Perspectives 2016 Portfolio & Quantitative Strategy Vincent Delisle, CFA Managing Director, Investment Strategist (Scotia Capital Inc. Canada) (514) 287-3628 vincent.delisle@scotiabank.com IMAGE Hugo Ste-Marie, MSc, CFA Small Cap Strategist (Scotia Capital Inc. Canada) (514) 287-4992 hugo.ste-marie@scotiabank.com Jean-Michel Gauthier, MMF Research Associate (Scotia Capital Inc. Canada) (514) 287-3661 jeanmichel.gauthier@scotiabank.com January 2016 Update For Reg AC Certification and important disclosures see Appendix A of this report. Analysts employed by non-u.s. affiliates are not registered/qualified as research analysts with FINRA in the U.S.
Dec-94 Dec-96 Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12 Dec-14 Dec-16 Jan-80 Jan-85 Jan-90 Jan-95 Jan-00 Jan-05 Jan-10 Jan-15 La Chute du pétrole bouscule les scénarios TSX 12M Trailing EPS & WTI US Corporate Spread vs. WTI Prices 1, 1,000 TSX Trailing EPS - LHS WTI Oil Price - RHS 140 130 120 700 600 BBB Corp Spread* (bp) - LHS WTI Crude Oil YoY (inverted) - RHS -30-25 900 110-20 800 90 500-15 700 80 400 -% 600 500 400 300 200 70 60 50 40 30 20 10 300 200 5 % Source: Scotiabank GBM Portfolio Strategy, Thomson Financial, Bloomberg. *Moody's BBB Yield less US 10Yr Yield Source: Scotiabank GBM Portfolio Strategy, Bloomberg. 1
Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 La liquidité se reserre, on est encore loin des extrêmes de 2008/2011 TED Spreads* Smoothed (in bp) 300 250 US Europe 300 250 200 200 150 150 50 50 0 0 *Libor/Euribor 3M less US/Germany 3M Treasury Yield Source: Scotiabank GBM Portfolio Strategy, Bloomberg. 2
Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 S&P/TSX Un vrai marché baissier TSX down -22% from September 2014 peak; TSX equal weight -36% from peak. TSX Equal Weight vs. S&P 500 Equal Weight - Normalized 140 130 Normalized at on June 24, 2013 140 130 120 120 110 110 90 S&P 500 Equal Weight TSX Equal Weight 90 80 80 Source: Scotiabank GBM Portfolio Strategy, Bloomberg. 3
31-Dec-10 30-Jun-11 31-Dec-11 30-Jun-12 31-Dec-12 30-Jun-13 31-Dec-13 30-Jun-14 31-Dec-14 30-Jun-15 31-Dec-15 30-Jun-16 31-Dec-10 30-Jun-11 31-Dec-11 30-Jun-12 31-Dec-12 30-Jun-13 31-Dec-13 30-Jun-14 31-Dec-14 30-Jun-15 31-Dec-15 30-Jun-16 Radar Technique S&P/TSX: A Much Less Inspiring Technical Picture S&P 500: 1900 is the Area to Watch 16000 15500 15000 14500 Level 50-d MA 200-d MA 2400 2200 2000 Level 50-d MA 200-d MA A break > 2+ opens the door to 2340 Resistance 2+ 1900 14000 13500 13000 12500 12000 11500 Primary support area < 12000 1800 1600 1400 1200 Primary support area at 1860 A break < 1860 opens the door to 1620 10 0 Source: Scotiabank GBM Portfolio Strategy, Bloomberg Source: Scotiabank GBM Portfolio Strategy, Bloomberg 4
Jan-48 Jan-52 Jan-56 Jan-60 Jan-64 Jan-68 Jan-72 Jan-76 Jan-80 Jan-84 Jan-88 Jan-92 Jan-96 Jan-00 Jan-04 Jan-08 Jan-12 Jan-16 Jan-20 S&P 500 & ISM S&P 500 vs. ISM Manufacturing 5 4 1967 headfake: S&P 500 in a bear market in 1966, ISM briefly falls below 50 in early 1967, both rebound quickly Chinese Manufacturing competition heats up, Iraq w ar, oil breaches US$30/bbl, tail end of Tech bubble 70 65 3 60 2 1 55 50-1 45-2 40-3 -4 S&P 500 down YoY, ISM below 50, and not in a recession NBER Recessions 35 S&P 500 YoY (smoothed) - LHS ISM Manufacturing (smoothed) - RHS 30 Source: Scotiabank GBM Portfolio Strategy, Bloomberg. 5
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Changement de ton de la Fed? DXY could track Fed Funds expectations lower. DXY and Fed Funds Expectations (2010-2016) 110 105 95 90 85 80 75 DXY - LHS 12M FF Futures YTM - RHS 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 70 0.0 Source: Scotiabank GBM Portfolio Strategy, Bloomberg 6
31-Dec-10 30-Jun-11 31-Dec-11 30-Jun-12 31-Dec-12 30-Jun-13 31-Dec-13 30-Jun-14 31-Dec-14 30-Jun-15 31-Dec-15 Dollar US et prix de l or U.S. Dollar Index Faces Strong Resistance at the Level 105 95 90 85 Level 50-d MA 200-d MA Resistance Support area 93 80 75 70 Source: Scotiabank GBM Portfolio Strategy, Bloomberg 7
Dec-70 Dec-74 Dec-78 Dec-82 Dec-86 Dec-90 Dec-94 Dec-98 Dec-02 Dec-06 Dec-10 Dec-14 Dec-18 Commodités: des niveaux de crise Five-year commodity returns at low end of historical range. Commodity Prices are Discounting Lots of Bad News 25 20 15 Oil Copper Gold 25 20 15 % % 5 5 -% Spot Prices vs. 5Yr Rolling Average -% Source: Scotiabank GBM Portfolio Strategy, Bloomberg, World Bank. 8
Oct-02 Oct-03 Oct-04 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16 Oct-02 Oct-03 Oct-04 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16 Actions versus Obligations: Positionnement Tactique Short-term tactical outlook increasingly favouring Equities. Scotiabank GBM Strategy U.S. Risk-On/Risk-Off Indicator* Scotiabank GBM Strategy Canada Risk-On/Risk-Off Indicator* 5 4 3 2 Risk-On Trade Extended S&P 500 "relative" Overbought 5 4 3 2 5 4 3 2 Risk-On Trade Extended TSX "relative" Overbought 5 4 3 2 1-1 -2-3 -4-6 Risk-Off Trade Extended Bonds "relative" Overbought 1-1 -2-3 -4-6 1-1 -2-3 -4 Risk-Off Trade Extended Bonds "relative" Overbought 1-1 -2-3 -4 *S&P 500 less long-term government bonds (TLT) 3M rolling relative return Source: Scotiabank GBM Portfolio Strategy, Bloomberg *TSX less long-term government bonds 3M rolling relative return Source: Scotiabank GBM Portfolio Strategy, Bloomberg 9
Dec-51 Dec-56 Dec-61 Dec-66 Dec-71 Dec-76 Dec-81 Dec-86 Dec-91 Dec-96 Dec-01 Dec-06 Dec-11 Dec-16 Dec-21 Jan-78 Jan-80 Jan-82 Jan-84 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18 TSX versus S&P 500 Canada underperforming the United States since 2011; YOY lag is at an extreme level. TSX vs. S&P 500 - Relative Performance in US$ TSX vs. S&P 500-3M Relative Performance in US$ 5 4 5 Year Rolling CAGR - RHS TSX less S&P 500 Rel. Perf. YOY - LHS 25% 2 3 TSX Outperforming 3 3 TSX Outperforming 15% 2 2 2 1 1 5% 1 +1 St. Dev. 1-1 -2-5% -1-1 -1 St. Dev. -1-3 S&P 500 Outperforming -15% -2-2 -4-2 -3 S&P 500 Outperforming -3 1950-1976 on a Monthly Basis, Weekly Basis Thereafter Source: Scotiabank GBM Portfolio Strategy, Bloomberg. Source: Scotiabank GBM Portfolio Strategy, Bloomberg. 10
Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Jan-19 Évaluations: S&P 500 versus TSX TSX/S&P Relative P/E Ratio vs CAD 1.10 1.05 1.00 0.95 0.90 0.85 0.80 0.75 0.70 0.65 CAD-USD - LHS TSX/S&P 500 Relative P/E - RHS 1.3 1.2 1.1 1.0 0.9 0.8 0.60 0.7 Source: Scotiabank GBM Portfolio Strategy, Bloomberg, Thomson Financial. 11
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