1. Global Oil Supply side
Ever since the financial crisis,
the U.S. oil production grew
49% as drillers improved
productivity with new shale
formation technologies and
tapped high-yield
debt markets.
Moreover, the U.S.
crude oil reserves
increased from 4.5
billion barrels to 33.4
billion, the highest
level in 26 years, and
the biggest annual
gain since 1970[1].
The other major oil
producer is OPEC
(Organization of
Petroleum Exporting Countries)
where their oil exports
representing about 60 percent
of the total petroleum traded
internationally. Regardless of
current plummeting oil prices,
OPEC refuses to cut supply of
30 million barrels a day. Many
theorist believe that because it
costs the Saudis approx. 27$/
barrel, at current prices, it is still
highly profitable for them.
Global Demand Side
Accompanied with oversupply
in the oil markets, global
demand is weak;
- Japan is hovering around 0%
growth
- China is currently growing
at the slowest pace of 7.2%[2]
since the financial crisis
- India’s growth has
been cut in half
- While Germany cut
its 2015 forecast for
economic growth to
1.3% for 2015 from
2% previously[3].
Oil Prices in Action:
US Shale Oil
At current price levels,
US firms could take as
many as 650 onshore
rigs offline—or about one-third
of the nearly 1,900 that were
drilling at last year’s peak in
November[4]. Sliding oil prices
are generally bad for most
companies in the oil and gas
industry. But the Oil ‘Refining’
segment hedges the current
conditions of low oil prices,
surging supply, and motivated
exporting. It’s also being
boosted by cheap natural gas,
which it uses as a power source.
U.S. refineries are running at
well above 90% of capacity.
Refining capacity has reached
approximately 17.8 million
barrels a day, an increase of
400,000 barrels a day from just
two years ago[5].
Stock to Watch
Exxon Mobil
Corporation
(NYSE: XOM)
ExxonMobil has had a presence
in the United States since
1870, with combined facilities
constituting the largest refining
capacity of any single firm in
the world. Their Refiners make
some products, such as asphalt,
that are protected from oil price
fluctuations.
Currently Exxon’s $432 million
increase in refining profit more
than offset the $297 million
decline in earnings from its
oil and gas business[6]. The
only concern here is how long
they can continue to outrun
the falling oil prices where
refining profit margins already
are shrinking as gasoline and
diesel prices are dragged lower
by the crude from which they’re
derived.
Why are Oil Prices so Low?
ISSUE 1 FEB 2015
Similar to the price of almost every product/service, it is important to understand that the price of oil is driven by the
global supply and demand.
Hope from Oil
Global Investment Research
NFSA
“What do you know about capitial market?”
[1] http://www.cnbc.com/id/102338107
[2] http://www.reuters.com/article/2014/10/21/us-china-economy-gdp-idUSKCN0IA05W20141021
[3]http://www.marketwatch.com/story/german-government-slashes-2014-2015-growth-views-2014-10-14
[4] http://www.cnbc.com/id/102338107
[5] http://www.wallstreetdaily.com/2015/01/12/oil-prices-heavy-crude/
[6]http://www.bloomberg.com/news/2014-10-31/exxon-profit-rises-as-refining-boosted-by-lower-crude.html
Darren Thai(VP of Investment Research) - United States

2. As Europe’s leading discount
airline, Ryanair is firmly
established as Europe’s biggest
scheduled passenger airline,
through continued improvements
and expanded offerings of
its low-fares service. With
near 0% interest rates and an
increased money supply, higher
discretionary income may
boost demand for airline travel.
Moreover, Ryanair’s historically
thin profit margins and the
airline’s industry’s cost-sensitivity
to oil prices should forecast
growth in profit margins.
Roman Pshenychnyi(Senior Investment Analyst)- EuroZone
What Exactly is
Quantitative Easing?
When market interest rates are close to 0%,
traditional expansionary monetary policy
becomes ineffective in spurring economic
growth. With traditional monetary policy,
purchasing short-term assets, may further
lowers rates can lead to continued deflation.
Such action could sabotage economic
recovery by stalling consumer investment
and business spending. Quantitative Easing,
on the other hand, aims to boost long-term
interest rates through the purchasing of
medium-long term debt securities from
financial institutions and governments.
Although some economists argue that
QE in itself increases money supply, the
real problem comes from consumers and
businesses hoarding their capital. Unless
banks and other financial institutions are
willing to lend the new capital due to
pessimistic expectations, the money can not
find its way into the economy and stimulate
growth.
CONCEPT OVERVIEW:
QUANTITATIVE
EASING(QE)
Stock to Watch - Ryanair Holdings
PLC (NASDAQ: RYAAY)
QE in Action: ECB Stimulus
In another attempt to
revive the economies of
the EU member bloc,
head of European Central
Bank (ECB) Mario Draghi
announced a €1 trillion
quantitative easing pro-
gram on January 22, 2015
in hopes to create a more
optimistic investment
climate and avoid
long-term deflation. From
March 2015 to September
2016, the ECB will buy
€60 billion of public and
private debt securities
every month. Although
global markets rallied with
the ECB announcement,
the next few years will
reveal whether EU
economies can increase
their competitiveness on
the world stage and
translate the benefits to the
living standards of their
citizens.
Industry Analysis - Trans-
portation (Airline Sector)
The increased money
supply caused by heavy
stimulus spending should
boost stagnant consum-
er spending on trips and
vacations throughout the
continent. At the same
time given that the price
of oil - the airline
industry’s most
prominent cost driver -
if the price stays below
$50 a barrel for the
foreseeable future, airlines
should see a substantial
reduction in operating
costs and a healthier
bottom line.
[1]http://money.cnn.com/2015/01/22/news/economy/greece-elections-austerity-syriza/
[2]http://www.bbc.com/news/world-europe-30945247
[3]https://research.tdwaterhouse.ca/research/Reports/Report?documentKey=7427-78351310-20150124

3. Concept Overview:
Exchange rate and
Export
Balance of Trade is the difference between a
country’s imports and its exports. A Trades
Surplus occurs when the countries total
exports excess total imports and vise-versa
for a Trade Deficit.
A nation’s exchange rate has significant
impacts on the nation’s trade balance as a
weakening currency will make exports more
profitable while having an opposite effect on
imports.
Industry Analysis - Automobile
Manufacturing
The long-term effects of these
macroeconomic trends are expected to
bring big gains to the Japanese automobile
industry. A cheaper yen will greatly benefit
export-dependent Japanese automakers, and
lower oil prices should increase global
consumer spending around the world.
The Japanese auto industry is the country’s
leading export, accounting for 13% of total
exports[3]. Furthermore, vehicle parts
make up more than 5% of total export.[4]
As such, the Japanese automobile industry
is well positioned for long term growth and
consolidate its dominance in global markets.
Stock to Watch - Toyota
Motor Corporation
(NYSE: TM)
Toyota Motor Corp., which exports about 70% of its production outside of Japan, is the world’s largest automaker. Sales
narrowly edged out the Volkswagen Group and General Motors, and will allow it to further leverage cost advantages
through economies of scale.[5] With total sales of 10.23 million vehicles worldwide, North America which makes up about
¼ of total vehicle sales has significant upside potential with the US economic recovery.
HOW DOES THE EXCHANGE RATE AFFECT THE
TRADE BALANCE?
Exchange Rates in Action: Japanese Yen
The Bank of Japan will inject ¥80tn ($880b CAD) a year
into the financial system, significantly weakening the
Japanese yen therefore making Japanese exports more
competitive and reduce a persistent trade deficit.
On the import side, Japan’s energy resources are very
limited, therefore the country relies almost solely on
imported oil. With Japan importing $160b of petroleum
oil in the past 12 months and entering its 43rd consecutive
monthly trade deficit, the decline in oil prices to roughly
US$45 a barrel is a blessing for Japan[1]. Moreover, falling
oil prices mitigates the negative impacts the weakening
currency has on trade balance.
[1]http://www.japantimes.co.jp/news/2015/01/12/business/economy-business/lower-oil-prices-spell-good-news-japanese-economy/#.VMVyxyvF-Ps
[2]http://www.japantimes.co.jp/news/2015/01/12/business/economy-business/lower-oil-prices-spell-good-news-japanese-economy/#.VMjwPmjF-Xs
[3] http://atlas.media.mit.edu/profile/country/jpn/
[4] http://blog.caranddriver.com/you-all-bought-so-many-camrys-that-toyota-is-again-no-1-in-the-world/
[5] http://www.reuters.com/article/2014/12/30/us-china-autos-toyota-idUSKBN0K806R20141230
Canwen Diao(Senior Investment Analyst) - Japan

4. Yvette Meyer(Senior Investment Analyst) - China
Antonio Peng(Junior Investment Analyst) - China
What Exactly is
a Debt Crisis?
A sovereign debt crisis is generally defined as economic and
financial problems caused by the inability of a country to pay
its public debt.
During economic boom times, tax revenues surge as
consumers’ spending increases. When tax revenues keep
rising, governments are in a false sense of security; they
cut taxes and increased long-term spending commitments.
However, when the boom ends and the crash follows, these
governments often turn from a budget surplus to a deficit
and international investors or money lenders may no longer
believe the country’s tax base can support debt repayment[1].
As a result, the debts of these governments fall in value
and their yields (borrowing cost) go up. Rising yields is a
self-reinforcing cycle that makes high debt levels even less
sustainable. It also raises the borrowing cost for the entire
private sector.
CONCEPT OVERVIEW:
LOCAL GOVERNMENT DEBT
CRISIS
Stock to Watch: Vanke Real
Estate Company (SZSE:
SZ000002)
Local Government Debt in Action: China’s
Local Government Debt
Years of politically driven investment
with diminishing returns have led to too
much debt and industrial overcapacity, as
well as ghost cities with unfinished ho-
tels and absurd ambitions. Ever since the
tax reform in 1994, central government
imposed stricter regulations on local
government debt issuance and there-
fore depressed tax revenue from 78% to
50%[2]. In order for local government
to meet the official GDP growth rate,
there was heavy reliance on investment
through off-budget financing vehicles,
which contributed to 2.9 trillion USD
debt till the end of 2014, according to
National Audit office[3].
[1]http://www.ibtimes.com/what-sovereign-debt-crisis-why-it-so-scary-372228
[2]http://www.cuhk.edu.hk/gpa/wang_files/1994.pdf
[3]http://www.taipeitimes.com/News/biz/archives/2014/10/03/2003601128
Industry Analysis - Real Estate
The easing of credit conditions following the
2008 global financial crisis and the subse-
quent boom in construction and asset prices
have also triggered what some say a property
bubble in china. Mainly due to the One Child
Policy and aging population where demand for
housing market declines from lack of first-time
home buyers. Moreover, the elderly transition
into senior homes or deaths by old age adds to
the oversupply in the housing market. With
approximately 6 times monthly wages per
square meter all contributes to the lower
profit for real estate industry.
If something were to change in the real-estate market, this
company should be the first to feel the hit. It exceeds more
than 100 billion annual sales at the beginning of 2013;
more than combination of top 4 U.S. based companies at
their peak. Moreover, the drastically declining population
growth and aging population can have major implications
on the demand in the real estate market.

5. Mykyta Ponomarenko(Senior Investment Analyst) - Canada
What Exactly is a
Commodity?
Commodities such as
lumber, grains , metals, and
petrochemicals are used by
production/manufacturing
companies in the production
process and are their major cost
drivers. In most cases as demand
for commodities increases,
these companies would have no
choice but to bear the additional
rise in raw materials. Generally
as commodity prices decrease,
corporations become more
profitable because they are able
to buy their essential materials at
a lower cost.
CONCEPT
OVERVIEW:
COMMODITIES
Stock Watch - Ford
Motor Company
(NYSE:F)
Commodities in Action:
Canadas Dependence on
Commodity Prices
Probably the most dramat-
ic aspect of the early 2015
global economy is the histori-
cally low level of commodity
prices with the iShares Global
Metals ETF decreasing al-
most 25% and crude oil also
decreased almost 50% in the
past year[1]. Since their peak
in February 2011, copper
prices have also dropped 38
percent and iron ore prices
down 63 per cent.This may
be bad news for mining and
oil companies, but it is great
news for manufacturers and
transportation companies[2].
citizens.
Industry Analysis - Automo-
bile Manufacturing
The USAA Precious Metals &
Minerals Fund has dropped over
50%[3] from it’s high in 2012
resulting in a decreased price
for metals used in all manu-
facturing. Industries that will
see growth in the next quarter
will be manufacturers, retailers,
wholesalers, transportation and
service industries. Most of the
industry growth will be due
to the increase in disposable
income from falling gas prices
and decreased transportation
costs. As well as the decreased
costs associated with manufac-
turing, due to the decreased cost
of common raw materials.
[1]http://www.etfs.bmo.com/controller/image?image=auto_fund_profile_pdf_74669
[2]http://www.theglobeandmail.com/report-on-business/economy/despite-us-growth-imf-cuts-global-forecast-for-third-straight-year/article22528603/
[3]https://www.usaa.com/inet/wc/mc_0050?akredirect=true
[4]http://investorplace.com/2015/02/mga-stock-magna-international/#.VN5WIPnF-Xs
Canada-based Magna is a 60-year
old global automotive supplier
with operations spanning five
continents and 39 countries[4].
The company’s involvement in
virtually all facets of auto parts
design, manufacturing, and the
capability of building an entire
car. When the oil services sectors
and commodity prices try to
find a bottom, Magna is the
leading company in a growing
sector primed to benefit from
a weak commodity prices and
inexpensive oil.