors received a boost
from commodity prices, which moved higher on U.S. dollar
weakness in the wake of the release of Fed minutes.
GLOBAL INSIGHT WEEKLY
FOMC Forecast (Previous)
Market Forecast (New)
Market Forecast (Previous)
4.0%
3.75%
3.625%
3.75%
3.0%
1.875%
1.125%
1.0%
0.0%
Dec-2014
3.125%
2.50%
2.0%
2.217%
2.056%
1.513%
0.625%
0.335%
Dec-2015
Dec-2016
Dec-2017
Dec-2018
Source - RBC Wealth Management, FOMC, Bloomberg; new market forecast on 3/18/15
■
The Canadian Radio-television and Telecommunications
Commission (CRTC) released its framework for TV channel
unbundling, which was broadly in-line with RBC Capital
Markets’ expectations. The new framework calls for a
maximum CA$25/month entry-level basic cable package
that can be augmented by all other channels being offered
on an a la carte basis. Importantly for distributors and
broadcasters, there will be broad discretion on pricing of
individual channels and packages.
■
PotashCorp announced that a change in Saskatchewan’s
tax regime would negatively impact its 2015 pre-tax
earnings by CA$75–$100M. The province will also be
undertaking a broader review of its potash taxation regime.
■
The Canadian dollar had a turbulent week with multiple
days of moves greater than 1%. U.S. dollar weakness has
enabled the Canadian dollar to bounce off of its lows and
end the week at approximately CA$1.26/$1 despite the
volatility seen in crude oil prices.
■
Government bond yields continued to trend downward
and are now approaching the year-to-date lows seen
following the rate cut by the Bank of Canada on January
21. This most recent decline in yields comes following a
more dovish-than-expected Fed meeting in the U.S. and a
weak retail sales number for the month of January. The Fed
meeting was also positive for credit markets.
Canada
Patrick McAllister & Alana Awad – Toronto
FOMC Forecast (New)
EUROPE
Frédérique Carrier & Davide Boglietti – London
■
The U.K. government released its last budget before
the May 7 election. In the heat of political campaigning,
budgets have traditionally offered generous giveaways to
sway voters. This time, though, Chancellor of the Exchequer
March 20, 2015
3
George Osborne’s budget disappointed the hopefuls.
His strategy was possibly to present himself as a careful
manager of the economy, while attempting to counteract
opposition criticism that another conservative government
would result in austerity not seen since the 1930s.
■
■
■
Chinese Equities Break Out to Highest Levels Since 2008
Shanghai Stock Exchange Composite Index
6500
Overall, the measures announced are generally supportive
of disposable income, and therefore, of consumer spending.
The budget also targets two sectors in particular: banks,
which remain in the government’s crosshairs, and oil, which
the government wants to support in light of lower oil prices.
5500
Osborne has more leeway than would have seemed
possible a few years ago. Lower inflation has reduced
the cost of servicing debt and welfare payments, cheap
oil has invigorated economic growth, while the value of
state-owned banks has recovered. Thus, thanks to this
unexpected flexibility, Osborne stated public spending
austerity will end one year earlier than expected (FY2018–
19). Moreover, the government is increasing the tax-free
personal income tax allowance, freezing the fuel duty, and
reducing the alcohol duty over the next few years.
2500
Absent generous handouts, Osborne attempted to instill
a feel-good factor by stressing all the positive points of
the recovery: falling unemployment and strong growth.
Conspicuously not mentioned were the record high
current account deficit, running at some 6% of GDP, and
foreign borrowings. These will need more than budget
tinkering to be addressed.
4500
3500
+82%
1500
2007 2008 2009 2010 2011 2012 2013 2014 2015
Source - RBC Wealth Management, Bloomberg, MSCI; data through 3/20/15
■
Tencent (0700.HK), one of the “Big 3” Chinese Internet
companies, reported robust results as revenue and earnings
rose 24% and 50% y/y, respectively. The stock gapped
higher. Weixin (WeChat), one service offered by Tencent,
had approximately 500 million active monthly users as of
the end of 2014. Tencent has now begun to monetize these
services by adding advertising. Management said that
feedback from advertisers was “extremely positive.”
■
Ping An Insurance (Group) (2318.HK), the largest nongovernment financial services company in China whose
biggest business is insurance, also announced robust
results for 2014. Earnings surged 40% y/y. In the life
insurance division, the value of new business (NBV), an
important metric of profitability for insurers, jumped 21%
y/y. The stock, which has already re-rated significantly in
the past six months, rallied a further 4%.
■
Japanese equities moved higher yet again, despite the
dovish Fed statement causing the yen to strengthen
modestly against the dollar. The TOPIX index has risen every
week since mid-January. One headwind facing the Japanese
equity market is that the country may move into a period
of deflation due to steeply lower energy prices. Japan
is a big importer of oil and gas. However, Bank of Japan
Governor Haruhiko Kuroda noted that such declines may
be temporary and he expects prices to pick up again in the
second half of the fiscal year (ending March 2016).
■
Australia’s central bank noted that another interest rate
cut may be needed, noting below-average growth and
emerging risks in the country’s commercial property
market. The bank stated that “members were of the view
that a case to ease monetary policy further might emerge.”
The benchmark rate is already at a record low of 2.25%.
■
Fitch Ratings stated that it is more than 50% likely to
downgrade Malaysia’s credit rating as the country’s trade
balance deteriorates. The country is currently rated A-.
A SI A P A C I F I C
Jay Roberts – Hong Kong
■
■
Chinese equities rose to their highest level since 2008,
helped in part by recent efforts by the government to deepen
economic reform and recent monetary policy easing.
These efforts include a sizeable debt-swap programme to
alleviate China’s local government debt burden as well as
the “One Belt, One Road” strategy. The latter is aimed at
improving trade with neighbouring countries by improving
transportation infrastructure via many new projects. The
Silk Road Economic Belt covers nine provinces in Western
China and connecting them with Central and West Asia. The
Maritime Silk Road connects seaport cities in Southeast Asia,
the Indian Ocean, and China.
Bank stocks have benefitted from the implied support
for asset quality offered by expansive policy, boosting
depressed valuations. Transportation stocks, particularly
railway companies, and certain infrastructure stocks have
also benefitted. Brokerage stocks have been strong as the
breakout in the equity market has positive implications.
GLOBAL INSIGHT WEEKLY
Chinese stocks have rallied 82% since the 2014
bottom. We remain overweight Asia ex-Japan,
which includes a 27% weighting to China, the
largest component of the MSCI Index.
March 20, 2015
4
m a r k et s c o r e ca r d
Data as of March 20, 2015
Equities (local currency)
S&P 500
Level
2,108.06
Dow Industrials (DJIA)
NASDAQ
Russell 2000
1 Week
2.7%
MTD
YTD
0.2%
12 Mos
2.4%
Govt Bonds (bps chg)
Yield
1 Week
MTD
YTD
12 Mos
12.6%
U.S. 2-Yr Tsy
0.577%
-8.0
-4.1
-8.7
15.7
18,127.65
2.1%
0.0%
1.7%
11.0%
U.S. 10-Yr Tsy
1.925%
-18.9
-6.8
-24.6
-84.7
5,026.42
3.2%
1.3%
6.1%
16.4%
Canada 2-Yr
0.455%
-9.9
-1.7
-55.7
-61.8
1,266.37
2.8%
2.7%
5.1%
5.6%
Canada 10-Yr
1.299%
-17.7
-0.2
-48.9
-120.2
S&P/TSX Comp
14,942.41
1.4%
-1.9%
2.1%
4.0%
U.K. 2-Yr
0.400%
-8.6
-3.4
-4.6
-27.9
FTSE All Share
3,788.26
3.8%
1.2%
7.2%
7.3%
U.K. 10-Yr
1.516%
-19.3
-28.0
-24.0
-125.1
404.01
1.9%
3.0%
17.9%
23.3%
Germany 2-Yr
-0.236%
-0.5
-0.9
-13.8
-44.5
German DAX
12,039.37
1.2%
5.6%
22.8%
29.5%
Germany 10-Yr
0.184%
-7.3
-14.4
-35.7
-146.2
Hang Seng
24,375.24
2.3%
-1.8%
3.3%
15.1%
STOXX Europe 600
3,617.32
7.2%
9.3%
11.8%
81.5%
Nikkei 225
Shanghai Comp
19,560.22
1.6%
4.1%
12.1%
37.5%
India Sensex
28,261.08
-0.8%
-3.3%
2.8%
30.0%
3,412.44
1.5%
0.3%
1.4%
11.6%
Brazil Ibovespa
51,966.58
6.9%
0.7%
3.9%
9.9%
Mexican Bolsa IPC
43,968.15
-0.1%
-0.5%
1.9%
11.0%
Singapore Straits Times
Commodities (USD)
Gold (spot $/oz)
Price
1 Week
1,183.58
2.2%
Silver (spot $/oz)
Currencies
Rate
U.S. Dollar Index
1 Week
MTD
YTD
12 Mos
97.83
-2.5%
2.7%
8.4%
22.0%
CAD/USD
0.80
1.7%
-0.5%
-7.5%
-10.5%
USD/CAD
1.26
-1.7%
0.4%
8.1%
11.8%
EUR/USD
1.08
3.2%
-3.3%
-10.5%
-21.4%
GBP/USD
1.50
1.4%
-3.1%
-4.0%
-9.4%
AUD/USD
0.78
1.8%
-0.4%
-4.9%
-14.0%
MTD
YTD
12 Mos
USD/CHF
0.98
-3.0%
2.2%
-1.9%
10.4%
-2.4%
-0.1%
-10.9%
USD/JPY
120.06
-1.1%
0.4%
0.2%
17.3%
16.76
7.0%
1.0%
6.7%
-17.3%
EUR/JPY
129.99
2.0%
-2.9%
-10.3%
-7.9%
5,879.25
0.0%
-0.8%
-7.7%
-8.7%
EUR/GBP
0.72
1.7%
-0.2%
-6.8%
-13.3%
Oil (WTI spot/bbl)
45.72
2.0%
-8.1%
-14.2%
-54.0%
EUR/CHF
1.06
0.1%
-1.1%
-12.2%
-13.3%
Oil (Brent spot/bbl)
55.06
0.7%
-12.0%
-4.0%
-48.3%
USD/SGD
1.38
-1.0%
1.1%
4.0%
7.8%
2.79
2.3%
2.0%
-3.4%
-36.1%
USD/CNY
6.20
-0.9%
-1.0%
0.0%
-0.4%
294.91
0.5%
-3.9%
-8.5%
-26.5%
USD/BRL
3.22
-0.7%
13.5%
21.3%
38.5%
Copper ($/metric ton)
Natural Gas ($/mmBtu)
Agriculture Index
Source - Bloomberg. Note: Equity returns do not include dividends, except for the German DAX. Bond yields in local currencies. Copper and Agriculture Index data as of Thursday’s close.
Dollar Index measures USD vs. six major currencies. Currency rates reflect market convention (CAD/USD is the exception). Currency returns quoted in terms of the first currency in each
pairing. Data as of 9:35 pm GMT 3/20/15.
Examples of how to interpret currency data: CAD/USD 0.80 means 1 Canadian dollar will buy 0.80 U.S. dollar. CAD/USD -10.5% return means the Canadian dollar fell 10.5% vs. the
U.S. dollar year to date. USD/JPY 120.06 means 1 U.S. dollar will buy 120.06 yen. USD/JPY 17.3% return means the U.S. dollar rose 17.3% vs. the yen year to date.
U p co m i n g e v e n t s
MON, MAR 23
TUE, MAR 24, cont.
THU, MAR 26
China HSBC Manuf. PMI (50.5)
Eurozone Markit Comp. PMI (53.6)
China Industrial Profits
Japan Markit/JMMA Manuf. PMI
U.K. CPI (0.1% y/y, Core 1.3% y/y)
Japan CPI (2.3% y/y)
Merkel meets with Greece’s Tsipras
U.S. CPI (-0.1% y/y, Core 1.6% y/y)
FRI, MAR 27
U.S. Chicago Fed Nat’l Activity
U.S. Markit Manuf. PMI (54.9)
U.S. GDP Q4 revision (2.4% q/q ann.)
U.S. Existing-Home Sales (2.5% m/m)
U.S. New-Home Sales (-1.3% m/m)
FRI, APR 3
TUE, MAR 24
WED, MAR 25
U.S. employment report
Eurozone Markit Manuf. PMI (51.5)
Germany IFO Surveys (Expect. 103)
WED, APR 8
Eurozone Markit Services PMI (53.9)
U.S. Durable Goods (0.5% m/m)
U.S. Q1 earnings season begins
All data reflect Bloomberg consensus forecasts where available
GLOBAL INSIGHT WEEKLY
March 20, 2015
5
Authors
Kelly Bogdanov – San Francisco, United States
[email protected]; RBC Capital Markets, LLC.
Craig Bishop – Minneapolis, United States
[email protected]; RBC Capital Markets, LLC.
Patrick McAllister – Toronto, Canada
Distribution of Ratings
For the purpose of ratings distributions, regulatory rules require member firms
to assign ratings to one of three rating categories - Buy, Hold/Neutral, or Sell regardless of a firm’s own rating categories. Although RBC Capital Markets, LLC
ratings of Top Pick (TP)/Outperform (O), Sector Perform (SP) and Underperform (U)
most closely correspond to Buy, Hold/Neutral and Sell, respectively, the meanings
are not the same because our ratings are determined on a relative basis (as
described below).
[email protected]; RBC Dominion Securities Inc.
Alana Awad – Toronto, Canada
[email protected]; RBC Dominion Securities Inc.
Frédérique Carrier – London, United Kingdom
[email protected]; Royal Bank of Canada Investment Management (UK) Ltd.
Davide Boglietti – London, United Kingdom
[email protected]; Royal Bank of Canada Investment Management (UK) Ltd.
Jay Roberts – Hong Kong, China
[email protected]; RBC Dominion Securities Inc.
d i s c lo s u r e s a n d d i s c l a i m e r
Analyst Certification
All of the views expressed in this report accurately reflect the personal views of the
responsible analyst(s) about any and all of the subject securities or issuers. No
part of the compensation of the responsible analyst(s) named herein is, or will be,
directly or indirectly, related to the specific recommendations or views expressed by
the responsible analyst(s) in this report.
Important Disclosures
In the U.S., RBC Wealth Management operates as a division of RBC Capital Markets,
LLC. In Canada, RBC Wealth Management includes, without limitation, RBC
Dominion Securities Inc., which is a foreign affiliate of RBC Capital Markets, LLC.
This report has been prepared by RBC Capital Markets, LLC. which is an indirect
wholly-owned subsidiary of the Royal Bank of Canada and, as such, is a related
issuer of Royal Bank of Canada.
Non-U.S. Analyst Disclosure: Alana Awad, Patrick McAllister, and Jay Roberts,
employees of RBC Wealth Management USA’s foreign affiliate RBC Dominion
Securities Inc.; and Davide Boglietti and Frédérique Carrier, employees of RBC
Wealth Management USA’s foreign affiliate Royal Bank of Canada Investment
Management (UK) Limited; contributed to the preparation of this publication.
These individuals are not registered with or qualified as research analysts with
the U.S. Financial Industry Regulatory Authority (“FINRA”) and, since they are not
associated persons of RBC Wealth Management, they may not be subject to NASD
Rule 2711 and Incorporated NYSE Rule 472 governing communications with subject
companies, the making of public appearances, and the trading of securities in
accounts held by research analysts.
In the event that this is a compendium report (covers six or more companies), RBC
Wealth Management may choose to provide important disclosure information
by reference. To access current disclosures, clients should refer to http://www.
rbccm.com/GLDisclosure/PublicWeb/DisclosureLookup.aspx?EntityID=2 to view
disclosures regarding RBC Wealth Management and its affiliated firms. Such
information is also available upon request to RBC Wealth Management Publishing,
60 South Sixth St, Minneapolis, MN 55402.
References to a Recommended List in the recommendation history chart may
include one or more recommended lists or model portfolios maintained by RBC
Wealth Management or one of its affiliates. RBC Wealth Management recommended
lists include the Guided Portfolio: Prime Income (RL 6), the Guided Portfolio: Large
Cap (RL 7), the Guided Portfolio: Dividend Growth (RL 8), the Guided Portfolio:
Midcap 111 (RL9), the Guided Portfolio: ADR (RL 10), and the Guided Portfolio:
Global Equity (U.S.) (RL 11). RBC Capital Markets recommended lists include the
Strategy Focus List and the Fundamental Equity Weightings (FEW) portfolios. The
abbreviation ‘RL On’ means the date a security was placed on a Recommended
List. The abbreviation ‘RL Off’ means the date a security was removed from a
Recommended List.
GLOBAL INSIGHT WEEKLY
Rating
Distribution of Ratings - RBC Capital Markets, LLC Equity Research
As of December 31, 2014
Investment Banking Services
Provided During Past 12 Months
Count
Percent
Count
Percent
Buy [Top Pick & Outperform]
Hold [Sector Perform]
Sell [Underperform]
897
686
112
52.92
40.47
6.61
290
137
6
32.33
19.97
5.36
Explanation of RBC Capital Markets, LLC Equity Rating System
An analyst’s “sector” is the universe of companies for which the analyst provides
research coverage. Accordingly, the rating assigned to a particular stock represents
solely the analyst’s view of how that stock will perform over the next 12 months
relative to the analyst’s sector average. Although RBC Capital Markets, LLC ratings of
Top Pick (TP)/Outperform (O), Sector Perform (SP), and Underperform (U) most closely
correspond to Buy, Hold/Neutral and Sell, respectively, the meanings are not the same
because our ratings are determined on a relative basis (as described below).
Ratings:
Top Pick (TP): Represents analyst’s best idea in the sector; expected to provide
significant absolute total return over 12 months with a favorable risk-reward ratio.
Outperform (O): Expected to materially outperform sector average over
12 months.
Sector Perform (SP): Returns expected to be in line with sector average over
12 months.
Underperform (U): Returns expected to be materially below sector average over
12 months.
Risk Rating:
As of March 31, 2013, RBC Capital Markets, LLC suspends its Average and Above
Average risk ratings. The Speculative risk rating reflects a security’s lower level of
financial or operating predictability, illiquid share trading volumes, high balance
sheet leverage, or limited operating history that result in a higher expectation of
financial and/or stock price volatility.
Valuation and Price Target Impediments
When RBC Wealth Management assigns a value to a company in a research report,
FINRA Rules and NYSE Rules (as incorporated into the FINRA Rulebook) require that
the basis for the valuation and the impediments to obtaining that valuation be
described. Where applicable, this information is included in the text of our research
in the sections entitled “Valuation” and “Price Target Impediment”, respectively.
The analyst(s) responsible for preparing this research report received compensation
that is based upon various factors, including total revenues of RBC Capital Markets,
LLC, and its affiliates, a portion of which are or have been generated by investment
banking activities of the member companies of RBC Capital Markets, LLC and its
affiliates.
Other Disclosures
Prepared with the assistance of our national research sources. RBC Wealth
Management prepared this report and takes sole responsibility for its content
and distribution. The content may have been based, at least in part, on material
provided by our third-party correspondent research services. Our third-party
correspondent has given RBC Wealth Management general permission to use its
research reports as source materials, but has not reviewed or approved this report,
nor has it been informed of its publication. Our third-party correspondent may
from time to time have long or short positions in, effect transactions in, and make
markets in securities referred to herein. Our third-party correspondent may from
time to time perform investment banking or other services for, or solicit investment
banking or other business from, any company mentioned in this report.
March 20, 2015
6
RBC Wealth Management endeavors to make all reasonable efforts to provide
research simultaneously to all eligible clients, having regard to local time zones
in overseas jurisdictions. In certain investment advisory accounts, RBC Wealth
Management will act as overlay manager for our clients and will initiate transactions
in the securities referenced herein for those accounts upon receipt of this report.
These transactions may occur before or after your receipt of this report and may have
a short-term impact on the market price of the securities in which transactions occur.
RBC Wealth Management research is posted to our proprietary Web sites to ensure
eligible clients receive coverage initiations and changes in rating, targets, and
opinions in a timely manner. Additional distribution may be done by sales personnel
via e-mail, fax, or regular mail. Clients may also receive our research via third-party
vendors. Please contact your RBC Wealth Management Financial Advisor for more
information regarding RBC Wealth Management research.
Conflicts Disclosure: RBC Wealth Management is registered with the Securities and
Exchange Commission as a broker/dealer and an investment adviser, offering both
brokerage and investment advisory services. RBC Wealth Management’s Policy for
Managing Conflicts of Interest in Relation to Investment Research is available from us
on our Web site at http://www.rbccm.com/GLDisclosure/PublicWeb/DisclosureLookup.
aspx?EntityID=2. Conflicts of interests related to our investment advisory business can
be found in Part II of the Firm’s Form ADV or the Investment Advisor Group Disclosure
Document. Copies of any of these documents are available upon request through your
Financial Advisor. We reserve the right to amend or supplement this policy, Part II of the
ADV, or Disclosure Document at any time.
may be offered to their residents, as well as the process for doing so. As a result, the
securities discussed in this report may not be eligible for sale in some jurisdictions.
This report is not, and under no circumstances should be construed as, a solicitation
to act as securities broker or dealer in any jurisdiction by any person or company that
is not legally permitted to carry on the business of a securities broker or dealer in
that jurisdiction. Nothing in this report constitutes legal, accounting or tax advice or
individually tailored investment advice. This material is prepared for general circulation
to clients, including clients who are affiliates of Royal Bank of Canada, and does not
have regard to the particular circumstances or needs of any specific person who may
read it. The investments or services contained in this report may not be suitable for you
and it is recommended that you consult an independent investment advisor if you are in
doubt about the suitability of such investments or services. To the full extent permitted
by law neither Royal Bank of Canada nor any of its affiliates, nor any other person,
accepts any liability whatsoever for any direct or consequential loss arising from any use
of this report or the information contained herein. No matter contained in this document
may be reproduced or copied by any means without the prior consent of Royal Bank of
Canada. Additional information is available upon request.
To U.S. Residents: This publication has been approved by RBC Capital Markets, LLC,
Member NYSE/FINRA/SIPC, which is a U.S. registered broker-dealer and which accepts
responsibility for this report and its dissemination in the United States. RBC Capital
Markets, LLC, is an indirect wholly-owned subsidiary of the Royal Bank of Canada and,
as such, is a related issuer of Royal Bank of Canada. Any U.S. recipient of this report that
is not a registered broker-dealer or a bank acting in a broker or dealer capacity and that
The authors are employed by one of the following entities: RBC Wealth Management wishes further information regarding, or to effect any transaction in, any of the securities
USA, a division of RBC Capital Markets, LLC, a securities broker-dealer with principal discussed in this report, should contact and place orders with RBC Capital Markets,
LLC. International investing involves risks not typically associated with U.S. investing,
offices located in Minnesota and New York, USA; by RBC Dominion Securities Inc.,
including currency fluctuation, foreign taxation, political instability and different
a securities broker-dealer with principal offices located in Toronto, Canada; by RBC
accounting standards.
Investment Services (Asia) Limited, a subsidiary of RBC Dominion Securities Inc.,
To Canadian Residents: This publication has been approved by RBC Dominion
a securities broker-dealer with principal offices located in Hong Kong, China; and
Securities Inc. RBC Dominion Securities Inc.* and Royal Bank of Canada are separate
by Royal Bank of Canada Investment Management (U.K.) Limited, an investment
corporate entities which are affiliated. *Member-Canadian Investor Protection Fund.
management company with principal offices located in London, United Kingdom.
®Registered trademark of Royal Bank of Canada. Used under license. RBC Wealth
Research Resources
Management is a registered trademark of Royal Bank of Canada. Used under license.
This document is produced by the Global Portfolio Advisory Committee within RBC
To European Residents: Clients of United Kingdom subsidiaries may be entitled to
Wealth Management’s Portfolio Advisory Group. The RBC WM Portfolio Advisory
compensation from the UK Financial Services Compensation Scheme if any of these
Group provides support related to asset allocation and portfolio construction for
entities cannot meet its obligations. This depends on the type of business and the
the firm’s Investment Advisors / Financial Advisors who are engaged in assembling
circumstances of the claim. Most types of investment business are covered for up to a
portfolios incorporating individual marketable securities. The Committee leverages
total of £50,000. The Channel Islands subsidiaries are not covered by the UK Financial
the broad market outlook as developed by the RBC Investment Strategy Committee,
Services Compensation Scheme; the offices of Royal Bank of Canada (Channel Islands)
providing additional tactical and thematic support utilizing research from the RBC
Limited in Guernsey and Jersey are covered by the respective compensation schemes in
Investment Strategy Committee, RBC Capital Markets, and third-party resources.
these jurisdictions for deposit taking business only.
The Global Industry Classification Standard (“GICS”) was developed by and is the
To Hong Kong Residents: This publication is distributed in Hong Kong by RBC
exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard & Poor’s
Investment Services (Asia) Limited and RBC Investment Management (Asia) Limited,
Financial Services LLC (“S&P”) and is licensed for use by RBC. Neither MSCI, S&P, nor licensed corporations under the Securities and Futures Ordinance or, by Royal Bank of
any other party involved in making or compiling the GICS or any GICS classifications Canada, Hong Kong Branch, a registered institution under the Securities and Futures
makes any express or implied warranties or representations with respect to such
Ordinance. This material has been prepared for general circulation and does not take
standard or classification (or the results to be obtained by the use thereof), and
into account the objectives, financial situation, or needs of any recipient. Hong Kong
all such parties hereby expressly disclaim all warranties of originality, accuracy,
persons wishing to obtain further information on any of the securities mentioned in
completeness, merchantability and fitness for a particular purpose with respect to
this publication should contact RBC Investment Services (Asia) Limited, RBC Investment
any of such standard or classification. Without limiting any of the foregoing, in no
Management (Asia) Limited or Royal Bank of Canada, Hong Kong Branch at 17/Floor,
event shall MSCI, S&P, any of their affiliates or any third party involved in making
Cheung Kong Center, 2 Queen’s Road Central, Hong Kong (telephone number is 2848or compiling the GICS or any GICS classifications have any liability for any direct,
1388).
indirect, special, punitive, consequential or any other damages (including lost
To Singapore Residents: This publication is distributed in Singapore by RBC
profits) even if notified of the possibility of such damages.
(Singapore Branch) and RBC (Asia) Limited, registered entities granted offshore bank
status by the Monetary Authority of Singapore. This material has been prepared for
Disclaimer
general circulation and does not take into account the objectives, financial situation,
The information contained in this report has been compiled by RBC Wealth
or needs of any recipient. You are advised to seek independent advice from a financial
Management, a division of RBC Capital Markets, LLC, from sources believed to be
adviser before purchasing any product. If you do not obtain independent advice, you
reliable, but no representation or warranty, express or implied, is made by Royal
should consider whether the product is suitable for you. Past performance is not
Bank of Canada, RBC Wealth Management, its affiliates or any other person as to its
indicative of future performance.
accuracy, completeness or correctness. All opinions and estimates contained in this
Copyright © RBC Capital Markets, LLC 2015 - Member NYSE/FINRA/SIPC
report constitute RBC Wealth Management’s judgment as of the date of this report,
Copyright © RBC Dominion Securities Inc. 2015 - Member CIPF
are subject to change without notice and are provided in good faith but without
Copyright © RBC Europe Limited 2015
legal responsibility. Past performance is not a guide to future performance, future
Copyright © Royal Bank of Canada 2015
returns are not guaranteed, and a loss of original capital may occur. Every province
All rights reserved
in Canada, state in the U.S., and most countries throughout the world have their
own laws regulating the types of securities and other investment products which
GLOBAL INSIGHT WEEKLY
March 20, 2015
7