Asia Pacific Media Coverage

Transcription

1 Asia Pacific Media Coverage 1 December 2017 Fund Selector Asia: SSGA sees 2018 as break-out year for China South China Morning Post: Equities to outperform bonds as volatility set to rise, say Pictet and State Street The Standard: PMI picks up despite property concerns Hong Kong Economic Journal: Pictet Asset Management optimistic on Hong Kong equities market and expects market volatility next year TVB: SSGA says US tech stocks drop, related to investor favoring financial stocks Cable TV: SSGA expects strong growth in emerging markets next year, especially China A number of media publications ran articles following the media briefing for Rick Lacaille, Global CIO of SSGA, yesterday. The articles noted that there will be reduced risks and uncertainties in China in 2018, and investors will become more confident about capturing opportunities, according to Lacaille. o Lacaille also noted that Southeast Asia would continue to benefit from China s growth, which supports trade and earnings of companies in the region. o It also mentioned that Lacaille favours US-listed China tech stocks because the strong growth potential for those companies remain even though they are in a volatile area. The Nikkei: Proxy advisor to advise opposing leadership appointments at companies with no female directors; SSGA s efforts noted U.S. proxy advisor Glass Lewis will begin urging major listed Japanese companies to appoint female directors to their boards from o Similar moves are in fact also underway among foreign asset management firms that invest in Japanese companies. State Street Global Advisors plans to vote against appointments to boards at Japanese companies it invests in that do not have women on their boards, starting from general shareholders meetings next year. Overseas investors have begun criticizing Japanese companies over a lack of workforce diversity. Reuters: FOREX Dollar poised for monthly loss, Brexit deal hopes lift sterling; State Street s Bart Wakabayashi quoted The US dollar held steady on Thursday, but is set for a monthly loss against a basket of currencies as investors warily watch progress on US tax reform legislation, while the pound sterling stood tall on optimism a Brexit accord would be reached. o Sterling caught a bid, and it seems to be related to Brexit, said Bart Wakabayashi, Branch Manager at State Street Bank and Trust Company, Tokyo Branch. It would be some positive news for the UK if they don't have to pay as much than was thought initially, he said. Nikkei Quick: State Street s Kazushige Kaida: Optimism about US economic growth, Japanese yen has leeway to weaken to mid-jpy 112 levels STATE STREET CORPORATION 1

2 In a commentary, Kazushige Kaida, Head of Foreign Exchange, State Street Bank and Trust Company, Tokyo Branch, said the Japanese yen saw ongoing declines on the Tokyo foreign exchange market on 30 November, and appears to have the leeway to weaken to mid-jpy 112 levels against the US dollar. o The optimistic outlook for the US economy, centering on the US equity market, is growing, and rising US equity prices and falling US bond prices will likely make it easier for dollar-buying to proceed, Kaida said. Investor Daily: Decline in investor confidence continues Investor Daily picked up the State Street ICI press release for November. The article noted that Global investor sentiment lowered despite slight increases in the North American ICI, which rose 3.7 points to 102.6, and the Asian ICI, which rose by 1 point, reaching Channel NewsAsia: Big US banks in last-ditch push on regulatory relief bill Channel NewsAsia picked up on a Reuters report on US banks scramble to secure a US Senate bill that will ease rules on smaller banks ahead of a key lawmaker meeting next week, according to several bank lobbyists. The article noted that the bill makes life much easier for custody banks like State Street by exempting the customer deposits they place with central banks from a stringent capital calculation requirement. Channel NewsAsia: Nasdaq falters as investors flee tech for banks The Edge Markets: Sterling rises on Brexit bets; stocks, oil fall Channel NewsAsia and The Edge Markets picked up on Reuters commentary on the US markets, which carried a quote from Michael Arone, Chief Investment Strategist at State Street Global Advisors. Arone was quoted saying, We are certainly seeing a change in leadership at least for today in that we are taking profits from technology and redistributing those profits to areas that will benefit from lower taxes, less regulation, higher interest rates and kind of later stages of the economic cycle New Zealand Herald: Housing trends favor builders focused on entry-level buyers The article noted that the SPDR S&P Homebuilders ETF is up 27% this year, while the ishares U.S. Home Construction ETF is up 54.9%. STATE STREET CORPORATION 2

3 Full articles Fund Selector Asia SSGA sees 2018 as break-out year for China By Piotr Zembrowski 2018 could be a break-out year for China, as the country s economy is propelled by rising consumption, according to Rick Lacaille, global CIO of SSGA. Most risks and uncertainties in China are going to be reduced in 2018, and investors will become more confident about capturing the opportunities, Lacaille said at a press briefing in Hong Kong today. The reduction of uncertainty around policy is apparent following the congress of the Communist Party of China in October and subsequent policy announcements, he added. The firm is overweight China equities, in particular the e-commerce and technology sectors, following the theme of shift to consumption and consumer-oriented businesses, he said. Lacaille noted also that Southeast Asia would continue to benefit from China s growth, which supports trade and earnings of companies in the region. We ve seen the absolute household consumption rising quite rapidly, almost doubling between 2009 and 2016, Lacaille said. It s offering really interesting investment opportunities, in healthcare, technology, e- commerce. Even though some companies in these sectors have reached high valuations, their strong growth justifies high return expectations, he added. "In cooling the economy, which is a combination of regulatory constraints and other actions, there's always a chance that that process happens too quickly" China s private consumption in December 2016 was equal to 39.2% of the country s GDP, up from 38.1% a year earlier. It has gradually increased since bottoming out in China s economy is decelerating in an orderly fashion, Lacaille believes, noting that the country s GDP growth has stabilised in the 6.5%-7% range. The hard landing that many investors had been worried about for the last several years has not materialised. The stabilisation can be attributed to China s transition to a new economy model, based on services rather than industry and construction. Unlike some other nations around the world China has succeeded in changing the composition of its economy, Lacaille said. The contribution of the services sector to the country s GDP first surpassed that of heavy industry in 2013, and the gap has been widening ever since, he said. Today services are credited for around 52% of the GDP. Industry and construction for around 40%. STATE STREET CORPORATION 3

4 China s government has also been able to slow the expansion of credit, which is still perceived as a risk to the financial stability of the country. Rapid credit expansion creates concerns whether investment are allocated efficiently, Lacaille said. Getting control over less regulated parts of the credit system is very important. The principal risk Lacaille sees stemming from China is that the contraction will be much sharper or faster than expected. In cooling the economy, which is a combination of regulatory constraints and other actions, there s always a chance that that process happens too quickly, he said. These policies are very hard to finetune. Another risk is geopolitical. If the rhetoric [in the US] around trade turns into barriers, tariffs or other brakes on trade between China and the US, that would be a serious setback, Lacaille said. This risk is not discounted by markets today, he added. STATE STREET CORPORATION 4

5 South China Morning Post Equities to outperform bonds as volatility set to rise, say Pictet and State Street Pictet recommends Hong Kong investors take cues from market corrections to place bets into equities. State Street favours US-listed China tech stocks even though they are still volatile Global investors have been enjoying strong returns in both the equity and fixed income markets this year amid benign inflation, low market volatility and a mild recovery in global economic growth. But risk-rewards have worsened, implying that market volatility is expected to rise from current low levels, even if equities are set to outperform bonds next year, two leading fund management experts have told South China Morning Post. Pictet Asset Management, a leading European wealth manager with US$193 billion of assets under management, said it is now recommending Hong Kong investors take cues from market corrections to place bets into equities next year, while expecting Asian credit and bond funds to be unlikely to offer significant upside. While US finance giant State Street, which manages US$2.67 trillion in assets, suggests diversifying and overweighting stocks in a portfolio to withstand correction. It is also underweight in fixed income in their global portfolio. The Hang Seng Index has been sliding from a 10-year high last week, tracking declines in China s mainland markets on fears that liquidity conditions might tighten sharply after a series of recent policy measures taken by Beijing to manage excessive risk in the financial markets. Hong Kong retail investors were taking profit too soon and might have missed a continued equity Bull Run, said Lawrence Tse, senior vice-president of Pictet Asset Management, adding that investors should buy funds that pick stocks, over those that tout a market-picking strategy given the possibility of further market volatility. Tse says his advice for more allocation into equity retail funds has come amid a persistently higher level of retail interests into bond funds a trend that has started since the beginning of 2016 and continued up to the third quarter this year. For the third quarter, 45.3 per cent of retail fund gross sales in Hong Kong went into bond funds, dwarfing 25 per cent gross sales into equity funds, he added. Net sales of retail funds totalled US$8.88 billion for the year ended September. Of this, bond funds net sales amounted to US$10.1 billion; whereas equities funds experienced net outflow of US$5.96 billion. He said as companies globally continue to digitalise their operations, he sees attractive investment opportunities in companies that specialise in data and cybersecurity. STATE STREET CORPORATION 5

6 Elsewhere, in the traditional economy, he also expects the energy, commodity and financial services sectors to perform better in 2018 Whether China can succeed in its ambitious task of engineering a controlled, decline in credit growth and economic growth, by changing the composition toward services from fixed investments and industrial activity is still yet to be seen. Rick Lacaille, global chief investment officer at State Street Global Advisors favours US-listed China tech stocks because of the strong growth potential for those companies remain even though they are in a volatile area. The point we make to investors globally is that 2018 could be the breakout year for China. We ve seen consumption rising quite rapidly, which is part of the rotation of the economy offering investment opportunities. Pictet s Tse cautions, however, against buying Asian credit due to expectations that new bond issuers will continue to come to the market with tight spreads, squeezing room for the bonds to trade any tighter during the bonds tenor. STATE STREET CORPORATION 6

7 The Standard PMI picks up despite property concerns Growth in China's manufacturing sector unexpectedly picked up in November, despite a crackdown on air pollution and a cooling property market that have been widely expected to weigh on the economy. The official Purchasing Managers' Index released yesterday beat forecasts at 51.8 in November, compared with 51.6 in October and comfortably above the 50-point mark that separates growth from contraction. Boosted by government infrastructure spending, a resilient property market and unexpected strength in exports, China's manufacturing and industrial firms helped the economy post better-than-expected growth of nearly 6.9 percent through the first nine months of this year. But October economic data disappointed analysts as investment, industrial output and export growth all slowed, raising concerns that a long-expected slowdown had arrived. Raymond Yeung, chief economist of Greater China with Australia and New Zealand Banking Group, expects 6.5 percent growth in GDP next year. Based on that forecast, PMI will stay at around 50 percent, with some months reaching 51 percent, he said. He predicts inflation for China in 2018, with CPI expected to increase slightly with a rising trend in the service industry, rising oil and food prices. China's central bank would continue its tightening bias in monetary policy, and de-leveraging would be an important part of policy, said Yeung. Rick Lacaille, executive vice president and global chief investment officer of State Street Global Advisors, thinks 2018 could be a break-out year for China, with less uncertainty about policies, and investors could benefit from booming e-commerce and technology industries. But there were potential risks, including the United States' policies towards China, especially trade policy. STATE STREET CORPORATION 7

8 Hong Kong Economic Journal 百達看好股市料明年大波動 %E8%82%A1%E5%B8%82++%E6%96%99%E6%98%8E%E5%B9%B4%E5%A4%A7%E6%B3%A2%E5% 8B%95 百達資產管理高級副總裁謝志豪預期, 明年環球經濟及股市有不俗增長, 看好股票投資多於債券, 但預料明年股市有較多波動, 尤其關注資金流動性可能收緊的風險 他指出, 第三季本港零售基金總銷售金額 257 億美元 ( 約 2005 億港元 ), 當中超過 40% 流入固定收益基金, 約 25% 流入股票基金 不過, 以淨銷售計, 股票基金在第三季錄得淨流出, 反映基金投資者過早選擇獲利, 未能捕捉其後股市的持續升勢 此外, 謝志豪預期明年環球股市會有較大波動, 基金投資者在股市調整時仍可捕捉入市機會, 例如美國科技股第三季整體盈利增長 23%, 部分股份的增長料可維持 他稱, 明年銀根收緊的風險較值得關注, 例如明年美國廣義貨幣供應量 (M2) 料增長 5%, 為過去 6 至 7 年最小增幅, 並估計全球五大央行明年注入市場的金額約 5000 億美元, 較今年減少三分二, 所以對明年資金流動性較為審慎 道富叫買中國電商股 道富環球投資管理全球首席投資總監 Rick Lacaille 認同, 明年環球股市在某個時段會有調整風險, 但屆時投資 者應留意投資機會, 而非轉而持有現金 Rick Lacaille 認為, 投資者低估了中國在 2018 年的增長潛力, 看好 科技及電子商貿等板塊, 他認為中國在收縮信貸上有可控能力, 信貸收縮料到下一個十年才會加快 STATE STREET CORPORATION 8

9 TVB 道富環球 : 美國科技股大跌與投資者換碼金融股有關 道富環球投資管理表示, 隔晚美國科技股大跌, 與投資者換碼金融股等因素有關, 但仍看好美國科技股 道富全球首席投資總監 Rick Lacaille 指 : 我們不是短線投資者, 沒有期望, 一天的下跌會是一個趨勢的開始, 不, 股市時常有其解釋 月底投資者調整組合換碼金融股, 人們為一些事情作準備, 包括 MSCI 指數調整成分股 我們偏愛美國的科技股, 我們主動管理基金的增長組合團隊, 其組合有持有美國科技股及美國上市的中國相關科技股, 我們認為這些公司的增長潛力仍然十分強勁 道富指, 全球經濟穩定增長和低增長環境明年仍有利風險資產, 建議增持股票及減持債券, 看好美國以外的市 場 中國方面, 預期明年出現經濟增長減速及有管控的信貸收縮, 但明年也可能是有所突破的一年, 相信內地經濟 動力正在轉換, 可望在醫療保健 科技及電子商務等行業找到具吸引力的投資機會 道富指, 雖然這些板塊估值已上升不少, 但是獲企業增長前景支持 STATE STREET CORPORATION 9

10 Cable TV 道富環球 : 明年新興市場將會維持強勁增長, 特別看好中國 STATE STREET CORPORATION 10

11 The Nikkei Proxy advisor to advise opposing leadership appointments at companies with no female directors; SSGA s efforts noted STATE STREET CORPORATION 11

12 Reuters FOREX Dollar poised for monthly loss, Brexit deal hopes lift sterling; State Street's Bart Wakabayashi quoted STATE STREET CORPORATION 12

13 STATE STREET CORPORATION 13

14 Nikkei Quick State Street s Kazushige Kaida: Optimism about US economic growth, Japanese yen has leeway to weaken to mid-jpy 112 levels STATE STREET CORPORATION 14

15 Investor Daily Decline in investor confidence continues The global investor confidence index dropped 1 point to 97.1 in November, dampened by a significant loss of confidence in Europe as well as Asia, according to State Street. According to the latest monthly reading of the State Street Global Investor Confidence Index, the minor decline in investor sentiment across the globe was attributed chiefly to a 12 point fall in the European investor confidence index (ICI) to Global investor sentiment lowered despite the slight increases in the North American ICI, which rose 3.7 points to 102.6, and the Asian ICI, which rose by 1 point, reaching The global ICI has fallen steadily since its peak in July this year of 108.9, representing an overall drop of 11.8 points since then. Commenting on the results, State Street Associates managing director and head of investor behaviour research Rajeev Bhargava said there were political factors were at play in Europe. While tax reform prospects likely helped boost investor confidence in the US, rising political uncertainty and worries over tighter monetary policy conditions likely drove down sentiment in Europe, Mr Bhargava said in a statement. It will be interesting to follow the path of investor confidence in the wake of failed coalition talks in Germany, he added. State Street Associates founding partner and ICI co-developer Kenneth Froot said global risk appetite remain[ed] broadly subdued. While the decline in sentiment was more acute in Europe, Asian sentiment has also taken a hit, as rising concerns about Chinese debt outweighed the potential benefits of cash injections by the People s Bank of China, Mr Froot said. The ICI tracks risk appetite by analysing institutional investors' buying and selling patterns, with a reading of 100 signifying no change to investors long-term allocations to risky assets. STATE STREET CORPORATION 15

16 Channel NewsAsia Big US banks in last-ditch push on regulatory relief bill WASHINGTON: Wall Street banks and big regional lenders are scrambling to secure changes to a U.S. Senate bill easing rules on smaller banks ahead of a key lawmaker meeting next week, several bank lobbyists told Reuters. The effort underscores how a year into the presidency of Republican Donald Trump, who pledged to slash financial red tape, the largest U.S. banks are still struggling to secure the regulatory relief they had hoped for. The bill offers little relief for many bigger lenders but lifts a significant burden for smaller banks and custodians. Large lenders are pushing for tweaks to help narrow that gap, multiple people with knowledge of their strategies said. Democrats and Republicans on the Senate Banking Committee this month reached a tentative deal that would more than halve the number of banks labeled systemically risky, freeing them from stricter oversight from the Federal Reserve. The bipartisan bill would mark the first major easing of financial regulations introduced following the financial crisis. But it has disappointed many of the largest U.S. banks, which under the bill are still big enough to be lumbered with the costly systemically risky label, and for which the bill currently offers few other compensations. That group includes JPMorgan Chase & Co N>, Goldman Sachs Group Inc and Citigroup Inc, which are global banks, as well as U.S. Bancorp, PNC Financial Services Group Inc and Capital One Financial Corp, which are domestic. Senate Republicans spent months winning support of at least eight Democrats needed to pass the bill, resulting in a compromise that raises the threshold at which lenders are deemed systemically risky to US$250 billion from US$50 billion. That would put the so-called super-regional banks like U.S. Bancorp, Capital One and PNC, which are above the new threshold but not global, at a disadvantage to their smaller regional competitors freed from the extra regulatory burden. "We are disappointed. We would rather see no bill than this bill," said one super-regional bank lobbyist, adding that regardless his institution would not oppose the bill. "Plan B... is to fix it on the margins." Senators will formally discuss any potential changes to the bill next week. While there is little prospect of shifting the asset threshold, the super-regionals hope to win tweaks to other areas of the bill that would reduce the operational burden associated with some capital calculations and give STATE STREET CORPORATION 16

17 the Federal Reserve more freedom when applying the systemically risky rules, three people with knowledge of the strategy said. The bill also makes life much easier for custody banks like BNY Mellon and State Street Corp by exempting the customer deposits they place with central banks from a stringent capital calculation requirement. The rest of the global U.S. banks are hoping to persuade lawmakers to put them on an equal footing with the custodians, three other people with knowledge of the discussions said. Any of those changes will likely be a tough sell. Senator Mark Warner, one of bill's Democratic co-sponsors, said the bill had struck a delicate balance between Democrat and Republican priorities. "Both sides are at their breaking point," he said. But lobbyists believe they will have another opportunity to push for changes when the Republican-dominated U.S. House of Representatives considers the Senate bill once it passes. Some lobbyists believe they can garner enough support from House Republicans to have their changes incorporated into a final compromise package. Tom Quaadman, an executive vice president with the U.S. Chamber of Commerce, said it was "disappointing" Congress simply raised the threshold. But the business group broadly supports the bill as a step toward easing rules it says are suffocating small business lending. "We think that Congress in the end is going to have to do more to get to a solution," Quaadman added. (Reporting by Pete Schroeder and Michelle Price in Washington and Olivia Oran in New York; Editing by Lauren Tara LaCapra and Meredith Mazzilli) Source: Reuters STATE STREET CORPORATION 17

18 STATE STREET CORPORATION 18

19 Channel NewsAsia Nasdaq falters as investors flee tech for banks REUTERS: The Nasdaq posted its biggest one-day drop in more than three months on Wednesday as investors fled high-flying technology stocks and shifted to banks and other pockets of the market that could benefit from improving economic conditions, lower regulations and taxes, and higher interest rates. Gains in financial, industrial and healthcare stocks boosted the Dow industrials, giving the blue-chip index another record closing high, and they helped the benchmark S&P 500 finish only slightly lower. The S&P tech sector, which has propelled the market's record-setting rally this year, fell 2.6 percent for its biggest daily decline in more than five months. Shares of Amazon, Apple, Google parent Alphabet and Facebook fell between 2 percent and 4 percent. Among other high fliers this year, Netflix sank 5.5 percent and the Philadelphia semiconductor index dropped 4.4 percent. Financials rose 1.8 percent, adding to Tuesday's gains and resulting in their biggest two-day rise since just after the 2016 U.S. election of President Donald Trump. JP Morgan rose 2.3 percent and Wells Fargo climbed 2.0 percent. The industrial sector rose 0.9 percent, led by transportation stocks such as Southwest Airlines, railroad Union Pacific and package delivery company UPS. "We are certainly seeing a change in leadership at least for today in that we are taking profits from technology and redistributing those profits to areas that will benefit from lower taxes, less regulation, higher interest rates and kind of later stages of the economic cycle," said Michael Arone, chief investment strategist at State Street Global Advisors in Boston. The Dow Jones Industrial Average rose points, or 0.44 percent, to 23,940.68, the S&P 500 lost 0.97 points, or 0.04 percent, to 2, and the Nasdaq Composite dropped points, or 1.27 percent, to 6, While Amazon dropped, shares of other retailers posted sharp gains, including Target up 8.9 percent and Macy's up 8.2 percent, as holiday shopping season has started in earnest over the past week. There may be a little bit of a thought that Amazon isn t going to kill every retailer out there," said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago. We re seeing some transportation stocks doing better in expectation that maybe this is going to be a pretty good holiday season with consumer confidence doing well and wage growth picking up a little bit, Nolte said. Investors are keenly focused on tax-reform legislation in Congress, with hopes that a corporate tax cut would further fuel the record-setting rally in equities. STATE STREET CORPORATION 19

20 Congressional Republicans scrambled to reformulate their bill to satisfy lawmakers worried about how much it would expand the federal deficit, as the measure moved toward a U.S. Senate floor vote later this week. In the latest batch of encouraging economic data, the U.S. economy grew faster than initially thought in the third quarter, notching its quickest pace in three years. Outgoing Federal Reserve Chair Janet Yellen told Congressional leaders the U.S. economy has gathered steam this year and will warrant continued interest rate increases amid a strengthened global recovery It was Yellen's final scheduled testimony on Capitol Hill. Her nominated replacement, Jerome Powell, on Tuesday had defended plans to potentially lighten regulation of the financial sector. In corporate news, Chipotle Mexican Grill shares rose 5.6 percent after the restaurant chain said it was seeking a turnaround expert to lead the company. (Additional reporting by Sruthi Shankar and Rama Venkat Raman in Bengaluru; editing by Sriraj Kalluvila and Nick Zieminski) STATE STREET CORPORATION 20

21 STATE STREET CORPORATION 21

22 The Edge Markets Sterling rises on Brexit bets; stocks, oil fall STATE STREET CORPORATION 22

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24 New Zealan Herald Housing trends favor builders focused on entry-level buyers It's lining up to be another strong year for investors who own homebuilding stocks. Shares of the 10 builders with the most completed sales in 2016 are up an average of 60.8 percent. And exchange-traded funds, or ETFs, that invest in homebuilders have also notched gains that eclipse the growth in the broader U.S. stock market. While many economists expect U.S. housing market growth trends to continue next year, homebuilders that focus on entry-level buyers could be the safest bet for further gains. "The demand, as we see it, is likely to continue to be pretty good, but the builders that will most benefit will be those who have a focus on the low-end homebuyer," said BTIG homebuilding analyst Carl Reichardt. A growing economy, solid job market, low unemployment rate and low mortgage interest rates have helped drive demand for homeownership this year. And a stubbornly thin inventory of homes for sale has kept home prices headed higher. All that has been a boon for homebuilders. Sales of new U.S. homes hit the fastest pace in a decade last month. The trends have also driven gains for some ETFs with exposure to homebuilders. The SPDR S&P Homebuilders ETF is up 27 percent this year, while the ishares U.S. Home Construction ETF is up 54.9 percent. Many economists expect the economic and housing market trends to continue next year, including further increases in sales of new homes and prices. "The market for new homes is improving steadily," said Patrick Newport, executive director of U.S. economics at IHS Markit. "The prognosis going forward is for further steady growth over the next two years." Realtor.com's 2018 U.S. housing forecast released this week calls for U.S. home prices to rise 3.2 percent in 2018, down from a projected gain of 5.5 percent this year, as the inventory of homes for sale begins to rise. The forecast also sees sales climbing 2.5 percent. Still, favorable housing market trends may not be enough to translate into more big gains for homebuilders. "At these valuations, close to where they've traditionally peaked out, you have to believe that something else has changed, something secular, either in how these companies are run or in what demand for housing relative to other consumer goods is going to look like," Reichardt said. "And I'm not quite ready to conclude that this time it's different." STATE STREET CORPORATION 24

25 Most of the builders that were in business during the last housing boom have yet to see their share prices return to those high-flying levels. Even so, they are now trading close to the top end of their traditional priceto-book value, which has typically ranged between 1 and 2 times. For now, Reichardt has "Buy" ratings on only two builders, D.R. Horton and Lennar. Earlier this year, D.R. Horton acquired land developer Forestar Group in a deal that helps beef up the builder's access to land that's been cleared for new construction. Last month, Lennar bought rival CalAtlantic Group in a $5.7 billion deal, not including $3.6 billion in debt, that will create the nation's largest homebuilder. "Those are two companies undergoing transformations to some degree that we think can result in higher long-term multiples," Reichardt said. "It's harder to make that argument for many of the other companies in the group at these valuations right now." Reichardt has "Neutral" ratings on most of the other builders he tracks. He also has a "Sell" rating on KB Home. Another reason Reichardt is bullish on D.R. Horton and Lennar: Both are catering to entry-level buyers, which he believes have more potential to make solid gains at this stage in the housing recovery. Through much of the housing rebound that began around 2012, many homebuilders primarily sought to cater to homeowners looking to trade up to bigger or nicer homes, which were typically pricier and translated into better margins for builders. Those buyers were also generally in a better financial position to put down a big down payment or qualify for financing. The tax overhaul making its way through Congress is likely to have an impact on the housing market, which could affect builder stocks. The projected corporate tax cut would benefit homebuilders, given that they tend to have high tax rates. The group of builders that BTIG tracks has an average tax rate of 34 percent. The proposed tax overhaul bills would reduce corporate taxes to 20 percent. Other possible changes could be a drag on some builders, including a proposal to limit the mortgage interest deduction on newly purchased homes to the first $500,000 of the loan, instead of the present $1 million limit. That would particularly affect companies building pricier homes on the U.S. coastal metro areas, like Toll Brothers. Another wild card: mortgage interest rates. The average rate on a 30-year, fixed mortgage is 3.9 percent this week, down slightly from a year ago. Mortgage rates often track the yield on 10-year Treasury note, which is also essentially flat from a year ago. Higher rates tend to be negative for homebuilding stocks because they make home loans more costly for would-be homebuyers. Realtor.com projects that mortgage rates will hit 5 percent by the end of next year. STATE STREET CORPORATION 25

26 Investor Daily Decline in investor confidence continues The global investor confidence index dropped 1 point to 97.1 in November, dampened by a significant loss of confidence in Europe as well as Asia, according to State Street. According to the latest monthly reading of the State Street Global Investor Confidence Index, the minor decline in investor sentiment across the globe was attributed chiefly to a 12 point fall in the European investor confidence index (ICI) to Global investor sentiment lowered despite the slight increases in the North American ICI, which rose 3.7 points to 102.6, and the Asian ICI, which rose by 1 point, reaching The global ICI has fallen steadily since its peak in July this year of 108.9, representing an overall drop of 11.8 points since then. Commenting on the results, State Street Associates managing director and head of investor behaviour research Rajeev Bhargava said there were political factors were at play in Europe. While tax reform prospects likely helped boost investor confidence in the US, rising political uncertainty and worries over tighter monetary policy conditions likely drove down sentiment in Europe, Mr Bhargava said in a statement. It will be interesting to follow the path of investor confidence in the wake of failed coalition talks in Germany, he added. State Street Associates founding partner and ICI co-developer Kenneth Froot said global risk appetite remain[ed] broadly subdued. While the decline in sentiment was more acute in Europe, Asian sentiment has also taken a hit, as rising concerns about Chinese debt outweighed the potential benefits of cash injections by the People s Bank of China, Mr Froot said. The ICI tracks risk appetite by analysing institutional investors' buying and selling patterns, with a reading of 100 signifying no change to investors long-term allocations to risky assets. STATE STREET CORPORATION 26