Global Equity Strategy

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Global Equity Strategy

Jefferies Global Sustainable Equity Income

Basket

EQUIT

Y

S

TRA

TEG

Y

GL

OB

AL

Global For war d Dividend Yield ( % )

Source: FactSet, Jefferies 2.0 2.5 3.0 3.5 4.0 4.5 5.0 07 08 09 10 11 12 13 14 15 Kenneth Chan * Quantitative Strategist +852 3743 8079 [email protected] Sean Darby * Chief Global Equity Strategist

+852 3743 8073 [email protected]

* Jefferies Hong Kong Limited Key Takeaway

After the basket was re-balanced on 22 April, the stocks underperformed the global benchmark significantly. A heavy concentration in US and UK stocks and the absence of European shares hindered performance.

Furthermore, the underlying stocks were much more real economy focused with little exposure to financials or pharma. As we have continued to point out over the past few quarters, it is becoming increasingly difficult to find quality shares trading on respectable valuations.

We have added Best Buy Co Inc (BBY US), Kohl's Corporation (KSS US), Raytheon

Co (RTN US), Easyjet (EZJ LN), Biostime International Holding (1112 HK), Anhui Conch Cement (914 HK); and we have removed United Technologies Corporation (UTX US), Airgas, Inc (ARG US), Timken Company (TKR US), William Hill Plc (WMH LN), Chipbond Technology Corporation (6147 TT), Pruksa Real Estate Public Co., Ltd (PS TB). The average dividend yield of the basket is 2.91%. In Exhibits 2 to 5, we screen the candidates for inclusion into the global equity sustainable income basket.

We have enhanced the number of measures of currency valuation in appendices 1 to 5.

Countr y Sector Symbol Na me

Cur r ent Dividend Yield ( % )

JEF For war d Dividend Yield ( % ) Dividend Cover ( x, 3 yea r a vg) JEF For wa r d Dividend Cover ( x)

United States Consumer Discretionary BBY US Best Buy Co Inc 2.58 3.54 United States Consumer Discretionary KSS US Kohl'S Corp 2.68 2.96

United States Industrials MMM US 3M Co 2.44 2.50

United States Industrials RTN US Raytheon Co 2.67 2.86

United States Information Technology INTC US Intel Corp 3.06 3.23 2.37 2.23 United States Information Technology STX US Seagate Technology Plc 4.32 4.56 United States Materials PKG US Packaging Corp Of America 3.04 2.63 2.38 2.63 United Kingdom Industrials ATK LN Atkins Ws 2.26 2.39 2.72 2.73

United Kingdom Industrials EZJ LN Easyjet 2.94 3.05 2.82 2.50

United Kingdom Industrials IMI LN Imi 3.34 3.59 2.09 1.73

Hong Kong Consumer Staples 1112 HK Biostime Intl Hold 2.94 5.61 2.50 1.67 Hong Kong Materials 914 HK Anhui Conch Cement 3.03 4.30

Japan Consumer Discretionary 5108 JP Bridgestone Corp 2.65 2.16 5.07 4.60 South Korea Consumer Discretionary 018880 KS Halla Visteon Clim 2.52 2.85 Taiwan Information Technology 2330 TT Taiwan Semicon Man 3.20 2.27 Source: FactSet, Bloomberg, Jefferies

Note: New additions are inred

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Exhibit 1: Jefferies Global Sustainable Equity Income Basket with financial analysis

Source: FactSet, Bloomberg, Jefferies

Note: Sustainable growth rate: ROE*(1-payout ratio), 3 years average; Altman Z score: a formula for predicting bankruptcy. A score >2.60 is in the safety zone, 1.1<Z<2.60 is in the grey zone and Z<1.1 is in the danger zone; Piotroski F-score (0-9) is used for evaluating a stock’s financial strength, the higher the score, the more financially sound the company; Dividend cover: earnings per share/dividend per share, 3 year average

Co-branded ratings include Australian company research by Evans & Partners; Indonesian company research by Indo-Premier; Korean company research by Mirae Asset Securities; Malaysian company research by KAF-Seagroatt, Philippines company research by BPI Securities, Taiwanese company research by Fubon Securities; Thai company research by Asia Plus Securities

Country Sector Symbol Name

Current Dividend Yield (%) JEF Forward Dividend Yield (%) Dividend Cover (x, 3 year avg) JEF Forward Dividend

Cover (x) JEF Rating

Target price % upside

United States Consumer Discretionary BBY US Best Buy Co Inc 2.58 3.54 BUY 42.4

United States Consumer Discretionary KSS US Kohl'S Corp 2.68 2.96 BUY 28.1

United States Industrials MMM US 3M Co 2.44 2.50 BUY 21.8

United States Industrials RTN US Raytheon Co 2.67 2.86 BUY 17.7

United States Information Technology INTC US Intel Corp 3.06 3.23 2.37 2.23 BUY 17.9 United States Information Technology STX US Seagate Technology Plc 4.32 4.56 BUY 26.8 United States Materials PKG US Packaging Corp Of America 3.04 2.63 2.38 2.63 BUY 25.1

United Kingdom Industrials ATK LN Atkins Ws 2.26 2.39 2.72 2.73 HOLD 5.1

United Kingdom Industrials EZJ LN Easyjet 2.94 3.05 2.82 2.50 BUY 8.4

United Kingdom Industrials IMI LN Imi 3.34 3.59 2.09 1.73 BUY 17.1

Hong Kong Consumer Staples 1112 HK Biostime Intl Hold 2.94 5.61 2.50 1.67 BUY 91.7

Hong Kong Materials 914 HK Anhui Conch Cement 3.03 4.30 BUY 27.2

Japan Consumer Discretionary 5108 JP Bridgestone Corp 2.65 2.16 5.07 4.60 BUY 19.5 South Korea Consumer Discretionary 018880 KS Halla Visteon Clim 2.52 2.85 Buy 37.4

Taiwan Information Technology 2330 TT Taiwan Semicon Man 3.20 2.27 Add 22.7

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Exhibit 2: US Sustainable Equity Income Candidates

Country Sector Symbol Name

Market Cap (US$ mn) Sustainable Growth Rate (%, 3 year avg) Altman Z Score Piotroski F Score Dividend Payout Ratio (%, 3 year avg) Current Dividend Yield (%) Forward Dividend Yield (%) Dividend Cover (x, 3 year avg) Forward Dividend Cover (x) Next Dividend

Ex-date JEF Rating

United States Consumer Discretionary BBY US Best Buy Co Inc 12,199 16.4 4.37 8 32.6 2.58 3.18 3.54 2.43 9/3/2015 BUY United States Consumer Discretionary HRB US Block H & R Inc 8,639 17.3 3.98 6 48.0 2.70 2.58 2.09 2.51 9/15/2015 NC United States Consumer Discretionary CPLA US Capella Education Co 658 17.4 13.01 7 19.8 2.72 2.80 5.07 2.30 9/23/2015 NC United States Consumer Discretionary CBRL US Cracker Barrel Old Ctry Stor 3,843 16.2 4.35 8 43.7 2.68 3.04 2.57 1.56 10/14/2015 NC

United States Consumer Discretionary GME US Gamestop Corp 4,987 10.6 4.56 7 37.4 3.21 3.29 2.67 2.70 8/28/2015 NC

United States Consumer Discretionary GPC US Genuine Parts Co 13,730 11.2 5.24 6 48.9 2.66 2.81 2.05 1.96 9/9/2015 NC

United States Consumer Discretionary KSS US Kohl'S Corp 12,816 9.9 3.96 6 34.0 2.68 2.92 2.96 2.56 9/8/2015 BUY

United States Consumer Discretionary TGT US Target Corp 53,697 9.2 3.56 7 42.1 2.55 2.52 2.57 2.27 11/16/2015 HOLD United States Consumer Staples DPS US Dr Pepper Snapple Group Inc 15,064 15.1 2.93 8 47.3 2.44 2.48 2.12 2.10 9/17/2015 HOLD United States Consumer Staples WMT US Wal-Mart Stores Inc 237,644 13.7 4.80 9 36.1 2.74 2.71 2.79 2.45 3/9/2016 HOLD

United States Energy HP US Helmerich & Payne 7,099 12.8 5.61 7 21.7 3.91 4.41 8.92 0.49 11/13/2015 HOLD

United States Energy NOV US National Oilwell Varco Inc 17,656 9.8 3.17 7 17.8 3.81 4.26 7.14 1.44 9/16/2015 HOLD

United States Energy PSX US Phillips 66 45,237 16.0 4.75 7 17.2 2.56 2.72 7.78 3.05 11/13/2015 NC

United States Energy RES US Rpc Inc 2,885 16.1 5.87 6 38.0 2.64 1.77 2.87 (0.02) 8/12/2015 NC

United States Health Care BAX US Baxter International Inc 20,535 15.6 3.31 7 45.0 2.97 2.13 2.26 2.37 9/9/2015 NC

United States Industrials MMM US 3M Co 99,452 17.0 6.98 8 40.3 2.44 2.74 2.50 1.96 8/19/2015 BUY

United States Industrials CHRW US C H Robinson Worldwide Inc 9,380 22.5 9.34 8 45.4 2.39 2.53 2.25 2.18 9/9/2015 NC

United States Industrials CMI US Cummins Inc 23,547 17.2 4.91 6 26.8 2.38 2.58 3.85 3.14 11/11/2015 HOLD

United States Industrials MSA US Msa Safety Inc 1,829 8.9 4.09 6 49.6 2.58 2.24 2.03 2.52 8/18/2015 NC

United States Industrials RTN US Raytheon Co 30,682 14.0 3.27 7 34.9 2.67 2.79 2.86 2.48 10/2/2015 BUY

United States Information Technology INTC US Intel Corp 140,660 11.7 4.87 8 42.5 3.06 3.35 2.37 2.23 8/3/2015 BUY

United States Information Technology KLAC US Kla-Tencor Corp 8,896 10.9 6.27 7 44.4 3.56 3.66 2.37 1.97 8/12/2015 HOLD United States Information Technology QCOM US Qualcomm Inc 104,232 13.2 10.37 6 30.7 2.78 2.95 3.30 2.66 11/25/2015 NC United States Information Technology STX US Seagate Technology Plc 15,111 50.6 3.78 6 26.4 4.32 4.74 4.56 1.93 8/14/2015 BUY United States Information Technology XLNX US Xilinx Inc 11,092 11.0 5.20 8 48.1 2.67 2.88 2.08 1.88 8/10/2015 HOLD United States Materials LYB US Lyondellbasell Industries Nv 47,611 17.8 4.81 7 49.6 2.78 3.06 2.50 3.29 8/13/2015 HOLD

United States Materials PKG US Packaging Corp Of America 6,311 16.2 3.33 7 44.5 3.04 3.42 2.38 2.20 9/17/2015 BUY

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Exhibit 3: UK Sustainable Equity Income Candidates

United Kingdom Consumer Discretionary BRBY LN Burberry Group 10,960 14.8 9.30 6 46.4 2.09 2.50 2.16 2.06 12/24/2015 NC United Kingdom Consumer Discretionary RTN LN Restaurant Group 2,176 14.7 6.90 7 48.4 2.21 2.67 2.07 1.98 9/10/2015 HOLD United Kingdom Consumer Discretionary SMWH LN Wh Smith Plc 2,951 40.4 6.49 6 43.3 2.29 2.65 2.31 2.16 1/7/2016 NC United Kingdom Consumer Discretionary WMH LN William Hill 5,484 10.8 2.96 6 45.4 3.03 3.29 2.24 1.99 10/22/2015 HOLD

United Kingdom Energy DGO ID Dragon Oil 5,573 13.8 3.93 7 28.7 3.22 2.98 3.51 2.58 9/3/2015 NC

United Kingdom Energy WG/ LN Wood Group (John) 3,623 8.6 3.70 6 28.9 2.80 3.39 3.51 2.39 8/27/2015 NC

United Kingdom Industrials ATK LN Atkins Ws 2,410 39.9 2.89 6 37.0 2.26 2.52 2.72 2.69 12/3/2015 HOLD

United Kingdom Industrials BOY LN Bodycote Plc 1,940 9.1 4.51 7 34.7 2.14 2.40 2.89 2.84 10/1/2015 BUY

United Kingdom Industrials EZJ LN Easyjet 10,295 12.2 3.30 8 35.7 2.94 3.40 2.82 2.45 2/25/2016 BUY

United Kingdom Industrials IMI LN Imi 4,729 17.9 4.87 6 48.2 3.34 3.62 2.09 1.89 8/13/2015 BUY

United Kingdom Industrials ROR LN Rotork 2,837 19.1 9.07 6 41.9 2.15 2.58 2.39 2.32 8/27/2015 HOLD

United Kingdom Information Technology PTEC LN Playtech Plc 4,440 25.0 5.65 7 43.5 2.19 2.51 3.92 2.30 NC

United Kingdom Materials BLT LN Bhp Billiton Plc 40,678 10.6 3.23 9 48.2 6.37 6.49 2.15 0.78 9/10/2015 HOLD

United Kingdom Materials CRDA LN Croda Intl 5,979 23.9 6.28 6 49.7 2.38 2.48 2.02 1.97 9/3/2015 HOLD

United Kingdom Materials ELM LN Elementis 1,871 17.3 5.56 7 30.0 2.07 4.02 3.44 1.40 9/10/2015 HOLD

United Kingdom Materials JMAT LN Johnson Matthey 9,474 14.2 5.29 7 37.3 2.24 2.50 2.72 2.60 11/26/2015 BUY

United Kingdom Materials VCT LN Victrex 2,695 13.9 15.93 6 47.0 2.36 2.79 2.13 1.87 2/4/2016 HOLD

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Exhibit 4: Europe ex. UK Sustainable Equity Income Candidates

Austria Energy SBO AV Schoeller Bleckman 949 10.8 3.68 6 38.4 2.77 1.89 2.66 2.30 5/9/2016 NC

Germany Consumer Discretionary LEO GR Leoni Ag 2,065 10.3 2.77 6 32.2 2.12 2.97 3.11 3.10 5/6/2016 NC

Germany Industrials DPW GR Deutsche Post Ag 37,814 9.4 2.64 6 49.0 3.24 3.32 2.04 1.94 5/19/2016 HOLD

Germany Information Technology SOW GR Software Ag 2,179 9.7 2.82 7 29.6 2.03 2.17 3.46 3.65 5/9/2016 NC

Ireland Consumer Staples OGN ID Origin Enterprises 1,056 14.6 3.16 6 40.2 2.52 3.01 2.54 2.76 NC

Italy Energy TEN IM Tenaris S.A. 15,534 8.6 5.17 6 35.5 3.18 3.14 2.91 1.72 11/23/2015 NC

Norway Consumer Staples LSG NO Leroy Seafood Grou 1,830 9.1 3.35 6 57.5 4.69 5.36 2.02 1.82 5/24/2016 NC

Norway Consumer Staples BAKKA NO P/F Bakkafrost 1,422 19.4 5.40 7 39.0 3.49 3.89 2.60 2.07 NC

Ireland Materials YAR NO Yara International 13,726 9.2 3.30 7 43.4 3.18 3.55 2.36 2.57 5/10/2016 NC

Sweden Industrials AFB SS Af Ab 1,082 8.0 3.80 7 42.5 3.10 3.25 2.67 2.06 4/28/2016 NC

Switzerland Consumer Discretionary AUTN SW Autoneum Hldg Ag 894 9.6 3.21 7 31.7 2.44 2.55 3.29 2.81 NC

Switzerland Consumer Discretionary UHR VX Swatch Group 22,300 13.3 10.07 6 24.5 2.06 2.01 4.17 3.20 5/16/2016 NC

Switzerland Industrials FI/N SW Georg Fischer Ag 2,733 10.8 3.16 7 24.7 2.27 2.97 2.74 2.66 3/18/2016 NC

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Exhibit 5: Asia Pacific Sustainable Equity Income Candidates

Co-branded ratings include Australian company research by Evans & Partners; Indonesian company research by Indo-Premier; Korean company research by Mirae Asset Securities; Malaysian company research by KAF-Seagroatt, Philippines company research by BPI Securities, Taiwanese company research by Fubon Securities; Thai company research by Asia Plus Securities

Market Cap (US$ mn) Sustainable Growth Rate (%, 3 year avg) Altman Z Score Piotroski F Score Dividend Payout Ratio (%, 3 year avg) Current Dividend Yield (%) Forward Dividend Yield (%) Dividend Cover (x, 3 year avg) Forward Dividend Cover (x) Next Dividend Ex-date

JEF & Co-brands Rating

Australia Industrials MIN AU Mineral Resources 866 13.9 3.54 9 44.7 5.98 3.27 2.30 1.16 9/2/2015 NC

Australia Materials BHP AU Bhp Billiton Ltd 63,936 10.6 3.29 9 48.2 5.44 6.34 2.15 0.78 9/9/2015 HOLD

China Consumer Discretionary 600104 CH Saic Motor Corp. L 42,084 10.7 2.63 6 42.6 5.31 6.22 2.51 1.97 7/27/2016 HOLD

China Consumer Discretionary 200726 CH Luthai Textile 1,779 9.0 5.03 7 42.2 5.13 4.97 2.42 2.38 NC

Hong Kong Consumer Discretionary 1880 HK Belle Internationa 8,999 10.4 7.66 6 47.7 2.23 5.73 2.40 1.61 11/25/2015 UNDERPERFORM

Hong Kong Consumer Discretionary 1929 HK Chow Tai Fook Jewe 10,322 9.4 4.98 6 46.6 3.82 3.61 2.18 1.98 BUY

Hong Kong Consumer Discretionary 3389 HK Hengdeli Holdings 753 8.0 2.90 8 27.0 2.58 3.86 3.80 3.69 5/17/2016 NC

Hong Kong Consumer Discretionary 425 HK Minth Grp 2,273 8.1 3.61 6 40.0 2.98 3.59 2.50 2.74 5/31/2016 NC

Hong Kong Consumer Discretionary 751 HK Skyworth Digital 2,244 13.2 2.61 7 28.3 2.32 3.54 3.81 3.23 12/7/2015 NC

Hong Kong Consumer Staples 1112 HK Biostime Intl Hold 1,608 19.6 3.51 6 40.1 2.94 4.14 2.50 2.26 BUY

Hong Kong Health Care 2877 HK China Shineway Pha 1,076 10.2 7.34 7 36.0 2.49 4.22 2.88 2.61 10/13/2015 NC

Hong Kong Materials 914 HK Anhui Conch Cement 17,319 12.3 4.11 9 24.3 3.03 3.06 4.30 3.40 5/27/2016 BUY

Hong Kong Materials 336 HK Huabao Intl Hldg 1,563 14.2 9.60 6 43.1 10.54 5.83 2.33 2.83 2/8/2016 NC

Japan Consumer Discretionary 7832 JP Bandai Namco Hldgs 4,458 8.6 5.23 9 30.1 2.11 2.09 3.32 3.26 9/28/2016 NC

Japan Consumer Discretionary 5108 JP Bridgestone Corp 30,202 11.0 3.34 7 20.9 2.65 2.95 5.07 3.30 6/28/2016 BUY

Japan Consumer Discretionary 2681 JP Geo Holdings Corp 721 8.4 3.84 6 29.5 2.12 1.95 3.84 3.83 9/28/2016 NC

Japan Consumer Discretionary 8136 JP Sanrio Co Ltd 2,425 14.2 5.14 6 42.5 2.41 2.31 2.47 1.77 9/28/2016 NC

Japan Industrials 7205 JP Hino Motors 6,695 16.8 3.06 6 27.6 2.64 3.03 3.66 3.35 9/28/2016 HOLD

Japan Information Technology 6724 JP Seiko Epson Corp 7,416 23.3 3.06 6 14.5 2.65 2.77 7.41 3.38 9/28/2016 NC

South Korea Consumer Discretionary 018880 KS Halla Visteon Clim 3,398 12.0 4.61 6 35.2 2.52 3.14 2.85 2.42 12/29/2015 Buy

South Korea Industrials 010120 KS Ls Industrial Sys 1,325 8.8 2.90 6 30.9 2.84 2.86 3.28 2.69 12/29/2015 NC

Taiwan Consumer Discretionary 2105 TT Cheng Shin Rubber 6,719 13.4 3.38 7 46.6 4.39 4.48 2.44 1.75 7/21/2016 Reduce

Taiwan Consumer Discretionary 2106 TT Kenda Rubber Ind 1,195 11.0 3.82 7 44.8 3.50 3.78 2.24 2.27 NC

Taiwan Information Technology 2330 TT Taiwan Semicon Man 115,776 14.2 6.93 9 44.1 3.20 3.47 2.27 2.52 7/11/2016 Add

Thailand Financials PS TB Pruksa Real Estate 1,636 16.2 3.82 6 31.5 3.96 4.03 3.19 3.13 3/8/2016 Hold

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Exhibit 6: Jefferies Global Sustainable Equity Income Basket Performance (22 April, 15 – 15 July, 15)*

Source: FactSet, Jefferies

*Price performance is calculated in US$ and without transaction cost Exhibit 7: S&P 500 Dividend Aristocrat

Exhibit 8: UK Dividend Achievers Index

Source: Indxis, Jefferies

Country Symbol Sector Name

Price Performance since 22 April 2015

(%)

United States MMM US Industrials 3M Company (5.3)

United States UTX US Industrials United Technologies Corporation (4.9)

United States INTC US Information Technology Intel Corporation (9.2)

United States STX US Information Technology Seagate Technology Plc (18.8)

United States ARG US Materials Airgas, Inc. (0.9)

United States PKG US Materials Packaging Corporation Of America (9.5)

United States TKR US Industrials Timken Company (13.7)

United Kingdom WMH LN Consumer Discretionary William Hill Plc 11.8

United Kingdom IMI LN Industrials Imi Plc (6.4)

United Kingdom ATK LN Industrials Ws Atkins Plc 19.2

Japan 5108 JP Consumer Discretionary Bridgestone Corporation (12.6)

South Korea 018880 KS Consumer Discretionary Halla Visteon Climate Control Corp. (20.4)

Taiwan 6147 TT Information Technology Chipbond Technology Corporation (19.7)

Taiwan 2330 TT Information Technology Taiwan Semiconductor Manufacturing Co., Ltd. (4.8)

Thailand PS TB Financials Pruksa Real Estate Public Co., Ltd. (20.9)

Average (7.7)

MSCI AC World (US$) (2.1)

MSCI AC World High Dividend Yield (US$) (3.9)

100 200 300 400 500 600 700 800 900 1000 93 95 97 99 01 03 05 07 09 11 13 15 4,000 6,000 8,000 10,000 12,000 14,000 02 03 04 05 06 07 08 09 10 11 12 13 14 15

The dividend theme has taken a breather lately

The same is true in the UK

The basket last quarter underperformed

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Exhibit 9: Global broad market investment grade corporate bond spread (%)

Exhibit 10: Global broad market high yield corporate bond spread (%)

Exhibit 11: Global forward dividend yield (%)

(0.5) 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 0.0 1.0 2.0 3.0 4.0 5.0 6.0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 2.0 2.5 3.0 3.5 4.0 4.5 5.0 07 08 09 10 11 12 13 14 15

Global dividend yield climbed amid recent market corrections

...little changed

However, credit spreads are...

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Exhibit 12: Global dividend yield (%)

Exhibit 13: Global Sustainable Equity Income Basket quarterly performance (Oct 2012 =100)

Note: Performance is calculated in US$ (total return with dividend re-investment) and without transaction cost

Exhibit 14: Global Sustainable Equity Income Candidates back-test monthly performance (2002=100)

Note: Performance is calculated in US$ (total return with dividend re-investment) and without transaction cost

Regions Countries

World 2.56 Australia 4.69 Mexico 2.19

Asia Pacific 2.52 Brazil 4.31 New Zealand 4.70

Europe 3.28 Canada 3.05 Norway 4.19

Middle East & Africa 3.23 China 1.50 Russia 4.91

North America 2.15 France 3.15 Spain 3.53

Latin America 3.33 Germany 2.81 Sweden 3.68

Hong Kong 3.40 Switzerland 3.08

India 1.64 Taiwan 4.08

Indonesia 2.31 Thailand 3.37

Italy 3.20 Turkey 3.11

Japan 1.85 United Kingdom 3.69

South Korea 1.46 United States 2.09

100 110 120 130 140 150 160

Sustainable Basket Total Return MSCI AC World (TR)

0 200 400 600 800 1,000 1,200 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Global Sustainable Equity Income Candidates MSCI AC World (TR)

The global dividend yield has risen to 2.6%

Since inception the theme has outperformed the market until lately

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Appendix

Appendix 1: BIS CPI based Real Effective Exchange Rate (REER)

Source: BIS, Jefferies

Note: The real effective exchange rate is an indicator of competitiveness which takes into account both export and import competitiveness. A fall indicates improvement in competitive position

Appendix 2: Dollar Spot Exchange Rates as of 30 June 2015: currency per dollar

Source: IMF, Jefferies

Note: The exchange rate are reported to the Fund by the issuing central bank

Appendix 3: FEER-consistent Dollar Rates: currency per dollar

Source: Peterson Institute for International Economics 'Estimates of Fundamental Equilibrium Exchange Rates, May 2015', Jefferies

Note: FEER= fundamental equilibrium exchange rate

Americas Europe

United States 109.95 France 93.04

Canada 85.71 Germany 93.27

Brazil 77.99 Italy 94.93

Mexico 91.71 Norway 87.00

Asia Pacific Russia 86.00

China 130.08 Spain 95.26

Japan 68.29 Sweden 94.45

Australia 92.08 Switzerland 114.91

New Zealand 104.12 United Kingdom 116.86

United States 1.00 Euro area 1.12

Canada 1.25 Norway 7.86

Brazil 3.14 Russia 55.84

Mexico 15.48 Sweden 8.24

Asia Pacific Switzerland 0.93

China 15.48 United Kingdom 1.57

Japan 15.48

Australia 15.48

United States 1.00 Euro area 0.83

Canada 1.19 Norway 7.19

Brazil 2.84 Russia 49.30

Mexico 14.70 Sweden 7.26

Asia Pacific Switzerland 0.86

China 5.69 United Kingdom 0.61

Japan 107.00

Australia 1.18

New Zealand 1.30

One way to increase US dollar returns would be to allocate the stocks not necessarily by benchmark weighting but by their respective currency under/overvaluation

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Appendix 4: Big Mac Index: Dollar PPP Published January 22nd_{, 2015}

Source: bigmacindex.org, Jefferies

Note: Dollar PPP=Local Price/Dollar Price*Dollar Exchange

Appendix 5: Big Mac Index: Valuation Against Dollar (%) Published January 22nd_{, 2015}

Source: bigmacindex.org, Jefferies

Note: Valuation against dollar (%)= (dollar price-dollar price in the United States)/dollar price in the United States *100

United States 1.00 France 0.81

Canada 1.19 Germany 0.77

Brazil 2.82 Italy 0.80

Mexico 10.23 Norway 10.02

Asia Pacific Russia 18.58

China 3.59 Spain 0.76

Japan 77.24 Sweden 8.50

Australia 1.11 Switzerland 1.36

New Zealand 1.23 Britian 0.60

United States 0.00 France -5.66

Canada -3.14 Germany -11.23

Brazil 8.70 Italy -6.87

Mexico -30.07 Norway 31.46

Asia Pacific Russia -71.51

China -42.19 Spain -11.71

Japan -34.41 Sweden 3.73

Australia -9.84 Switzerland 57.49

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Appendix 6: Dividend payout schedule

Note: Data from latest annual report, only primary listing companies are included

Appendix 7: Piotroski F-Score Criteria

Source: Value Investing: The Use of Historical Financial Statement Information to

Separate Winners from Losers, Jefferies

Majority

Country Frequency Quarterly Semi-annually Annually

Australia Semi 28 531 356 Brazil Annual 80 54 164 Canada Quarter 2703 49 91 China Annual 8 48 2034 France Annual 6 53 616 Germany Annual 10 10 716

Hong Kong Annual 34 579 654

India Annual 103 168 1620 Indonesia Annual 4 35 335 Italy Annual 3 14 215 Japan Semi 87 1681 1625 Korea Annual 77 40 1357 Mexico Annual 16 14 70

New Zealand Semi 15 57 31

Norway Annual 11 6 199 Russia Annual 6 27 214 Spain Annual 23 38 76 Sweden Annual 16 1 403 Switzerland Annual 1 2 233 Taiwan Annual 2 8 1382 Turkey Annual 2 3 276 UK Semi 84 1221 283 US Quarter 6459 71 441

No. of companies paid dividend

Profitability

1. Positive net income in the last year

2. Positive operating cash flow in the last year

3. Higher return on assets (ROA) in the last year compared to the ROA in the prior year

4. Cash flow from operations greater than Net Income in the last year Leverage, Liquidity and Source of Funds

5. Lower ratio of long term debt to assets in the last year compared to the prior year

6. Higher current ratio last year compared to the prior year

7. No new shares were issued in the last year (since 26 July 2013, we altered to <2% to take account of employee stocks)

Operating Efficiency

8. A higher gross margin compared to the prior year 9. A higher asset turnover ratio compared to the prior year

Unfortunately, there is no consistent pattern in dividend payments

The Piotroski F is a scorecard of 9 financial ratios that is used to balanced profitability with funding and efficiency

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Appendix 8: Altman Z-Score calculation

Source: Financial Ratios, Discriminant Analysis and the Prediction of Corporate

Bankruptcy, Jefferies

Factor Weight

Working capital/Total assets 1.2

Retained Earnings/Total assets 1.4 Earnings before interest and taxes/Total assets 3.3 Market value of equity/Book value of total debt 0.6

Sales/Total assets 0.99

The Altman Z-score is a way of determining the solvency of the company

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Methodology

We began by dividing our universe of stocks into four regions: US, Continental Europe, UK and Asia (including Japan). We also removed financial stocks and companies with a listed history of less than 3 years. The financial sector is ignored because banks apply significant financial leverage to their liabilities. We have removed stocks with a listed history of less than 3 years due to the screening criteria we use subsequently.

We then filtered stocks above a market capitalization of US$500mn and with a 3 month average turnover above US$2mn in each of the regions. We recognize that a blanket approach to global dividend investing is not appropriate since many individual markets have varied policies towards dividend payments (see Appendix 2 for dividend schedule of individual markets). Furthermore, we provide a reference for investors who wish to acquire dividend streams in exchange rates that are cheap or expensive based on the countries’ REER (see Appendix 2). At a time when exchange rates are fluctuating far more rapidly given the carry trade and changes in interest rates, investors can own a number of sustainable high yielding stocks in cheap exchange rates to enhance performance. Secondly, we screened for stocks with a decent yield spread above their local government bonds and at least with a dividend yield of 2% and a dividend cover close to 2x (26 July, 2013).This is our main valuation criteria.

Lastly, we screen the remaining stocks on the basis of 3 criteria. We look at the company’s sustainable growth rate. Essentially, this is the maximum growth rate that a firm can sustain without having to increase its financial leverage. There are a number of ways to calculate this but we have simply used ROE x (1 - dividend-payout ratio). We use a 3 year history to smooth the result. Companies expected to achieve above 8%. Then, we use the Piotroski F-score (see Appendix 3 for the criteria) to judge the healthiness of the balance sheet and cash-flows. The Piotroski F-score measures the financial health of a company based on nine variables from a company’s financial statements. One point is achieved for each variable that passes the test. A stock scoring eight or nine points is regarded as being the strongest. We have been very strict that companies had high profitability and did not issue new shares (<2% to take account of employee stock options). Finally we examine the stock based on a solvency test. This is our test of accounting comfort. We use the Altman Z score (see Appendix 4) which uses 5 common business ratios weighted by coefficients that were derived by observing firms that went into bankruptcy within 2 years. There is some overlap between the Piotroski F-score and Altman but we have paid particular attention to balance sheet health in selecting stocks.

Each quarter, we retest the existing stocks using the above criteria. Aside from the dividend yield versus local bond yield we do not use any other pure financial valuation measure. We also run the screens all over again for each region to establish whether there are any more suitable stocks for inclusion. Our methodology allows a transparent process for stocks to be added or deleted.

In conclusion, we believe we have created a method of acquiring income paying stocks which takes into account balance sheet strength and the sustainability of payouts.

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Analyst Certification:

I, Kenneth Chan, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report.

I, Sean Darby, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report.

Registration of non-US analysts: Kenneth Chan is employed by Jefferies Hong Kong Limited, a non-US affiliate of Jefferies LLC and is not registered/ qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, and therefore may not be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst.

Registration of non-US analysts: Sean Darby is employed by Jefferies Hong Kong Limited, a non-US affiliate of Jefferies LLC and is not registered/ qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, and therefore may not be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst.

As is the case with all Jefferies employees, the analyst(s) responsible for the coverage of the financial instruments discussed in this report receives compensation based in part on the overall performance of the firm, including investment banking income. We seek to update our research as appropriate, but various regulations may prevent us from doing so. Aside from certain industry reports published on a periodic basis, the large majority of reports are published at irregular intervals as appropriate in the analyst's judgement.

Company Specific Disclosures

For Important Disclosure information on companies recommended in this report, please visit our website at https://javatar.bluematrix.com/sellside/ Disclosures.action or call 212.284.2300.

Explanation of Jefferies Ratings

Buy - Describes securities that we expect to provide a total return (price appreciation plus yield) of 15% or more within a 12-month period.

Hold - Describes securities that we expect to provide a total return (price appreciation plus yield) of plus 15% or minus 10% within a 12-month period. Underperform - Describes securities that we expect to provide a total return (price appreciation plus yield) of minus 10% or less within a 12-month period.

The expected total return (price appreciation plus yield) for Buy rated securities with an average security price consistently below $10 is 20% or more within a 12-month period as these companies are typically more volatile than the overall stock market. For Hold rated securities with an average security price consistently below $10, the expected total return (price appreciation plus yield) is plus or minus 20% within a 12-month period. For Underperform rated securities with an average security price consistently below $10, the expected total return (price appreciation plus yield) is minus 20% or less within a 12-month period.

NR - The investment rating and price target have been temporarily suspended. Such suspensions are in compliance with applicable regulations and/ or Jefferies policies.

CS - Coverage Suspended. Jefferies has suspended coverage of this company. NC - Not covered. Jefferies does not cover this company.

Restricted - Describes issuers where, in conjunction with Jefferies engagement in certain transactions, company policy or applicable securities regulations prohibit certain types of communications, including investment recommendations.

Monitor - Describes securities whose company fundamentals and financials are being monitored, and for which no financial projections or opinions on the investment merits of the company are provided.

Valuation Methodology

Jefferies' methodology for assigning ratings may include the following: market capitalization, maturity, growth/value, volatility and expected total return over the next 12 months. The price targets are based on several methodologies, which may include, but are not restricted to, analyses of market risk, growth rate, revenue stream, discounted cash flow (DCF), EBITDA, EPS, cash flow (CF), free cash flow (FCF), EV/EBITDA, P/E, PE/growth, P/CF, P/FCF, premium (discount)/average group EV/EBITDA, premium (discount)/average group P/E, sum of the parts, net asset value, dividend returns, and return on equity (ROE) over the next 12 months.

Jefferies Franchise Picks

Jefferies Franchise Picks include stock selections from among the best stock ideas from our equity analysts over a 12 month period. Stock selection is based on fundamental analysis and may take into account other factors such as analyst conviction, differentiated analysis, a favorable risk/reward ratio and investment themes that Jefferies analysts are recommending. Jefferies Franchise Picks will include only Buy rated stocks and the number can vary depending on analyst recommendations for inclusion. Stocks will be added as new opportunities arise and removed when the reason for inclusion changes, the stock has met its desired return, if it is no longer rated Buy and/or if it triggers a stop loss. Stocks having 120 day volatility in the bottom quartile of S&P stocks will continue to have a 15% stop loss, and the remainder will have a 20% stop. Franchise Picks are not intended to represent a recommended portfolio of stocks and is not sector based, but we may note where we believe a Pick falls within an investment style such as growth or value.

Risks which may impede the achievement of our Price Target

This report was prepared for general circulation and does not provide investment recommendations specific to individual investors. As such, the financial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Past performance of the financial instruments recommended in this report should not be taken as an indication or guarantee of future results. The price, value of, and

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income from, any of the financial instruments mentioned in this report can rise as well as fall and may be affected by changes in economic, financial and political factors. If a financial instrument is denominated in a currency other than the investor's home currency, a change in exchange rates may adversely affect the price of, value of, or income derived from the financial instrument described in this report. In addition, investors in securities such as ADRs, whose values are affected by the currency of the underlying security, effectively assume currency risk.

Other Companies Mentioned in This Report

• 3M (MMM: $155.76, BUY)

• Anhui Conch Cement Co. (914 HK: HK$25.05, BUY) • Atkins (WS) plc (ATK LN: p1,550.00, HOLD)

• Belle International (1880 HK: HK$8.46, UNDERPERFORM) • Best Buy Company, Inc. (BBY: $32.73, BUY)

• BHP Billiton (BLT LN: p1,251.50, HOLD)

• BHP Billiton Limited (BHP AU: AUD26.82, HOLD)

• Biostime International Holdings (1112 HK: HK$22.05, BUY) • Bodycote plc (BOY LN: p674.00, BUY)

• Bridgestone (5108 JP: ¥4,597, BUY)

• Chow Tai Fook Jewellery Co. Ltd (1929 HK: HK$8.05, BUY) • Croda International plc (CRDA LN: p2,951.00, HOLD) • Cummins Inc. (CMI: $128.62, HOLD)

• Deutsche Post AG (DPW GR: €28.41, HOLD) • Dr Pepper Snapple Group, Inc. (DPS: $78.78, HOLD) • easyJet plc (EZJ LN: p1,666.00, BUY)

• Elementis PLC (ELM LN: p259.00, HOLD) • Helmerich & Payne Inc. (HP: $59.27, HOLD) • Hino Motors (7205 JP: ¥1,420, HOLD) • IMI plc (IMI LN: p1,115.00, BUY) • Intel Corporation (INTC: $28.72, BUY)

• Johnson Matthey Plc (JMAT LN: p3,012.00, BUY) • KLA-Tencor Corporation (KLAC: $51.82, HOLD) • Kohl's Corporation (KSS: $62.06, BUY)

• LyondellBasell Industries N.V. (LYB: $96.06, HOLD) • National Oilwell Varco, Inc. (NOV: $43.43, HOLD) • Packaging Corp of America (PKG: $65.48, BUY) • Raytheon Company (RTN: $97.85, BUY) • Rotork plc (ROR LN: p215.00, HOLD)

• SAIC Motor Corporation - A (600104 CH: CNY21.92, HOLD) • Seagate (STX: $48.11, BUY)

• Target Corp. (TGT: $82.28, HOLD)

• The Restaurant Group (RTN LN: p666.50, HOLD) • Victrex PLC (VCT LN: p1,950.00, HOLD) • Wal-Mart Stores, Inc. (WMT: $72.74, HOLD) • William Hill Plc (WMH LN: p401.40, HOLD) • Xilinx Corp (XLNX: $41.65, HOLD)

Distribution of Ratings

IB Serv./Past 12 Mos.

Rating Count Percent Count Percent

BUY 1107 53.12% 309 27.91%

HOLD 823 39.49% 161 19.56%

UNDERPERFORM 154 7.39% 13 8.44%

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