Ia Financial Corporation Inc. · TSX:IAG
Ia Financial — Industrial Alliance Insurance and Financial Services — Conference Presentation (February 2015)
31 slides from Ia Financial's conference presentation, Feb 10, 2015
Slide 1: An update on oil
Clément Gignac Senior V-P and Chief Economist An update on oil February 10, 2015 1
Slide 2: Disclaimer
Disclaimer Opinions expressed in this presentation are based on actual market conditions and may change without prior warning. The aim is in no way to make investment recommendations. The forecasts given in this presentation do not guarantee returns and imply risks, uncertainty and assumptions. Alth
Slide 3: Oil prices and global economic activity diverging
Oil prices and global economic activity diverging World: An unusual dynamic OECD leading economic indices vs. Oil price (Brent) 102.5 170 102.0 160 101.5 150 OECD 101.0 140 (lhs) 100.5 130 100.0 120 World 99.5 (lhs) 110 99.0 100 98.5 90 98.0 80 97.5 70 97.0 60 November 27, 2014 : 96.5 OPEC meeting 5
Slide 4: Oil: A price war caused by a shift in strategy from OPEC
Oil: A price war caused by a shift in strategy from OPEC 4 Source: The Economist
Slide 5: OPEC: Change in strategy caused by an erosion of market share
OPEC: Change in strategy caused by an erosion of market share Forecast 5 Source : OPEC
Slide 6: Elevated oil prices fostered the rapid rise in shale and oil sand production
Elevated oil prices fostered the rapid rise in shale and oil sand production Canada and the U.S. are the main reason OPEC market share eroded 6 Source : OPEC, 2014 World Oil Outlook
Slide 7: Falling oil prices should limit the growth of shale oil and oil sands supply
Falling oil prices should limit the growth of shale oil and oil sands supply, according to IEA Source : International Energy Agency-February 2015 7
Slide 8: The global economy is less energy intensive
The global economy is less energy intensive 8 Source : IEA
Slide 9: Energy efficiency: OECD experience of oil usage per unit of GDP
Energy efficiency: OECD experience of oil usage per unit of GDP Source : International Energy Agency-February 2015 9
Slide 10: Oil demand: Growth only in emerging countries
Oil demand: Growth only in emerging countries Source : International Energy Agency-February 2015 10
Slide 11: Most recent forecasts of oil demand and supply according to IEA
A quick look at the most recent forecasts of oil demand and supply according to IEA Source : International Energy Agency-February 2015 11
Slide 12: Oil: Have prices already bottomed?
Oil: Have prices already bottomed? 12
Slide 13: World: Have prices fallen enough already?
World: Have prices fallen enough already? Brent price and estimation of current account breakeven price for Saudi Arabia 150 USD/barrel 140 130 120 110 100 90 80 Current account 70 Surplus breakeven price 60 50 40 Deficit 30 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 2008 2009 2010 2011
Slide 14: Canadian price supported by the falling loonie
Canadian price supported by the falling loonie Canadian oil: Devaluation of the dollar is absorbing part of the shock $ per barrel 120 120 100 100 80 80 60 60 40 20 40 0 20 -20 0 -40 2010 2011 2012 2013 2014 2015 WTI - WCS spread, USD WTI SPOT WCS $CAD WCS Spot 14 Source: IA Economy, data via Bloomb
Slide 15: U.S.: Slower production growth ahead?
U.S.: Slower production growth ahead? 15
Slide 16: History shows that the rigs count has to fall even more
However, history shows that the rigs count has to fall even more!!! 16
Slide 17: Oil: Expect more volatility!
Oil: Expect more volatility! Net non-commercial speculative positions on oil 500 000 400 000 300 000 200 000 100 000 0 -100 000 2000 2002 2004 2006 2008 2010 2012 2014 17 Source: IA Economy, data via Bloomberg
Slide 18: Oil prices: A simple return to the mean?
Oil prices: A simple return to the mean? 18
Slide 19: OPEC lowers its forecast for Non-OPEC supply growth
OPEC lowers its forecast for Non-OPEC supply growth … and this forecast assumes that U.S. capital spending will fall further: « This forecast with low growth projected for 2015, is subject to the continuation of current oil market circumstances for a period of at least six months to the end of June
Slide 20: Our working assumptions for the price of oil, WTI
Our working assumptions for the price of oil, WTI, in USD* 2015 H2: 50 to 55 $ 2016-17 (average): 60 to 65 $ *Excluding major geopolitical events 20
Slide 21: The impact on the Canadian economy?
The impact on the Canadian economy? 21
Slide 22: Falling oil prices: Winners and losers
Falling oil prices: Winners and losers 22 Source : JP Morgan
Slide 23: Relative importance of the oil & gas industries
Relative importance of the oil & gas industries (As a share of total, 2014, %) Capital Région GDP Employment spending Canada 6.2 2.2 34.0 Alberta 24.0 7.4 64.0 Saskatchewan 15.0 5.0 30.0 Newfoundland & Labrador 22.0 7.1 23.0 United States 1.7 0.7 8.0 23 Source: IA Economy, data via Bloomberg
Slide 24: Canada: Weakening labour market growth and rising dependence on the West
Canada: Weakening growth in the labour market and rising dependance on the West… Canada & U.S.: Annual jobs Jobs creation in Canada creation in 2014 Jobs added to the labour market in last 12 Thousands 83 % of new months, % 70 jobs created 63.1 6% in the 60 western provinces! 4% 50 38.9 37.7 2% 40 3
Slide 25: The impact on markets?
The impact on markets? <t] INDUSTRIAL ALLIANCE INSURANCE AND FINANCIAL SERVICES INC.
Slide 26: Loonie dragged down by oil prices!
Loonie dragged down by oil prices! New target range: 78-82 cents US? Loonie under pressure West Texas Intermediate, $ per barrel 160 1.10 $ 1.05 $ 140 1.00 $ 120 CAD/USD (D) 0.95 $ 100 0.90 $ 80 0.85 $ 0.80 $ 60 0.75 $ 40 0.70 $ 20 0.65 $ 0 0.60 $ 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 20
Slide 27: TSX performance depends on commodities
TSX performance depends on commodities Relative performance, S&P/TSX vs S&P 500 1949 = 100 160 140 120 100 80 60 40 TSX overperformance is always linked to commodities 20 0 1949 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014 27 Source: IA Economy, data via Bloomberg
Slide 28: Equities: better diversification down south
Equities: better diversification down south Sector weights, S&P 500 vs S&P/TSX (as of February 2015) Sector S&P 500 S&P / TSX Spread Information technologies 19.4% 2.4% 17.0% Finance 16.3% 34.3% (18.0%) Health care 14.6% 4.1% 10.5% Consummer discretionary 12.3% 6.3% 6.0% Energy 8.5% 21.9% (13.4%) Co
Slide 29: For mid to long-term investors, the Canadian energy sector has become attractive
For mid to long-term investors, the Canadian energy sector has become attractive! TSX: Energy sector vs Canadian oil price 400 100 90 350 80 300 70 60 250 50 200 40 150 30 2009 2010 2011 2012 2013 2014 2015 TSX, energy sub-index (lhs) WCS, $CAD (rhs) 29 Source: IA Economy, data via Bloomberg
Slide 30: Returns on indices and our funds, YTD, in 2015
Returns on indices and our funds, YTD, in 2015 Index returns, local currency %, YTD FTSE TMX Universe 3.57% S&P/TSX 3.20% S&P 500 -0.21% EAFE 4.04% CAD/USD -6.80% -8% -6% -4% -2% 0% 2% 4% 6% Funds under our management % Diversified Security 3.7% Diversified Income 4.3% Diversified 4.7% Diversified O
Slide 31: Conclusions
Conclusions ► The trough might be already behind us regarding oil prices… ► … but it is still too early to expect prices to rise back up. ► Canada is one of the only developped countries for which the net effects are negative. Alberta is even at risque of falling into recession in 2015 ► The Canadia