A Comment -- General Comments From an Expert (A Commentary)

Energy. There has been a return in strength in oil and we are now in a sweet spot for both the producer and the buyer. At $28, there was more pain than gain. A few countries like India, that imports 70%-80% of their oil, were really benefiting, but by and large a lot more countries were losing; Middle East, Brazil, Russia, Canada. At $50, you are starting to repair a lot of balance sheets of these governments. You are also really repairing the tax revenue stream as well as the outlook for the currencies of these governments. At the same time, oil between $50 and $60, much lower than $140, is still good for countries like India.

India investing? This is going to be the fastest growing EM country and the fastest growing major economy globally. They just released their new budget, which she really likes it. Just another confirmation of the strength of their administration. There is a good balance between fiscal constraint, where they continue to shrink the deficit, and spending in very targeted ways. Her preferred space in India would be domestic consumption companies, such as the banks and some of the infrastructure.

Will Saudi Aramco issue an IPO in the near future? There are a lot of rumours. Saudi Arabia is starting to talk to bankers and potential underwriters. Thinks this will happen in the next 12-18 months. It makes sense, because this is the single largest asset for the government. They spent a lot of their foreign reserves in the last 18 months to defend their currency, so they need to replenish that.

Will Canada have to rejig how it gets foreign produce that comes through a US warehouse first? Mexico is going to be tough to call. For goods coming from other countries, such as China, she is confident that Canada can form its own bilateral trade agreements.

A bank to play foreign markets? Bank of Nova Scotia (BNS-T) always has the biggest presence in Latin America. A bank that she likes this year, which is extremely, extremely inexpensive, loan growth is starting to recover and has an extremely strong capital ratio, is the Russian bank Sberbank (SBRCY-5). (See Top Picks.)

Turkey? An interesting situation. When investing in a country, typically the bottom up fundamental company situation represents 75% of her decision, and the top-down macro is 30%. This country is the one exception where she is not comfortable with the political situation. She is essentially zero weight here, even though there are 34 businesses that she really likes. This country is linked to commodities, so there will probably be a tailwind in the rally they have seen.

Cellular growth in emerging markets? One company that stands out really well is Samsung Electronics (005930-KS). They tend to have a broader range of products, and more affordable. Gionee (?) in China is still private, but at some point it could be an interesting one. Very much affordable.

A Philippine stock? The biggest challenge with the Philippines is that it is expensive, because it has been a very robust and defensive growth market in the last few years. One stock she would look at would be Ayala Land. Basically a real estate developer with a very big land bank. Management is very disciplined. They have done a fantastic job of monetizing that land bank. That consistency and discipline has resulted in the best return on equity for developments in the sector. Not cheap on a PE basis, trading at around 20X, but with these companies you need to look at it more on the land value.

An ETF in Asia? In terms of growth outlook, the part of Asia she really likes is India. She also likes Indonesia. The problem is that dividend yields are very low because they are so high growth countries. The one exception where the dividend yields are said to be higher, is Thailand, where there just happens to be a dividend yield culture. It is actually quite common to find companies that are growing fast and still pay you a 4%-5% dividend. China is the only other place because it is more mature.

Market. Thinks that the Trump rally is stalled. No one quite knows what the different changes means. Thinks the market still has a way to run.

Gold? Feels that gold in general is going to be an interesting play. The US$ has been the world reserve of currency, in part because the US was the leader in globalization. The US has decided to abdicate that role, and give it over to China, which is happy to take up the mantle. Whether there will be demand for the US$ like there has been in the past remains to be seen. Longer-term, gold could potentially return to be a store of value. There have been a number of factors depressing the price of gold, not the least of which is the currency crisis in India, the single biggest buyer of gold globally. He is expecting a rebound in gold prices between now and the end of the year. He likes gold stocks as a way to participate.

Gold? He has a little gold exposure. Likes to keep his exposure at 5%. In an era where we are running into such a huge amount of uncertainty, and there is a lot of worry in the world, gold tends to do very well. If he saw his gold stocks run up a lot more, he would probably be taking his profits.

Energy. We have had oil flat on the year, the loonie generally flat, yet oil stocks are down 10%-15%-20% just this month. Why are stocks selling off? It is clearly on concerns about this border adjustment tax, that if it comes through, will put Canadian companies at a disadvantage relative to their US peers. He doesn’t think they are going to tax energy imports. If you are a politician, one of the largest determinants of presidential approval rate is gasoline prices. There has not been an increase in the US federal tax on gasoline in over 30 years. Part of Trump’s mandate is re-industrializing the US, and how do you do that when you are increasing fuel costs for industry. The reward versus the risk you are taking today, justifies being fully invested in energy. His fund is all in, with a major focus on Canada.

Playing natural gas? People were raging Bulls coming into the winter because of a lot of forecasts of a very cold winter. Natural gas has now normalized in terms of inventories. He uses $3 gas in all of his analysis from now until next fall. In the fall of 2018 there is going to be about 21 BCF a day of further take away capacity of the Marsalis, so you are going to have a flood of new supply that will challenge and compete with Canadian gas. From now until then, you are exposed to the vagaries of weather.

Market. His portfolios are somewhat reformed agnostic. Has been reluctant to chase anything he felt would do well as a result of the US election. He is very bottom-up focused and tries to identify good companies. Feels a lot of investors can mitigate some market risks through active management diversification. Diversification is really important. You don’t want to be heavily exposed to one sector or one geography. Healthcare is a great example of a sector that suffered from negative sentiment, however fundamentals are very good.