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Weekly Equity Review
Ucap Hong Kong Asset Management Limited
9th August 2016
Equity Strategy Highlights
� Global Markets Highlights
� The July monthly job report reassured investors and pushed US rates and the dollar higher, allowing US
banks to rebound.
� Pharma stocks are topping out after the weak Novo earnings and the stunning Bristol Myers trial miss.
� As the earnings season is coming to an end, the market will now have to wait until the Jackson Hole
central bankers meeting at the end of the month for any significant market moving information.
� Important Events This Week
� Tuesday: US Wholesale Inventories
� Thursday: US Jobless Claims, US Import Prices
� Friday: EU GDP, US Retail Sales, US PPI
9 August, 2016
Equity Strategy Highlights
� Global Leaders – 2016
� The US portfolio is still lagging despite a positive performance the recovery of the large US tech stocks is
helping the recovery.
� The European Portfolio remains very strong compared to indices.
� Europe: 0.4% YTD vs Euro Stoxx at -5.8% YTD (6.2% alpha).
� US: 4.2% YTD vs S&P at 8.2% YTD (-4.0% alpha).
� Stock-Picking List – 2016
� The average performance of our Stock-Picking YTD is +0.47%. The average alpha is +238 bps.
� We have closed positions for the time being.
9 August, 2016
Q2 EARNINGS SEASON
9 August, 2016
Q2 Earnings Season
9 August, 2016
The following chart shows the Q1 earnings distribution for the S&P 500 and the S&P Europe 350.
$-
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
11 July 18 July 25 July 01 August 08 August 15 August
Earnings date distribution by week, weighted by market capitalization (in $Bn)
S&P 500
S&P Europe 350
% Report % Surprise % Growth % Surprise % Growth
S&P 500 87% 0.6% -0.5% 4.1% -4.4%
Energy 100% 2.0% -24.2% -9.5% -81.6%
Materials 96% -0.7% -7.4% 2.8% -8.8%
Industrials 96% 1.0% -1.0% 6.1% -2.1%
Consumer Discretionary 65% 1.7% 8.0% 6.4% 12.8%
Consumer Staples 78% -0.9% 0.4% 3.3% 0.2%
Health Care 88% 1.1% 9.1% 3.2% 4.9%
Financials 99% 0.1% 0.9% 2.0% -5.2%
Information Technology 81% 1.7% -0.1% 7.3% -2.3%
Telecommunication Services 100% -0.6% 9.6% -0.2% 3.5%
Utilities 89% -6.2% -3.2% 5.1% 6.5%
Sales Earnings
Earnings Surprise & Growth
9 August, 2016
Earnings in Europe and the US have so far exceeded expectations with two thirds of companies
already have reported. Energy stocks have disappointed again, despite low expectations.
% Report % Surprise % Growth % Surprise % Growth
S&P Europe 350 84% 0.2% -4.9% 4.5% -14.5%
Energy 92% 2.3% -24.0% -24.3% -51.9%
Materials 73% -2.3% -6.9% 6.8% -2.1%
Industrials 84% -1.0% -10.3% 18.6% 4.2%
Consumer Discretionary 83% 0.9% 6.6% 19.0% 19.2%
Consumer Staples 79% 0.3% 2.0% -5.9% 2.1%
Health Care 89% 0.3% 2.3% 3.9% 3.9%
Financials 84% 1.6% -2.9% 6.7% -28.1%
Information Technology 100% -1.0% 10.2% -1.9% -6.4%
Telecommunication Services 79% 0.3% 9.5% -17.7% -34.5%
Utilities 88% -4.4% -7.8% -9.6% -10.4%
Sales Earnings
US Q2 Earnings – Health Care
� Health Care
� Humana posted better-than-expected earnings and reaffirmed its guidance despite continuing issues in
its Obamacare business.
� Pharmaceuticals
� Pfizer’s earnings beat consensus but profit fell 23% as sales of its established drugs started to slow.
� Biotech
� Regeneron’s profit topped estimates but revenue trailed expectations hurt by low sales of its cholesterol
drug Praluent. The company reiterated its FY guidance.
9 August, 2016
US Q2 Earnings
� Technology
� Electronic Arts’ earnings topped consensus but revenue guidance came in slightly below expectations.
� Cognizant Technologies beat estimates but revenue projections fell short of analysts’ estimates on lower
projected spending from financial firms due to the Brexit.
� Symantec’s cost cuts led to better-than-expected earnings.
� Media
� Time Warner beat estimates on higher-than-expected cable revenues but earnings still fell from a year
ago on box-office weakness and slowing revenue growth in HBO.
� Viacom’s quarterly profit tumbled as the TV network (MTV, Comedy Central, Nickelodeon, …) is losing
viewers and ad revenue.
� Energy
� Apache posted a record loss but the oil producer sees its 2016 spending at the high end of its $1.4bn-
$1.8bn guidance.
� Online Travel Agencies
� Priceline surpassed expectations benefitting from strong overseas bookings while Trip Advisor reported
lower-than-expected earnings hurt by weak hotel revenue and higher expenses.
9 August, 2016
US Q2 Earnings
� Financials
� Berkshire Hathaway’s profit jumped 25% boosted by recently acquired manufacturing companies and
strength in its insurance business.
� MetLife trailed analysts’ expectations hurt by low interest rates that led to increased reserves.
� Consumer Staples
� P&G reported better-than-expected earnings buoyed by costs cuts, but outlook remains sluggish on
weak global growth.
� CVS topped expectations and raised its FY earnings outlook fueled by the strong performance of its
pharmacy benefit business, while it cut its revenue guidance due to lower discretionary spending.
� Kraft Heinz exceeded earnings estimates boosted once again by cost cuts despite falling sales.
� Tyson topped consensus after reporting growth across all of its business segments and benefitting from
lower feeding costs. The company raised its FY guidance for the second time in three months.
� Kellogg surpassed earnings expectations on effective cost cutting measures despite falling revenue. The
company raised its forecast.
� Avon’s earnings topped estimates on cost cuts and higher sales.
� Autos
� Tesla reported a steeper-than-expected quarterly loss hurt by higher spending at its vehicle and battery
factories, and said adjusted profitability could be within sight if the company meets its delivery goals.
9 August, 2016
Europe First Half Earnings – Consumer
� Consumer Discretionary
� Adidas’ profitability forecast missed expectations despite raising its four time this year.
� Consumer Staples
� Heineken reported sales growth that missed expectations as demand waned in key regions such as
Africa, Russia and the Middle East.
� Beiersdorf sales trailed estimates hurt by weak European markets.
� Pharmaceuticals
� Novo Nordisk EBIT slightly missed and the pharmaceutical giant lowered its FY sales growth amid US
price pressure.
9 August, 2016
Europe First Half Earnings
� Banks
� Societe General’s earnings beat estimates on lower bad loan provisions and a one off gain from the sale
of its stake in Visa Europe.
� HSBC’s profit fell 40% but announced a $2.5bn share buyback to reward investors from the sale of HSBC
Brazil. The bank said its plan to achieve an RoE of 10% by the end of 2017 is no longer “achievable”.
� RBS posted a £2.05bn loss in the first half hurt by high restructuring and litigation costs. The Scottish
bank said its path to profitability may take longer-than-expected.
� ING’s Q2 earnings top estimates on strong lending, while its CET1 ratio rose to 13.1%.
� UniCredit beat expectations but its Tier1 ratio fell to 10.3% from 10.9% in March.
� Insurance
� AXA 1H net profit rose 4% on life and health insurance gains but still fell short of estimates.
� Allianz earnings missed expectations on higher disaster claims.
9 August, 2016
Europe First Half Earnings
� Industrials
� Siemens topped earnings consensus and raised its outlook for the second time this year after a jump in
large orders for power-generating equipment.
� Deutsche Post reported strong profits driven by e-commerce delivery.
� Autos
� Porsche Automobil’s first-half net profit plunged 41% reflecting lower earnings at Volkswagen, which is
grappling with its emissions scandal.
� Materials
� Lafarge Holcim beat on EBITDA and confirmed its 2016 outlook.
� Chemicals
� Air Liquide missed first-half earnings estimates amid a continued slump at its engineering division
suffering from a slowdown in energy projects.
� Utilities
� Veolia Environment first-half net profit fell 29% on restructuring costs. The water and waste group
expects a string of international acquisitions to boost second-half revenue.
9 August, 2016
INVESTMENT IDEAS
9 August, 2016
Global Leaders
9 August, 2016
The Global Leaders are quality companies that we believe are fit for a long-term investment.
We launched this strategy in August 2011. Please read our special report for a full explanation of this strategy.
Benchmark: S&P 500Benchmark: Euro Stoxx 50
� European Portfolio � US Portfolio
*Since
August 2011
Portfolio Benchmark Delta Annualized Portfolio Benchmark Delta Annualized
Performance 96% 59% 36.9% 15% Performance 117% 99% 17.9% 17%
Performance YTD 0.4% -5.8% 6.2% Performance YTD 4.2% 8.2% -4.0%
Volatility 15.9% 22.2% -6.2% Volatility 13.6% 14.5% -0.8%
Max DrawDown -18.7% -27.8% 9.1% Max DrawDown -13.1% -13.0% -0.2%
-15
5
25
45
65
85
105
125EU Global Leaders Benchmark
-10
10
30
50
70
90
110
130
US Global Leaders Benchmark
Global Leaders – Current List
� European Portfolio � US Portfolio
9 August, 2016
Name Weight Mkt Cap ($bn) Sector
Apple 6.62% 568 Information Technology
Accenture 5.39% 73 Information Technology
Adobe 2.59% 49 Information Technology
Amazon 6.33% 365 Consumer Discretionary
Bristol Myers 5.70% 127 Health Care
Costco 5.39% 73 Consumer Staples
CVS 2.78% 100 Consumer Staples
Walt Disney 2.91% 155 Consumer Discretionary
Facebook 6.32% 357 Information Technology
Alphabet 6.59% 544 Information Technology
Goldman Sachs 2.68% 69 Financials
Honeywell 5.49% 88 Industrials
Johnson & Johnson 3.15% 344 Health Care
JP Morgan 6.06% 234 Financials
Mastercard 2.79% 104 Information Technology
Altria 1.89% 132 Consumer Staples
Merck & Co 5.84% 162 Health Care
Microsoft 6.45% 440 Information Technology
Nike 5.52% 93 Consumer Discretionary
Pepsico 5.82% 157 Consumer Staples
Philip Morris 1.92% 155 Consumer Staples
Reynolds 1.77% 71 Consumer Staples
Starbucks 2.74% 85 Consumer Discretionary
AT&T 3.07% 267 Telecommunication Services
Time Warner 2.64% 60 Consumer Discretionary
Visa 2.96% 184 Information Technology
Verizon 3.01% 224 Telecommunication Services
Walgreen 2.74% 86 Consumer Staples
Wells Fargo 3.04% 243 Financials
Exxon 3.16% 361 Energy
Name Weight Mkt Cap ($bn) Sector
Inditex 6.72% 109 Consumer Discretionary
Vinci 6.12% 45 Industrials
Fresenius 6.10% 41 Health Care
Essilor 5.91% 28 Health Care
Philips 5.79% 25 Industrials
Dassault Systemes 5.69% 21 Information Technology
Nestlé 5.48% 250 Consumer Staples
Unilever 5.19% 140 Consumer Staples
Novo Nordisk 5.18% 146 Health Care
BATS 5.10% 118 Consumer Staples
L'Oréal 5.06% 107 Consumer Staples
Sanofi 5.05% 110 Health Care
Reckitt Benckiser 4.84% 69 Consumer Staples
Roche 3.63% 221 Health Care
Novartis 3.61% 218 Health Care
ABInbev 3.60% 204 Consumer Staples
LVMH 3.27% 87 Consumer Discretionary
Allianz 3.20% 65 Financials
Heineken 3.14% 53 Consumer Staples
AXA 3.10% 49 Financials
Daimler 2.12% 72 Consumer Discretionary
BMW 2.06% 56 Consumer Discretionary
Stock-Picking List – Performance
� Hit Ratio 35%
� Hit Ratio Alpha 58%
� Average Perf. 0.47%
� Average Alpha 2.38%
� Nb. of Trades 31
� Open Trades 0
9 August, 2016
Average alpha of each stock strategy when compared to its
index (S&P or Euro Stoxx) over the same holding period.
Average performance of each stock strategy.
Please ask for more details.
Latest Equity Research
9 August, 2016
Date Document Strategy Stocks Covered Date Document Strategy Stocks Covered
August 8, 2016 Key Highlight Global Leaders Bristol-Myers May 11, 2016 Key Highlight Global Leaders Amazon
August 4, 2016 Key Highlight Global Leaders Time Warner May 5, 2016 Key Highlight Global Leaders Time Warner
July 29, 2016 Key Highlight Global Leaders Alphabet May 4, 2016 Key Highlight Global Leaders CVS
July 29, 2016 Company Primer Global Leaders Apple, Microsoft, CVS, Walgreens, Disney, Time Warner April 29, 2016 Key Highlight Global Leaders Amazon
July 28, 2016 Key Highlight Global Leaders Facebook April 28, 2016 Key Highlight Global Leaders Facebook
July 27, 2016 Key Highlight Global Leaders Apple April 27, 2016 Key Highlight Global Leaders Apple
July 22, 2016 Key Highlight Global Leaders Starbucks April 22, 2016 Key Highlight Global Leaders Essilor
July 20, 2016 Key Highlight Global Leaders Johnson & Johnson April 20, 2016 Key Highlight Global Leaders Johnson & Johnson
July 19, 2016 Key Highlight Thematic View IBM April 14, 2016 Key Highlight Global Leaders JPMorgan
July 15, 2016 Key Highlight Global Leaders JPMorgan April 13, 2016 Key Highlight Global Leaders Facebook
July 12, 2016 Key Highlight Global Leaders Amazon April 5, 2016 Weekly Report Thematic View Ctrip, Expedia, Priceline
July 8, 2016 Key Highlight Global Leaders PepsiCo April 1, 2016 SWOT Analysis Thematic View Ctrip
July 7, 2016 Key Highlight Global Leaders Walgreens April 1, 2016 SWOT Analysis Thematic View Expedia
July 4, 2016 Weekly Report Thematic View Nike, Under Armour April 1, 2016 SWOT Analysis Thematic View Priceline
June 30, 2016 Key Highlight Thematic View US Banks March 31, 2016 Key Highlight M&A Hon Hai
June 29, 2016 Key Highlight Global Leaders Nike March 16, 2016 Key Highlight Global Leaders Apple
June 28, 2016 Weekly Report Global Leaders Reckitt Benckiser, Unilever March 10, 2016 Key Highlight Global Leaders Inditex
June 20, 2016 Company Primer Global Leaders Heineken March 8, 2016 Weekly Report Thematic View 3M, GE, Honeywell, UTC
June 16, 2016 Key Highlight Global Leaders Inditex March 7, 2016 Key Highlight Global Leaders Novo Nordisk
June 14, 2016 Key Highlight Global Leaders Apple March 4, 2016 Key Highlight Global Leaders Time Warner
June 14, 2016 Weekly Report Global Leaders Accenture February 23, 2016 Weekly Report Thematic View IBM
June 9, 2016 Company Primer Global Leaders Starbucks February 19, 2016 Key Highlight M&A IBM
June 9, 2016 Company Primer Global Leaders Facebook February 2, 2016 Key Highlight Global Leaders Alphabet
June 9, 2016 Company Primer Global Leaders Amazon January 29, 2016 Key Highlight Global Leaders Microsoft
June 9, 2016 Company Primer Global Leaders Alphabet January 28, 2016 Key Highlight Global Leaders Facebook
June 7, 2016 Key Highlight Thematic View Bristol-Myers, Juno Therapeutics, Kite Pharma January 27, 2016 Key Highlight Global Leaders Apple
June 7, 2016 Weekly Report Tech Leaders Adobe, Broadcom, PayPal January 25, 2016 Key Highlight Earnings Eiffage
June 3, 2016 Key Highlight Global Leaders Johnson & Johnson January 15, 2016 Key Highlight Global Leaders JPMorgan
May 31, 2016 Weekly Report Global Leaders Alphabet, Amazon, Facebook January 13, 2016 Key Highlight Global Leaders Time Warner
May 27, 2016 Key Highlight Global Leaders Costco January 8, 2016 Key Highlight Global Leaders Walgreens
May 24, 2016 Weekly Report Thematic View Swisscom, Deutsche Telekom, Vodafone, BT Group January 7, 2016 SWOT Analysis Thematic View Siemens
May 17, 2016 Weekly Report Thematic View Heineken
Disclaimer
9 August, 2016
Ucap Hong Kong Asset Management Ltd has issued this document for information purposes only. This document may not be distributed to the United States, Canada,
Australia or to any other jurisdiction in which its distribution is unlawful. If you require investment advice or wish to discuss the suitability of any investment decision,
you should contact your professional advisers for financial, legal or tax advice when appropriate. This document is not and should not be construed as an offer to sell or
a solicitation of an offer to purchase or subscribe for any investment or service.
Ucap Hong Kong Asset Management Ltd has based this document on information obtained from sources it believes to be reliable but which it has not independently
verified. Ucap Hong Kong Asset Management Ltd makes no guarantees, representations or warranties, and accepts no responsibility or liability as to its accuracy or
completeness. Expressions of opinion herein are subject to change without notice.
Members of the Ucap Hong Kong Asset Management Ltd and/or their officers, directors and employees may have positions in any securities mentioned in this
document (or any related investment) and may from time to time add to or dispose of any such securities (or investment).
In the case where this document is distributed in the United Kingdom by a person who is not authorized by the United Kingdom Financial Services Authority; it is only
intended for persons who (i) have professional experience in matters related to investments or (ii) are persons falling within Article 49(2)(a) to (d) ("high net worth
companies, unincorporated associations, etc") of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 (as amended) or to whom it may
otherwise lawfully be communicated by such an unauthorized person (all such persons together being "relevant persons"). This communication must not be acted on
or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is available only to relevant persons and
will be engaged in only with relevant persons.
Past performance is not necessarily a guide to future performance. The value of any investment or income may go down as well as up and you may not receive back
the full amount invested. When an investment is denominated in a currency other than your local or reporting currency, changes in exchange rates may have an
adverse effect on the value, price or income of that investment. In the case of investments for which there is no recognized market, it may be difficult for investors to
sell their investments or to obtain reliable information about their value or the extent of the risk to which they are exposed. Investment in any market may be
extremely volatile and subject to sudden fluctuations of varying magnitude due to a wide range of direct and indirect, influences. Such characteristics can lead to
considerable losses being incurred by those exposed to such markets.
© Copyright. Ucap Hong Kong Asset Management Ltd 2015 ALL RIGHTS RESERVED
No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, whether electronic, mechanical, photocopying,
recording or otherwise, without the prior written permission of Ucap Hong Kong Asset Management Ltd.