Asia Views: The US election s potential impact on Asian markets

Transcription

1 10 November 2016 : The US electio s potetial impact o Asia markets US electio outcome: Doald Trump has bee elected Presidet, defeatig Hillary Clito with approximately 309 electoral votes ad about 48% of the popular vote. The Republicas maitai cotrol of the Seate (about 52 seats) ad the House (approximately 240 seats). Not all races have bee called as of writig. Trump s campaig proposals suggest more stimulative fiscal policy (lower et taxes, more ifrastructure spedig), possible shifts i moetary policy (several upcomig Fed appoitmets icludig the Chair), more hawkish trade policy (e.g. o support for TPP, tariffs o Chia/Mexico), ad a less restrictive approach to regulatio (as well as possible repeal of Obama healthcare legislatio). Of these, potetial chages to trade policy probably pose the biggest dowside risk to AEJ. Potetial ear-term impact o Asia equities: o Moderate further declie, the a phase of rage tradig: policy ucertaity has icreased, otably o trade, but corporate earigs growth is improvig ad valuatios have falle, which may cushio dowside. o South Asia tilt: lower beta, less cyclical, less trade exposure. o Themes: 1) US-exposed stocks may remai uder pressure give trade policy cocers; 2) Chia stocks sesitive to CNY weakeig; 3) Favor stable growth (GSSZSTGW) give icreased policy ucertaity, 4) Favor Ifrastructure theme, which may be reiforced by expasive US fiscal policy; 5) Favor Defesives, which are domestically-orieted, lower beta, higher yieldig. Potetial ear-term impact o Asia rates ad FX: Timothy Moe, CFA timothy.moe@gs.com Goldma Sachs (Asia) L.L.C. Adrew Tilto adrew.tilto@gs.com Goldma Sachs (Asia) L.L.C. Richard Tag, CFA richard.tag@gs.com Goldma Sachs (Asia) L.L.C. Suil Koul suil.koul@gs.com Goldma Sachs (Asia) L.L.C. Day Suwaapruti day.suwaapruti@gs.com Goldma Sachs (Sigapore) Pte Kiger Lau, CFA kiger.lau@gs.com Goldma Sachs (Asia) L.L.C. Joatha Sequeira joatha.sequeira@gs.com Goldma Sachs (Asia) L.L.C. Alvi So alvi.so@gs.com Goldma Sachs (Asia) L.L.C. o o o o Our forecast of RMB depreciatio is based primarily o Chiese ecoomic ad market forces, with potetially some risk of a faster pace of depreciatio if the US were to impose tariffs o Chiese imports. INR bods ad FX likely to outperform; currecy reform will icrease bakig system liquidity. Thai rates ad FX typically a safe have durig times of severe risk aversio i EM ad our survey suggests positioig is light. IDR, KRW ad MYR at risk of uderperformig. Ivestors overweight IDR; KRW vulerable to trade slowdow. Goldma Sachs does ad seeks to do busiess with compaies covered i its research reports. As a result, ivestors should be aware that the firm may have a coflict of iterest that could affect the objectivity of this report. Ivestors should cosider this report as oly a sigle factor i makig their ivestmet decisio. For Reg AC certificatio ad other importat disclosures, see the Disclosure Appedix, or go to Aalysts employed by o-us affiliates are ot registered/qualified as research aalysts with FINRA i the U.S.

2 Goldma Sachs Implicatios of US electio result The views expressed i this research report are for each aalyst s area of coverage. Timothy Moe is our Chief Asia Pacific Strategist ad Adrew Tilto is our Chief Asia Ecoomist. After a fiercely fought campaig with umerous shifts i mometum betwee the cadidates, Doald Trump has wo the US Presidetial Electio, defeatig Hillary Clito with approximately 309 electoral votes ad about 48% of the popular vote. The Republicas maitai cotrol of the Seate (about 52 seats) ad the House (approximately 240 seats). Not all races have bee called as of the time of writig. (For further readig, see USA: Trump Victory Raises Ucertaity; Tighter Fiacial Coditios Offset by Prospects of Larger Fiscal Stimulus, Nov 9.) Areas of potetial policy chage i a Trump admiistratio may iclude: Fiscal policy: Fiscal policy may loose give the probability of a) tax reform that reduces et taxes ad b) ifrastructure spedig that exceeds Secretary Clito s proposal of $250b over the comig five years. Trade policy: Trump has a sigificatly more hawkish stace tha that of the curret admiistratio (he opposes the Tras-Pacific Partership, may reegotiate the North America Free Trade Agreemet (NAFTA), ad may impose ew tariffs o imports from Chia ad Mexico). Moetary policy: Trump could have a uusual degree of ifluece over the compositio of the Fed s Board of Goverors due to curret vacacies ad expirig terms (see US Daily: Q&A o Electios ad the Fed s Structure, Nov 8). At this poit his prefereces are uclear. Sector implicatios: Trump favors less restrictive regulatio o eergy (reduced drillig restrictios), healthcare (repeal Affordable Care Act), ad fiacial services. Republica cotrol of both the executive ad legislative braches implies a greater ability to determie the legislative ageda ad also to make certai decisios with a simple majority, icludig most omiatios (except the Supreme Court) ad most fiscal legislatio. Overall, a Trump presidecy with Republica cotrol of the legislature could imply more stimulative policy leadig to higher growth, higher iflatio ad higher rates, as bod markets respod to this shift i the ecoomic ad policy fudametals ad the yield curve steepes. (See, iter alia, Top of Mid: US Presidetial Prospects, Oct 18.) 10 November 2016 Page 2

3 Goldma Sachs Impact o Asia equities; South Asia leadership; themes There are likely to be three layers of impact o Asia equity markets. Further moderate regioal declie, the a phase of rage tradig. Subsequet reboud? Trump s lead i the electoral vote cout ad esuig victory triggered a roughly 3% drop i regioal equity markets. Combied with weakess durig the latter stages of the campaig, the MXAPJ idex has falle 6% from the early October high. I the ear term, we expect moderate further dowside risk ad the a period of rage tradig as markets assess the prospects of a Trump presidecy. Loger term, markets may reboud if the US growth outlook firms due to fiscal expasio ad there is greater clarity o trade policy, but much ucertaity remais. Moderate ear-term dowside risk. Policy ucertaity is greater uder a Trump victory, particularly with respect to icreased trade barriers. Markets may therefore cotiue to price this risk, but we expect the dowside risk to be moderate. First, as oted, the MXAPJ idex has already dropped 6% from its recet high. Secod, durig Brexit- the most recet comparable macro shock- the peak to trough idex declie was 5%. Third, comparig the curret declie to the history of regioal equity correctios, aother 5% drop would brig the price fall as well as valuatio compressio ito lie with past mior correctios, which we thik is the appropriate bechmark, sice we are ot expectig a aggregate growth impact (although there may more targeted parts of the regio that could be affected by trade barriers). Curret market coditios reasoably supportive. Market coditios ow compare favorably with those durig the UK referedum o Brexit, which may cushio the dowside risk. First, as oted, the regio has already corrected as much as it did followig the Brexit vote. Secod, the curret forward P/E is 12.9x, oly 1% above the 12.7x at the Brexit trough. Third, our equity risk barometer (ERB) has corrected more ad is at a lower level tha durig the Brexit vote, idicatig a greater reset of risk appetite has already occurred. Fially, Brexit cocers cetered o a growth shock to the UK ad EU ad ucertaities over how widely this might propagate. I cotrast, Trump s victory is likely to be mixed to the US growth give looser fiscal policy potetially offset by chages i fiacial coditios ad ecoomic ucertaity while we see some potetial traderelated growth dowside for parts of Asia. O balace, the aggregate risks to global growth appear o greater ow (ad possibly less) tha followig the Brexit vote. Rage tradig. We expect a phase of rage tradig after markets price i policy ucertaity ad trade cocers, sice there are about 70 days util Iauguratio Day o Jauary 20, 2017 ad the specifics of various policy issues icludig trade will likely ot become clear util after Mr. Trump assumes the presidecy. There are several supportig factors that may cushio dowside risk- or spur a modest recovery. First, valuatios are moderate: if markets do fall 5% from curret levels, the forward P/E would be 12.3x or -0.3 s.d. below the log-term mea ad the trailig price book ratio would be 1.44x or -1.2 s.d. Secod, the earigs cycle is 10 November 2016 Page 3

4 Goldma Sachs turig up as we have frequetly oted (see Earigs pulse check: the recovery theme is o track, Nov 2). Ad third, as oted above, risk appetite has reset ad portfolio flows have tapered, so ivestors may be tempted to revisit Asia equities oce the US electio ews has bee absorbed. Subsequet reboud? Beyod the ear-term tradig prospects, there is a case for a recovery i regioal markets if the risks to trade are cotaied. Simply put, although ecoomic ucertaity remais, US growth could potetially beefit from greater fiscal stimulus, with the tradeoff beig higher iflatio ad bod yields. Historically, Asia equities have performed well durig periods whe growth improves ad rates rise from low levels. Exhibit 1: The magitude of the curret drawdow is smaller tha the historical average of mior correctio Source: FactSet, I/B/E/S, MSCI, Goldma Sachs Global Ivestmet Research 10 November 2016 Page 4

5 Goldma Sachs Exhibit 2: but comparable to the Brexit vote five moths ago Source: FactSet, I/B/E/S, MSCI, Goldma Sachs Global Ivestmet Research Exhibit 3: Rise i policy ucertaity pre-electio likely to persist or itesify Exhibit 4: Our equity risk barometer has retreated to slightly below eutral Source: Ecoomic Policy Ucertaity, Goldma Sachs Global Ivestmet Research Source: Bloomberg, Goldma Sachs Global Ivestmet Research Exhibit 5: Earigs growth has started to pick up Exhibit 6: The regioal P/E multiple has reduced 7% from its peak ad is aroud 0.2 s.d. above mea sice 2000 Source: Bloomberg, MSCI, Goldma Sachs Global Ivestmet Research Source: FactSet, I/B/E/S, MSCI, Goldma Sachs Global Ivestmet Research 10 November 2016 Page 5

6 Goldma Sachs South Asia tilt. South Asia markets are likely to outperform i the more challegig market eviromet post Mr. Trump s victory, maily due to their geerally lower beta ad their more moderate cyclicality ad exposure to trade. While 4Q performace up to electio day was quite tightly buched, suggestig markets have bee respodig to the commo factor of electio ucertaity, the disparity i performace o electio day i respose to Trump s early ad persistet lead has show greater itra-regioal disparity, with North Asia fallig further tha ASEAN. Exhibit 7: South Asia markets are likely to outperform i a regioal correctio, maily due to their geerally lower beta ad their more moderate cyclicality ad trade exposure Source: Bloomberg, FactSet, Compay Data, MSCI, Haver, IMF, Goldma Sachs Global Ivestmet Research 10 November 2016 Page 6

7 Goldma Sachs Themes ad implemetatio ideas. We highlight five themes that the market may price i the wake of the electio. US-exposed stocks: Trump holds a tougher stace o trade compared to Clito. While the graular sector-specific impact will deped o the ew trade policies udertake by the Trump admiistratio which are uclear at this time, we scree for Asia stocks with more tha 30% reveue to the US as the potetial list of stocks that may uderperform. Exhibit 8: US exposed stocks have recetly lagged the regio after a log period of outperformace Source: MSCI, Goldma Sachs Global Ivestmet Research Exhibit 9: Screeig for stocks i Asia with sigificat US sales exposure Source: FactSet, I/B/E/S, Goldma Sachs Global Ivestmet Research 10 November 2016 Page 7

8 Goldma Sachs CNY depreciatio wiers ad losers: The Trump victory may icrease pressure o the CNY which has bee o a weakeig tred over the past moth amid expectatios of a Fed hike i December, dollar stregth ad capital outflow pressures i Chia. We expect CNY fixig at 6.8 by ed-16 ad 7.3 by ed-17 (7.7% further depreciatio vs. the USD). We highlight Rmb depreciatio wiers ad losers i Chia to take advatage of potetial Rmb dowtred. (See our recet report Chia Musigs: Hedgig ad moetizig Rmb depreciatio risk i the equity market, Oct 13, 2016 for more details.) Exhibit 10: Trump victory may put further pressure o RMB; we highlight potetial wiers of RMB weakess... Source: FactSet, I/B/E/S, Goldma Sachs Global Ivestmet Research Exhibit 11:... as well as the losers Source: FactSet, I/B/E/S, Goldma Sachs Global Ivestmet Research 10 November 2016 Page 8

9 Goldma Sachs Stable Growth: The Trump victory may spur reewed appetite for high quality stocks that have bee deliverig stable earigs, give heighteed US policy ucertaity. The curret etry poit for stable growth stocks looks attractive. Our stable growth basket (GSSZSTGW) has falle 8% i the past two moths ad uderperformed the broader regio by 9pp sice Jue. The aggregate valuatios have come dow ad are curretly tradig at 20.8x 12-mo forward PE (0.1 s.d. above the 10-year average). We highlight 13 stable growth stocks that are Buyrated by our aalysts ad offer attractive growth/valuatio payoff (18% EPS growth CAGR for 2016/17 ad 22x 2017 PE). Exhibit 12: The etry poit for stable growth stocks looks attractive Exhibit 13: Aggregate valuatios for our stable growth basket have come dow to average levels Source: Bloomberg, Goldma Sachs Global Ivestmet Research Source: FactSet, I/B/E/S, Goldma Sachs Global Ivestmet Research Exhibit 14: We scree for Buy-rated stable growth stocks that are likely to perform well i the curret eviromet Criteria: GS Buy-rated ames i our AeJ Stable Growth basket <GSSZSTGW> Source: FactSet, I/B/E/S, Goldma Sachs Global Ivestmet Research 10 November 2016 Page 9

10 Goldma Sachs Ifrastructure: The theme of ifrastructure may be reiforced i Asia as policy makers i the US ad may other parts i Asia icrease fiscal spedig to complemet moetary policy ad support growth. We highlight 21 ifrastructure stocks i Asia i Exhibit 16 that have the highest sesitivity to Ifra FAI growth historically ad could potetially beefit from icreased fiscal stimulus. Exhibit 15: Ifrastructure Stocks have outperformed the broad market so far i 4Q Source: FactSet, Goldma Sachs Global Ivestmet Research Exhibit 16: We believe ifrastructure stocks could potetially beefit from icreased fiscal stimulus Criteria: 1) At least 20% correlatio fixed ivestmet growth, 2) Reasoable valuatios (PE/PB avg. z-score < 1.0) Source: FactSet, I/B/E/S, Goldma Sachs Global Ivestmet Research 10 November 2016 Page 10

11 Goldma Sachs Defesives: Defesives have lagged the regio by almost 10pp sice July. Their relative performace has falle back to levels i the summer of last year whe A shares tumbled ad the RMB weakeed. The curret etry level looks attractive i our view, ad we expect defesive ames to outperform i the ear term. Exhibit 17: Defesives meaigfully uderperformed the regio over the past few moths Source: FactSet, MSCI, Goldma Sachs Global Ivestmet Research Exhibit 18: We highlight Buy-rated stocks i Defesives if the regio corrects i the ear term Source: FactSet, I/B/E/S, Goldma Sachs Global Ivestmet Research 10 November 2016 Page 11

12 Goldma Sachs Asia FX ad Rates outlook We ow tur to the potetial impact of the US electio for Asia FX ad rates markets. I the ear term, markets are likely to reflect higher ucertaity, particularly with respect to potetial trade-related actios o the part of the ew US admiistratio. We thik Idia bods ad the INR are likely to outperform i the ear term, with a major catalyst today from a currecy reform that will take the bulk of existig cash out of circulatio, requirig it to be deposited at baks with restrictios o ew cash withdrawals i the ear term. We cotiue to expect depreciatio of the Chiese remibi agaist the dollar; elsewhere agaist the regio, we see IDR, KRW, ad MYR at risk of uderperformig i the ear term. Thai rates ad FX could cotiue to be a safe have. We maitai our view for CNY weakess Our forecast for further RMB depreciatio (6.80 for the USDCNY fix at ed 2016, 7.30 at ed 2017) reflects sustaied ad sigificat domestic capital outflow pressure. This, i tur, is a product of ample domestic liquidity, slowig growth ad decliig rate differetials with the US i recet years, ad demostrated two-way risk i the RMB followig two decades of appreciatio. These are largely drive by Chiese ecoomic ad market coditios ad we do ot see them chagig substatially with the electio of Presidet Trump. What could potetially chage are policies o the US side. I a speech earlier this autum, cadidate Trump idicated that I am goig to istruct my Treasury secretary to label Chia a currecy maipulator ad to apply tariffs over ay coutry that devalues its currecy to gai a ufair advatage over the Uited States. While this does ot automatically imply that tariffs will ultimately be applied, ad measures take agaist other coutries could potetially divert some busiess i Chia s directio, if trade measures targeted at Chia were implemeted, the resultig drag o exports (ad by extesio the curret accout) could preset Chiese policymakers with a upleasat choice: acceptig the hit to growth, with cosequeces for the feasibility of the growth target, or takig measures to offset the egative effects. Oe possible measure would be to allow a somewhat faster weakeig of the CNY, although from Chia s perspective this or other trade measures could carry the risk of escalatio. To the extet a Trump electio victory affects the path of Fed policy ad the dollar broadly, it would clearly have implicatios for the CNY ad other Asia currecies. Our US colleagues still expect a December Fed rate hike, though they see the probability as havig come dow to about 60%, from 75% previously. Both i terms of domestic policy, where Trump will have the opportuity to make several Fed-related appoitmets (see US Daily: Q&A o the Electios ad the Fed s Structure, Nov 8), ad trade policy, much will deped o key persoel appoitmets which are as yet highly ucertai. INR markets to outperform Asia Idia aouced o 8 th November that it was removig INR 500 ad INR 1000 otes from circulatio ad will replace it with INR 2000 ad INR 500 otes with the 10 November 2016 Page 12

13 Goldma Sachs objective of curbig the iformal circulatio of moey (see also the press ote from the Reserve Bak of Idia). We see this as positive for the bod market because of the icrease i bakig system liquidity, evetual positive effects o the tax base ad govermet reveue, ad likely short-term disiflatioary effects o spedig from cash costraits. The INR may face some volatility ear term, but over the medium term, we expect the curret accout to improve o reduced imports. For istace, we expect gold demad to drop further from USD35b i 2015, helpig the curret accout deficit to shrik further from last year s USD22b. Moreover, the INR bod market is somewhat isulated from EM cotagio risk, give the capital cotrols i the bod market. Thailad to act as a safe have for EM Asia Durig times of severe risk aversio i EM, Thailad teds to outperform because of its low volatility, low yield ad high curret accout surplus. This behavior was recetly reflected aroud the Brexit vote ad THB outperformed all other Asia pairs if we compare 3-day before vs. 3-day after the Brexit vote (Exhibit 19). The price actio today shows a similar patter where CNY ad THB outperformed all other o-japa Asia currecies. I additio, the positioig risk i Thailad s bod market is very light, where our survey of EM local currecy bod fuds shows that Thailad is the largest uderweight market i all of EM (Exhibit 20). Therefore, durig periods of risk aversio, ivestors would ted to de-risk ad move closer to their bechmarks, which imply that ivestors should at least partially cover some of their uderweight positio i Thailad, as they reduce the size of their overweight positioig elsewhere. Exhibit 19: Regioal FX moves 3 days after vs. 3 days before Brexit vote Exhibit 20: Positioig survey of Emergig market local currecy bods Source: Reuters, Goldma Sachs Global Ivestmet Research Source: Compay data, Goldma Sachs Global Ivestmet Research 10 November 2016 Page 13

14 Goldma Sachs IDR, MYR ad KRW FX ad rates markets are at risk of uderperformig The IDR FX ad rates markets have bee oe of best performers i Asia this year, drive by BI rate cuts of 150bps ad a positive receptio to the tax amesty program. As a cosequece, the IDR bod market has see foreig iflows worth USD 9b this year ad our ow survey of EM bod fuds show that ivestors are fairly overweight Idoesia versus their bechmark (Exhibit 20). Despite the positive bod fudametals, the overweight positioig makes Idoesia vulerable durig periods of risk aversio. We thik that there is limited room for locals to absorb the foreig bod sellig, because pesio fuds ad isurace compaies have also bee buildig their bod ivetory followig regulatios chages last year, which forced them to hold more govermet bods as part of their portfolio. Nevertheless, if we see a bod sell-off to the tue of 50-80bps, the we would expect demad to emerge for IDR bods aroud the 8% level. Strog oshore demad for USD/MYR should sustai MYR s uderperformace The MYR bod dyamics have bee positive followig the iclusio of the Govermet Ivestmet Issues (GIIs) ito the GBI-EM Global Diversified Idex ad the gradual accumulatio of Malaysia Govermet Securities (MGS) by the Employee Pesio fud. Nevertheless, USD/MYR has bee tredig higher due to the strog oshore demad for USDs from retail, baks ad corporates. KRW should cotiue to uderperform give the EM risk aversio The KRW uderperformed all Asia currecies today (November 9), depreciatig by aroud 1.26% versus the dollar. Risks aroud a global ad regioal trade slowdow, geopolitical risk, weak domestic demad, weakeig curret accout ad aother potetial Bak of Korea rate cut are likely to sustai the KRW s uderperformace (we forecast oe more 25bps rate cut by the BoK to 1% i early 2017). Exhibit 21: Varyig regioal rate sesitivities to Brexit vote 5-year swap rates moves, 3 days before Brexit vote to 3 days after Exhibit 22: Most regioal curves flatteed followig the Brexit vote Regioal 2s-10s moves 3 days before Brexit vote to 3 days after Source: Bloomberg, Goldma Sachs Global Ivestmet Research Source: Bloomberg, Goldma Sachs Global Ivestmet Research 10 November 2016 Page 14

15 Goldma Sachs MSCI disclosure All MSCI data used i this report is the exclusive property of MSCI, Ic. (MSCI). Without prior writte permissio of MSCI, this iformatio ad ay other MSCI itellectual property may ot be reproduced or dissemiated i ay form ad may ot be used create ay fiacial istrumets or products or ay idices. This iformatio is provided o a as is basis, ad the user of this iformatio assumes the etire risk of ay use made of this iformatio. Neither MSCI, ay of its affiliates or ay third party ivolved i, or related to, computig or compilig the data makes ay express or implied warraties or represetatios with respect to this iformatio (or the results to be obtaied by the use thereof), ad MSCI, its affiliates ad ay such third party hereby expressly disclaim all warraties of origiality, accuracy, completeess, merchatability or fitess for a particular purpose with respect to ay of this iformatio. Without limitig ay of the foregoig, i o evet shall MSCI, ay of its affiliates or ay third party ivolved i, or related to, computig or compilig the data have ay liability for ay direct, idirect, special, puitive, cosequetial or ay other damages (icludig lost profits) eve if otified of the possibility of such damages. MSCI ad the MSCI idexes are service marks of MSCI ad its affiliates. The Global Idustry Classificatio Stadard (GICS) were developed by ad is the exclusive property of MSCI ad Stadard & Poor s. GICS is a service mark of MSCI ad S&P ad has bee licesed for use by The Goldma Sachs Group, Ic Equity basket disclosure The ability to trade the basket(s) discussed i this research will deped upo market coditios, icludig liquidity ad borrow costraits at the time of trade. 10 November 2016 Page 15

16 Goldma Sachs Disclosure Appedix Reg AC We, Timothy Moe, CFA, Richard Tag, CFA ad Suil Koul, hereby certify that all of the views expressed i this report accurately reflect our persoal views about the subject compay or compaies ad its or their securities. We also certify that o part of our compesatio was, is or will be, directly or idirectly, related to the specific recommedatios or views expressed i this report. We, Adrew Tilto ad Day Suwaapruti, hereby certify that all of the views expressed i this report accurately reflect our persoal views, which have ot bee iflueced by cosideratios of the firm s busiess or cliet relatioships. Uless otherwise stated, the idividuals listed o the cover page of this report are aalysts i Goldma Sachs Global Ivestmet Research divisio. 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Uited Kigdom: Persos who would be categorized as retail cliets i the Uited Kigdom, as such term is defied i the rules of the Fiacial Coduct Authority, should read this research i cojuctio with prior Goldma Sachs research o the covered compaies referred to herei ad should refer to the risk warigs that have bee set to them by Goldma Sachs Iteratioal. A copy of these risks warigs, ad a glossary of certai fiacial terms used i this report, are available from Goldma Sachs Iteratioal o request. 10 November 2016 Page 16

17 Goldma Sachs Europea Uio: Disclosure iformatio i relatio to Article 4 (1) (d) ad Article 6 (2) of the Europea Commissio Directive 2003/125/EC is available at which states the Europea Policy for Maagig Coflicts of Iterest i Coectio with Ivestmet Research. Japa: Goldma Sachs Japa Co., Ltd. is a Fiacial Istrumet Dealer registered with the Kato Fiacial Bureau uder registratio umber Kisho 69, ad a member of Japa Securities Dealers Associatio, Fiacial Futures Associatio of Japa ad Type II Fiacial Istrumets Firms Associatio. Sales ad purchase of equities are subject to commissio pre-determied with cliets plus cosumptio tax. See compay-specific disclosures as to ay applicable disclosures required by Japaese stock exchages, the Japaese Securities Dealers Associatio or the Japaese Securities Fiace Compay. Ratigs, coverage groups ad views ad related defiitios Buy (B), Neutral (N), Sell (S) -Aalysts recommed stocks as Buys or Sells for iclusio o various regioal Ivestmet Lists. Beig assiged a Buy or Sell o a Ivestmet List is determied by a stock s retur potetial relative to its coverage group as described below. Ay stock ot assiged as a Buy or a Sell o a Ivestmet List is deemed Neutral. Each regioal Ivestmet Review Committee maages various regioal Ivestmet Lists to a global guidelie of 25%-35% of stocks as Buy ad 10%-15% of stocks as Sell; however, the distributio of Buys ad Sells i ay particular coverage group may vary as determied by the regioal Ivestmet Review Committee. Regioal Covictio Buy ad Sell lists represet ivestmet recommedatios focused o either the size of the potetial retur or the likelihood of the realizatio of the retur. Retur potetial represets the price differetial betwee the curret share price ad the price target expected durig the time horizo associated with the price target. Price targets are required for all covered stocks. The retur potetial, price target ad associated time horizo are stated i each report addig or reiteratig a Ivestmet List membership. Coverage groups ad views: A list of all stocks i each coverage group is available by primary aalyst, stock ad coverage group at The aalyst assigs oe of the followig coverage views which represets the aalyst s ivestmet outlook o the coverage group relative to the group s historical fudametals ad/or valuatio. Attractive (A). The ivestmet outlook over the followig 12 moths is favorable relative to the coverage group s historical fudametals ad/or valuatio. Neutral (N). The ivestmet outlook over the followig 12 moths is eutral relative to the coverage group s historical fudametals ad/or valuatio. Cautious (C). The ivestmet outlook over the followig 12 moths is ufavorable relative to the coverage group s historical fudametals ad/or valuatio. Not Rated (NR). The ivestmet ratig ad target price have bee removed pursuat to Goldma Sachs policy whe Goldma Sachs is actig i a advisory capacity i a merger or strategic trasactio ivolvig this compay ad i certai other circumstaces. Ratig Suspeded (RS). Goldma Sachs Research has suspeded the ivestmet ratig ad price target for this stock, because there is ot a sufficiet fudametal basis for determiig, or there are legal, regulatory or policy costraits aroud publishig, a ivestmet ratig or target. The previous ivestmet ratig ad price target, if ay, are o loger i effect for this stock ad should ot be relied upo. Coverage Suspeded (CS). Goldma Sachs has suspeded coverage of this compay. Not Covered (NC). Goldma Sachs does ot cover this compay. Not Available or Not Applicable (NA). The iformatio is ot available for display or is ot applicable. Not Meaigful (NM). The iformatio is ot meaigful ad is therefore excluded. Global product; distributig etities The Global Ivestmet Research Divisio of Goldma Sachs produces ad distributes research products for cliets of Goldma Sachs o a global basis. Aalysts based i Goldma Sachs offices aroud the world produce equity research o idustries ad compaies, ad research o macroecoomics, currecies, commodities ad portfolio strategy. This research is dissemiated i Australia by Goldma Sachs Australia Pty Ltd (ABN ); i Brazil by Goldma Sachs do Brasil Corretora de Títulos e Valores Mobiliários S.A.; i Caada by either Goldma Sachs Caada Ic. or Goldma, Sachs & Co.; i Hog Kog by Goldma Sachs (Asia) L.L.C.; i Idia by Goldma Sachs (Idia) Securities Private Ltd.; i Japa by Goldma Sachs Japa Co., Ltd.; i the Republic of Korea by Goldma Sachs (Asia) L.L.C., Seoul Brach; i New Zealad by Goldma Sachs New Zealad Limited; i Russia by OOO Goldma Sachs; i Sigapore by Goldma Sachs (Sigapore) Pte. (Compay Number: W); ad i the Uited States of America by Goldma, Sachs & Co. Goldma Sachs Iteratioal has approved this research i coectio with its distributio i the Uited Kigdom ad Europea Uio. Europea Uio: Goldma Sachs Iteratioal authorised by the Prudetial Regulatio Authority ad regulated by the Fiacial Coduct Authority ad the Prudetial Regulatio Authority, has approved this research i coectio with its distributio i the Europea Uio ad Uited Kigdom; Goldma Sachs AG ad Goldma Sachs Iteratioal Zweigiederlassug Frakfurt, regulated by the Budesastalt für Fiazdiestleistugsaufsicht, may also distribute research i Germay. Geeral disclosures This research is for our cliets oly. Other tha disclosures relatig to Goldma Sachs, this research is based o curret public iformatio that we cosider reliable, but we do ot represet it is accurate or complete, ad it should ot be relied o as such. The iformatio, opiios, estimates ad forecasts cotaied herei are as of the date hereof ad are subject to chage without prior otificatio. We seek to update our research as appropriate, but various regulatios may prevet us from doig so. Other tha certai idustry reports published o a periodic basis, the large majority of reports are published at irregular itervals as appropriate i the aalyst s judgmet. Goldma Sachs coducts a global full-service, itegrated ivestmet bakig, ivestmet maagemet, ad brokerage busiess. We have ivestmet bakig ad other busiess relatioships with a substatial percetage of the compaies covered by our Global Ivestmet Research Divisio. Goldma, Sachs & Co., the Uited States broker dealer, is a member of SIPC ( Our salespeople, traders, ad other professioals may provide oral or writte market commetary or tradig strategies to our cliets ad pricipal tradig desks that reflect opiios that are cotrary to the opiios expressed i this research. Our asset maagemet area, pricipal tradig desks ad ivestig busiesses may make ivestmet decisios that are icosistet with the recommedatios or views expressed i this research. The aalysts amed i this report may have from time to time discussed with our cliets, icludig Goldma Sachs salespersos ad traders, or may discuss i this report, tradig strategies that referece catalysts or evets that may have a ear-term impact o the market price of the equity securities discussed i this report, which impact may be directioally couter to the aalyst s published price target expectatios for such stocks. Ay such tradig strategies are distict from ad do ot affect the aalyst s fudametal equity ratig for such stocks, which ratig reflects a stock s retur potetial relative to its coverage group as described herei. We ad our affiliates, officers, directors, ad employees, excludig equity ad credit aalysts, will from time to time have log or short positios i, act as pricipal i, ad buy or sell, the securities or derivatives, if ay, referred to i this research. The views attributed to third party preseters at Goldma Sachs arraged cofereces, icludig idividuals from other parts of Goldma Sachs, do ot ecessarily reflect those of Global Ivestmet Research ad are ot a official view of Goldma Sachs. Ay third party refereced herei, icludig ay salespeople, traders ad other professioals or members of their household, may have positios i the products metioed that are icosistet with the views expressed by aalysts amed i this report. 10 November 2016 Page 17

18 Goldma Sachs This research is ot a offer to sell or the solicitatio of a offer to buy ay security i ay jurisdictio where such a offer or solicitatio would be illegal. It does ot costitute a persoal recommedatio or take ito accout the particular ivestmet objectives, fiacial situatios, or eeds of idividual cliets. Cliets should cosider whether ay advice or recommedatio i this research is suitable for their particular circumstaces ad, if appropriate, seek professioal advice, icludig tax advice. The price ad value of ivestmets referred to i this research ad the icome from them may fluctuate. Past performace is ot a guide to future performace, future returs are ot guarateed, ad a loss of origial capital may occur. Fluctuatios i exchage rates could have adverse effects o the value or price of, or icome derived from, certai ivestmets. Certai trasactios, icludig those ivolvig futures, optios, ad other derivatives, give rise to substatial risk ad are ot suitable for all ivestors. Ivestors should review curret optios disclosure documets which are available from Goldma Sachs sales represetatives or at Trasactio costs may be sigificat i optio strategies callig for multiple purchase ad sales of optios such as spreads. Supportig documetatio will be supplied upo request. All research reports are dissemiated ad available to all cliets simultaeously through electroic publicatio to our iteral cliet websites. Not all research cotet is redistributed to our cliets or available to third-party aggregators, or is Goldma Sachs resposible for the redistributio of our research by third party aggregators. For research, models or other data available o a particular security, please cotact your sales represetative or go to Disclosure iformatio is also available at or from Research Compliace, 200 West Street, New York, NY Goldma Sachs. No part of this material may be (i) copied, photocopied or duplicated i ay form by ay meas or (ii) redistributed without the prior writte coset of The Goldma Sachs Group, Ic. 10 November 2016 Page 18