WHAT S THE WORD FROM DR. COPPER?

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1 INVESTMENT STRATEGY GROUP MONTHLY WORLD MARKETS REPORT INSIDE THIS ISSUE DON T TRY TIMING MARKETS 2 CANADIAN EQUITIES: 3 RESTAURANT BRANDS INTERNATIONAL INC. ALIMENTATION COUCHE-TARD INC. MARKET RETURN DATA 4 CIBC WORLD MARKETS INC. 5 INTEREST RATE OUTLOOK CIBC WORLD MARKETS INC. ECONOMIC OUTLOOK COMPANY DISCLOSURES AND DISCLAIMERS CIBC WORLD MARKETS INC. 6 RESEARCH RATING SYSTEM CIBC WORLD MARKETS INC. DISCLAIMERS See Disclosures And Disclaimers at the end of this report for disclosures, including potential conflicts of interest. Complete research on any equities mentioned in this report is available from your Investment Advisor. Unless otherwise noted, all prices quoted in this report are as of the close of markets on July 25, WHAT S THE WORD FROM DR. COPPER? August 2018 We often refer to copper as having a PhD in economics for its ability to indicate global economic strength. After all, copper is used in everything from mobile devices to heavy industrial equipment. After rallying 11.7% from March 2018 to June 2018, it has declined 13.9% since June The question is why is the doctor feeling ill? The threat of economic warfare: Since the Second World War, U.S. administrations have been strong advocates of trade and are arguably the primary architects of the current global trade system. American families struggling to make ends meet have received significant relief as a result of low-priced goods produced in China The Summer of Copper s Discontent Source: Bloomberg and sold at stores such as Wal-Mart. While consumers have been able to enjoy a larger basket of goods due to greater affordability of household essentials, China s citizens have also benefited, resulting in strong growth of the middle class a true win-win situation. It is for these reasons that the aggressive position taken by the U.S. towards its trading partners is surprising. At a time when the world is enjoying one of the longest periods of stable growth and prosperity, the worry is that tariffs and a trade war could, in a worst case scenario, result in a recession. At a recent meeting of G20 ministers, it was noted that risks to growth "over the short and medium term have increased. These include rising financial vulnerabilities, heightened trade and geopolitical tensions. China remains the world s biggest consumer of copper and aggressive tariffs against the world s second largest economy would likely dampen aggregate demand in the economy a clear negative for the price of copper. Strong greenback: During the harrowing days of the 2008 financial crisis, few expected central banks around the world to stay with highly accommodative monetary policy 10 years out. However, today, central banks of major economies such as Europe and Japan are still pursuing this approach to fuel growth. On the other hand, the U.S. has begun to normalize monetary policy thanks to strong underlying economic growth. Given relatively more attractive sovereign yields and higher expected inflation, the U.S. dollar has been appreciating relative to many of its trading partners. Copper is priced in U.S. dollars. All else being equal, an appreciation in the greenback should result in a decrease in the demand for copper as it becomes more expensive for international buyers and in turn the price should fall. Year-to-date, the trade-weighted U.S. dollar index has risen 2.75%. Selling by funds: As the world s largest consumer of copper, many financial institutions in China are also major traders of the industrial metal. In early July, Reuters reported that a major player in the Shanghai copper futures market dramatically reduced its exposure by roughly 140,000 tonnes of copper. The bearish transaction resulted in a dramatic fall in the price of Shanghai copper prices. With some major mines around the world approaching end-of-life in the coming years and thanks to strong global demand, CIBC World Markets expects copper demand to outstrip supply in the coming years. As such, prices of the metal should be well supported. However, we must also heed Dr. Copper s warning: a major trade war could materially reduce demand for a wide range of goods globally. For exposure to the metal, we would suggest that investors focus on those exploration and production companies with tenured management teams, strong balance sheets and good organic growth opportunities. YOGESH OZA, M.Econ, CFA Investment Strategy Group CIBC PRIVATE WEALTH MANAGEMENT INVESTMENT STRATEGY GROUP 1 Copper Price (USD/metric ton) $7,500 $7,300 $7,100 $6,900 $6,700 $6,500 $6,300 $6,100 $5,900 1/02/18 1/16/18 1/30/18 2/13/18 2/27/18 3/13/18 3/27/18 4/10/18 4/24/18 5/08/18 5/22/18 6/05/18 6/19/18 7/03/18 7/17/18

2 DON T TRY TIMING MARKETS Market Timing Timing market peaks and troughs is almost impossible. Imagine you re sitting in traffic on a highway and the lane next to you starts to move. You have a choice: you can stay in your lane or you can switch into the moving lane. You decide to switch lanes only to have that lane come to a screeching halt right after you get there. You look over your shoulder and see the lane you were in before has started to move. You couldn t see far enough ahead to know why one lane was moving and the other wasn t and as soon as the traffic next to you started moving, you were already behind. Trying to time the market is like choosing the fastest lane at every point in time. Investors (financial professionals included) have difficulty sticking with their investment strategies when they see negative returns during market corrections. They sell investments that have lost value in an effort to prevent further losses. Once markets are well into their recovery, investors buy back into those riskier investments; in effect, selling low and buying high. A prudent course of action is to create a strategy that achieves your investment objectives with as little reliance on market timing as possible. One solution is to invest in funds that are positioned to experience less downside when the market experiences a large correction. Mackenzie Ivy Foreign Equity Fund is one such fund that aims to reduce volatility though market cycles. Mackenzie Ivy Foreign Equity Fund Mackenzie Ivy Foreign Equity Fund has been managed by the Mackenzie Ivy Team for over 25 years. The team is disciplined in owning high-quality companies with sustainable competitive advantages. They buy into stocks at attractive valuations and would rather hold high levels of cash than companies they believe are overvalued. An example of this is in the lead up to the dotcom bubble when many of their peers were investing in technology and media companies, the Mackenzie Ivy Team avoided the sector due to valuation concerns. For the first 7 years of the fund s existence it underperformed the market. The strategy was vindicated between 2000 and 2003 when the MSCI World fell 45% while Mackenzie Ivy Foreign Equity Fund was slightly up Nov-92 Jul-93 Mar-94 Nov-94 Jul-95 Mar-96 Nov-96 Jul-97 Mar-98 Nov-98 Jul-99 Mar-00 Nov-00 Jul-01 Mar-02 Nov-02 Drawdown (%) Jul-03 Mar-04 Nov-04 The Mackenzie Ivy Team has a high valuation standard. If they expect a stock will grow at 10% per year for the next 10 years, including a recession, they deem the stock to be attractively priced. Stocks with lower growth return expectations may have smaller weights in the portfolio. If markets are broadly overvalued and attractively valued companies are scarce, as they are now, the fund will hold higher cash levels. The fund is currently over 30% allocated to cash and has held consistently high cash for several years. When stock valuations become attractive, the Mackenzie Ivy Team will then redeploy that cash. For investors uncomfortable with the fund s high weight to cash, Mackenzie Ivy Global Equity ETF is managed to a similar strategy but generally does not exceed a 5% cash weight. In the last few years, growth stocks (technology in particular) have outperformed the broader market. Mackenzie Ivy Team is typically underweight technology stocks because in the rapidly changing sector, they find it difficult to believe in a tech company s long-term competitive advantage. Mackenzie Ivy Team takes a fundamental value-based investment approach and won t invest in companies that require 10 years of growth or more to justify current stock prices. A drawback of Mackenzie Ivy Foreign Equity Fund s strategy is it underperforms in bull markets and we are currently 9 years into the second longest bull market in history. As mentioned, it s difficult to time market downturns so we continue to recommend this fund as a way to protect on the downside. Upside and Downside Capture Ratios Mackenzie Ivy Foreign Equity Fund Morningstar Global Equity Category Upside Downside Upside Downside Source: Morningstar Direct as at June 30, Benchmark: MSCI World GR Index (CAD) 3-year 5-year 10-year 15-year DANIEL GODDARD Investment Strategy Group Source: Morningstar Direct as at June 30, Mackenzie Ivy Foreign Equity Fund Series A used from October 16, 1992 to December 31, 1999 and Series F used thereafter. Jul-05 Mar-06 Mackenzie Ivy Foreign Equity Fund MSCI World GR Index (CAD) Morningstar Global Equity Category Nov-06 Jul-07 Mar-08 Nov-08 Jul-09 Mar-10 Nov-10 Jul-11 Mar-12 Nov-12 Jul-13 Mar-14 Nov-14 Jul-15 Mar-16 Nov-16 Jul-17 Mar-18 CIBC PRIVATE WEALTH MANAGEMENT INVESTMENT STRATEGY GROUP 2

3 CANADIAN EQUITIES Restaurant Brands International Inc. (QSR, US$64.43, Outperformer) Price Target: US$71.00 The North American restaurant space is an industry undergoing significant changes - consumer preferences are evolving, cost pressures are rising, and new entrants are raising the competitive landscape for existing incumbents. Restaurant Brands International is a name that stands out within this group. It is a holding company which owns three iconic brands Tim Hortons, Burger King and Popeyes Louisiana Kitchen. CIBC analyst Mark Petrie rates the shares Outperformer due to the company s capital-light business model, strong brand positioning, balanced approach to capital allocation and organic growth. Mr. Petrie is projecting that net restaurant growth for all the banners could increase in the mid-to-high single digit range for the next couple of years. Although the company has accumulated significant leverage to support the acquisition of Popeyes, the current debt levels are still in line with its peers, and the company s strong free cash flow profile should enable it to pay down its debt over the next few years. Earnings Per Share & Free Cash Flow Yield Growth EPS (US$) $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $- FCF yield Adjusted EPS F2017A F2018E F2019E 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% As of late, the Tim Hortons brand has been the focus of negative publicity as franchisees cut back on employee benefits to offset recent minimum wage increases in Ontario. However, despite this, Mr. Petrie believes the brand s franchisee relations should begin to improve under the new leadership team and the implementation of the Winning Together plan. In addition to these changes, Tim Hortons joint venture agreement with Cartesian Capital to open at least 1,500 Tim Hortons restaurants across China in the next ten years should provide further support for the company in the future. The all-day breakfast menu, re-launch of its espresso-based beverages, loyalty program test, improving promotions as well as new store growth internationally beyond China are expected to generate healthy top-line growth. Restaurant Brands doubled its dividend this year; with shares yielding 2.8%, it stacks up well against its peers at 2.3%. Mr. Petrie believes the shares are also attractive trading at a fiscal 2019 free cash flow yield of 6.2% vs. peers at 4.3%. FCF yield (%) Alimentation Couche-Tard Inc. (ATD.B, $59.67, Outperformer) Price Target: $73.00 Alimentation Couche-Tard Inc. is Canada s largest convenience store owner and operator and one of the largest in the United States and Scandinavia. CIBC analyst Mark Petrie rates the shares Outperformer, a rating he believes is supported by a number of fundamental themes, including a healthy U.S. consumer, an increase in miles driven across the U.S. and strong gas margins. Growing EPS Profile $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 EPS E 2019E 2020E In addition to producing organic growth, for over 20 years, Couche-Tard has also successfully been pursuing a strategy of growing by acquisition, which has helped the company grow its market capitalization to over $34 billion. While Couche-Tard has become an increasingly global player, its U.S. operating segment is still the main driver of the company s performance, accounting for 66% and 63% of fiscal 2018 revenue and gross profits, respectively. Mr. Petrie notes that over the last several quarters investor concerns regarding the company s slowing organic growth in sales of merchandise at its stores and a highly competitive U.S. market have weighed on the company s shares. In fiscal 2018, the company reported disappointing Q3 results due to weakness in its U.S. operations, sending the shares down approximately 19% over the following two months. However, the company s recent Q4 results were strong. Samestore-sales growth exceeded expectations in all regions and management has indicated that this strong growth has continued into the current quarter. This has sent the shares up significantly and Mr. Petrie believes it has helped to reduce these concerns. Mr. Petrie notes that despite the sharp upward move in price, the valuation is compelling. Based on his 2019 EPS estimate, the shares trade at P/E multiple that is more than 5 multiple points below peers. He believes this provides an attractive entry point for investors. PUJA GHOSH, MBA & MICHAEL O CALLAGHAN, MBA, CFA Investment Strategy Group Stock Market Price Price Earnings Per Share (EPS) P/E Dividend Company Name Symbol Rating Cap 25-July-18 Target 2017A 2018E 2019E 2018E Yield Restaurant Brands International Inc. -1 QSR OP $30.6B $64.43 $71.00 $2.10 $2.54 $ x 2.8% Alimentation Couche-Tard Inc. -2 ATD.B OP $33.6B $59.67 $73.00 $2.21 $2.61 $ x 0.7% A Actual for the fiscal year; E Estimate for the fiscal year. For a full description of the CIBC World Markets Inc. Research Rating System, please see page All figures are stated in USD. 2- Earnings Per Share are stated in USD. P/E was calculated using a USD/CAD exchange rate of CIBC PRIVATE WEALTH MANAGEMENT INVESTMENT STRATEGY GROUP 3

4 MARKET RETURN DATA Price Performance (% Change) North American Indices Price 1 Month 3 Months 6 Months YTD 1 Year 2 Years 3 Years 5 Years 10 Years 15 Years 20 Years S&P/TSX Composite 16, Total Return S&P 500 Index 2, Total Return Dow Jones Industrial Average 25, Total Return Nasdaq Composite Index 7, Price Performance (% Change) International Indices Price 1 Month 3 Months 6 Months YTD 1 Year 2 Years 3 Years 5 Years 10 Years 15 Years 20 Years Bloomberg Euro FTSE Eurotop 100 2, FTSE 100 (England) 7, Dax (Germany) 12, CAC 40 (France) 5, MSCI World 2, MSCI Emerging Markets 1, Total Return 2, MSCI EAFE 2, Total Return 8, Nikkei 225 (Japan) 22, Hang Seng (Hong Kong) 28, ASX 200 (Australia) 6, Taiwan Weighted 11, Sensex 30 (India) 37, Price Performance (% Change) Index Returns In Canadian Dollars Price 1 Month 3 Months 6 Months YTD 1 Year 2 Years 3 Years 5 Years 10 Years 15 Years 20 Years S&P/TSX Composite 16, Total Return S&P 500 Index 3, Total Return Dow Jones Industrial Average 33, Total Return Russell , Nasdaq Composite Index 9, Bloomberg Euro N/A MSCI World 2, MSCI Emerging Markets 1, Total Return MSCI EAFE 2, Total Return MSCI Far East 4, Price as of Yields as of Commodities 31-Jul-18-1 Month -3 Months -6 Months -12 Months YTD (%) Yields 31-Jul-18-1 Month -3 Months -6 Months -12 Months Gold Spot (US$/oz) Canada 3-month T-Bills Silver (US$/oz) Canada 5yr Notes Brent Crude Oil Canada 10yr Notes West Texas Intermediate Oil Canada 30yr Bonds NYMEX Natural Gas Spot Nat. Gas (AECO Hub - USD) U.S. 3-month T-Bills Lumber U.S. 5yr Notes Copper 3-month U.S. 10yr Notes Nickel 3-month U.S. 30yr Bonds Aluminum 3-month Zinc 3-month Price Performance (% Change) S&P/TSX GICs Sectors Performance (% Change) 1 Month 3 Months 6 Months 12 Months YTD Currencies Price 1 Month 3 Months 6 Months 12 Months YTD Consumer Discretionary CAD/USD % -1.3% -5.3% -4.0% -3.3% Consumer Staples EURO/CAD % -2.0% -0.5% 2.9% 0.8% Energy EURO/USD % -3.2% -5.8% -1.3% -2.6% Integrated Oil & Gas USD/YEN % 2.3% 2.4% 1.5% -0.7% Oil & Gas Expl. & Prod Trade Weighted U.S. Dollar % 3.0% 6.1% 1.8% 2.6% Pipeline Financials Strategic Asset Allocation (in C$) Performance (% Change) Banks (Global Equity/Cdn. Equity/Bonds/Cash) 1 Month 3 Months 6 Months 12 Months YTD Insurance Capital Preservation (5/15/60/20) REITs Income (10/20/60/10) Health Care Income & Growth (20/25/50/5) Industrials Growth (40/25/35/0) Information Technology Aggressive Growth (60/25/15/0) Materials Total Return % Change Gold Bond Returns 1 Month 3 Months 6 Months 12 Months YTD Base Metals FTSE TMX Canada Bond Universe Index Fertilizers FTSE TMX Canada Long Term Bond Index Telecom Services FTSE TMX Canada Mid Term Bond Index Utilities FTSE TMX Canada Short Term Bond Index All data is sourced from Bloomberg unless otherwise noted. Data as of July 31st. Data source: Bloomberg CIBC PRIVATE WEALTH MANAGEMENT INVESTMENT STRATEGY GROUP 4

5 CIBC World Markets Interest Rate Outlook CIBC World Markets Economic Outlook Interest Rates (%) End of Qtr 3-month T-Bill July 25, 2018 Sep/18 Dec/18 Canada U.S year Gov t Bond Canada Yield U.S US$/C$ Economic Outlook 2017A 2018E 2019E Real GDP Growth (% Chg) Consumer Price Index (% Chg) Canada U.S Canada U.S PRICE TARGET CALCULATIONS Restaurant Brands International Inc. (QSR): CIBC analyst Mark Petrie derives his price target by applying a 28x P/E multiple to his F2018E EPS of $2.54. Alimentation Couche-Tard Inc. (ATD.B): CIBC analyst Mark Petrie calculates his price target by applying a 18x P/E multiple and normalizing for long-term fuel margins of 19.5 cents/gallon. DISCLOSURES AND DISCLAIMERS Important Disclosure Footnotes for Companies Mentioned in this Report that Are Covered by CIBC World Markets Corp./Inc.: Stock Prices as of 07/20/2018: Restaurant Brands International Inc. (6c, 7) (QSR-TSX, US$64.04) Alimentation Couche-Tard Inc. (2a, 2c, 2e, 2g, 6c, 7, 12) (ATD.B-TSX, C$61.56) Key To Important Disclosure Footnotes: 1 CIBC World Markets Corp. makes a market in the securities of this company. 2a This company is a client for which a CIBC World Markets company has performed investment banking services in the past 2b CIBC World Markets Corp. has managed or co-managed a public offering of securities for this company in the past 2c CIBC World Markets Inc. has managed or co-managed a public offering of securities for this company in the past 2d CIBC World Markets Corp. has received compensation for investment banking services from this company in the past 2e CIBC World Markets Inc. has received compensation for investment banking services from this company in the past 2f CIBC World Markets Corp. expects to receive or intends to seek compensation for investment banking services from this company in the next 3 months. 2g CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from this company in the next 3 months. 3a This company is a client for which a CIBC World Markets company has performed non-investment banking, securities-related services in the past 3b CIBC World Markets Corp. has received compensation for non-investment banking, securities-related services from this company in the past 3c CIBC World Markets Inc. has received compensation for non-investment banking, securities-related services from this company in the past 4a This company is a client for which a CIBC World Markets company has performed non-investment banking, non-securities-related services in the past 4b CIBC World Markets Corp. has received compensation for non-investment banking, non-securities-related services from this company in the past 4c CIBC World Markets Inc. has received compensation for non-investment banking, non-securities-related services from this company in the past 5a The CIBC World Markets Corp. analyst(s) who covers this company also has a long position in its common equity securities. 5b A member of the household of a CIBC World Markets Corp. research analyst who covers this company has a long position in the common equity securities of this company. 6a The CIBC World Markets Inc. fundamental analyst(s) who covers this company also has a long position in its common equity securities. 6b A member of the household of a CIBC World Markets Inc. fundamental research analyst who covers this company has a long position in the common equity securities of this company. 6c One or more members of Investment Strategy Group who was involved in the preparation of this report, and/or a member of their household(s), has a long position in the common equity securities of this company. 7 CIBC World Markets Corp., CIBC World Markets Inc., and their affiliates, in the aggregate, beneficially own 1% or more of a class of equity securities issued by this company. 8 A partner, director or officer of CIBC World Markets Inc. or any analyst involved in the preparation of this research report has provided services to this company for remuneration in the past CIBC PRIVATE WEALTH MANAGEMENT INVESTMENT STRATEGY GROUP 5

6 9 A senior executive member or director of Canadian Imperial Bank of Commerce ("CIBC"), the parent company to CIBC World Markets Inc. and CIBC World Markets Corp., or a member of his/her household is an officer, director or advisory board member of this company or one of its subsidiaries. 10 Canadian Imperial Bank of Commerce ("CIBC"), the parent company to CIBC World Markets Inc. and CIBC World Markets Corp., has a significant credit relationship with this company. 11 The equity securities of this company are restricted voting shares. 12 The equity securities of this company are subordinate voting shares. 13 The equity securities of this company are non-voting shares. 14 The equity securities of this company are limited voting shares. CIBC World Markets Research Rating System Abbreviation Rating Description Stock Ratings OP Outperformer Stock is expected to outperform the sector during the next months. NT Neutral Stock is expected to perform in line with the sector during the next months. UN Underperformer Stock is expected to underperform the sector during the next months. NR Not Rated CIBC does not maintain an investment recommendation on the stock. R Restricted CIBC World Markets is restricted*** from rating the stock. Sector Weightings** O Overweight Sector is expected to outperform the broader market averages. M Market Weight Sector is expected to equal the performance of the broader market averages. U Underweight Sector is expected to underperform the broader market averages. NA None Sector rating is not applicable. **Broader market averages refer to the S&P 500 in the U.S. and the S&P/TSX Composite in Canada. "Speculative" indicates that an investment in this security involves a high amount of risk due to volatility and/or liquidity issues. ***Restricted due to a potential conflict of interest. "CC" indicates Commencement of Coverage. 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