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EQUITY MARKET COMMENTARY Investment Outlook - Currency Wars: The Force Awakens As we close in on the end of the calendar year, there appears to be no shortage of macroeconomic events influencing investor sentiment and potentially impeding a Santa Claus rally. From climate change summits to isolated terror attacks, an OPEC meeting in Vienna, multinational refugee policy revisions, and the inclusion of the Chinese Yuan in the International Monetary Fund's (“IMF's”) reserve currency basket, there are plenty of currents colliding to virtually ensure that markets do not enjoy smooth sailing into year-end. Ever since the fallout of the global credit crisis, central bank actions have dominated the narrative for capital markets. Most recently, we have witnessed additional accommodative actions from the European Central Bank (the “ECB”) that disappointed markets as market participants had

expected more than a 10 basis-point reduction on deposits to -0.3% as announced. This is over and above the extension of its existing monthly bond purchasing program through March 2017. Currency devaluation has been a popular choice among nations to stimulate their money circulation once again and jump-start their economies back into growth-mode. A common measure of the economic health of a country is its Purchasing Manufacturer's Index (“PMI”). A higher value is viewed as better, and a value above 50 indicates positive economic growth. The PMI measures for continental European countries have been improving significantly over the past two years - this is aided by the relative attractiveness of the Euro against other world currencies. We expect the ECB to keep its foot planted on the gas delivering further quantitative easing (“QE”) to ensure its markets find their way back to self-sustaining growth. Consequently, we believe that the tailwinds in Europe outweigh the economic challenges into the coming year. Buy Europe.

© Jon Pear Is the Forecasting Stone the newest market predictor? We think not because as a Scottish weather indicator it has historically been late in predicting the future. It is however a perfect tool to bring some levity to our current market message.

FORECASTING READING FOR DECEMBER: Swinging Stone – WINDY

Headwinds are not limited to aggressive global commodity market apocalypse. Three important investment catalysts to consider: 1 Lack of traction for global inflation growth, particularly the US, who has near-full employment (5%), yet an employment participation rate of 62.5% (too many workers not looking for work), still below historical average (63%). 2 The US high-yield market may be forecasting an economic downtown. 3 Concerns about earning reports consistently showing no top-line growth while bottom-line earnings are manipulated by share buybacks and lack of capex activity. On the employment front the auto industry provides employment risk while currently operating at near-full capacity. Subprime auto loans bottomed in 2009 and now represent 25% of sales. Default rate is higher at 3.3%. Loan term has

extended from four years (1990) to seven years (2015). Lenders have relaxed their standards, yet the experts say don’t worry. While we agree loan risk is low, maintaining this level of auto sales is at risk, thus the market will correct via lower car sales. Auto manufacturers having declining sales will result in employee layoffs, due to declining production. We believe the best call to action is a prudent reduction in exposure to the Auto sector. Even adjusted for the high-yield (“HY”) Energy debt (we are surprised how energy has become the catalyst for the collapse of HY bond prices), this year the HY bond market is down 2% including interest income. Since 1995, HY bonds have only had four annual negative returns on a total return basis. Bond default rates have increased from 2.1% to 2.6% year-over-year with the expected 2016 default rate to be 4.6%. Perhaps the Federal Reserve’s (the “Fed’s”) commitment to low rates and a credit bull market is nearing the end. The HY market is forecasting a slower growth US economy and reconfirms our position that it is a stock-picker’s market and one should now be picking away.

MONTHLY FORECASTING STONE COMMENTARY

NOVEMBER 30, 2015

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It has been long understood that China is in transition to becoming a developed economy and this metamorphosis involves an evolution from an industrial economy to a service economy. This transition isn’t without growing pains and to help placate them, the People's Bank of China (the “PBOC”) has joined other nations to implement stimulative measures as well to reduce its reserve ratios at its largest lending institutions and to devalue its currency. Starting in late 2016, the Yuan will make up about 11% of the basket that defines the value of IMF’s special drawing rights, a type of reserve asset that makes up a small but symbolic portion of overall currency reserves. The basket determines the currency mix that countries receive when the IMF disburses financial aid. The decision to include the Yuan is expected to increase demand for the currency and therefore the remaining currencies in the basket will be losing some of their share, notably the euro and the pound sterling, inferring both currencies are poised for modest devaluations. While economic growth transparency is less than perfect in China, it is clear that the social and monetary policies are accommodative to ensure economic growth meets their predefined targets. Domestically, our currency has also languished relative to the USD and while this has helped resuscitate Canada's manufacturing industry, the demise of the oil patch clouds the prospect for meaningful growth. For next year, we generously target Canadian GDP growth to be between 1.0-1.5%, considerably lower than our neighbours to the south. Unfortunately, Canada has few bargaining chips in terms of shaping the supply and demand dynamic despite the fact that we are one of the biggest suppliers to the world for key inputs such as oil, potash, copper, nickel and uranium. Having a narrow customer base for our exports and thereby remaining at the mercy of industry cartels for pricing of our resources, leaves the prospects for Canada in the coming year somewhat limited. We do however believe that we are closer to the bottom in the context of the slide in all things energy-related. While companies in the oil patch make the necessary arrangements to endure the current pricing environment, the ones with the healthiest balance sheets and most efficient operating metrics will emerge as the clear beneficiaries as the industry experiences its cleanse. For the upcoming year, buy those energy businesses that are well capitalized, demonstrate low operating costs with disciplined management teams and that derive a significant portion of their revenues from oil and international production. With the intention of leaving on a high note, let's address the US in the context of the global currency war that is playing out. Clearly, the US has first-mover advantage with respect to implementing (and removing) QE measures and is now contemplating the path back to normalized interest rates. The Fed has said for quite a while that their decision on interest rates will be data dependent and lately the data with respect to employment has been encouraging. So what does this

mean for the US economy? The US can boast perhaps one of the healthiest economic prospects for the coming year, but it does not mean that all is perfect. Far from it, holiday credit card data shows that consumer spending was down 1.2% year-over-year and the November ISM data showed economic contraction coming at 48.6. Rail volumes have been accelerating to the downside (and not just in metals and coal, but also in intermodal and lumber) indicating a slowing of demand. Given there exists a tight correlation between GDP growth and rail volumes, we see the US as one of the best economic contributors for 2016. But we are careful not to get overexcited. It’s a stock picker’s market in the US. If 2015 was the year to expect the unexpected, 2016 is positioning itself to be the 'show-me' year where the economy will need to prove its ability to stand on its own two feet. Perhaps some ongoing physiotherapy is well advised. COMMODITY COMMENTARY More Supply Hitting the Iron Ore Market The risk of a China slowdown, coupled with excess supply, is having a negative impact on commodity prices and this has filtered down to the most basic of materials, iron ore. After hitting $180/T in 2013, the iron ore price has been falling steadily and in 2015 it was one of the worst-performing big commodities dropping 44% to $40/T. The concern comes from the risk that China’s economy will continue to slow down from its past 10% GDP level to the current sub 7% level and continue lower. China continues to be the largest producer of steel and as a result buys about 2/3 of the world’s seaborne iron ore. Steel demand growth has been stagnant and this has contributed to the weakness in iron ore prices. The biggest concern for the iron ore price continues to be on the supply side. The recent high prices in 2010-2013 have attracted billions of spending on new and bigger iron ore mines (and expansions) around the world. This over-investment has resulted in numerous projects being built and excess production. The $11B Roy Hill project in Australia is one of the largest mines to recently come on production at the worst possible time. It will produce 55MT/year of iron ore, or 4% of the total market. BHP, Rio Tinto and Vale have also increased production in order to lower their unit cost and coupled with the depreciating Aussie and Brazilian currencies, this has also helped lower unit production costs even further. Longer term, we believe that the global infrastructure build is still on track albeit at a slower growth rate and should result in higher demand for commodities. We have a long-term positive outlook on the space. However, we believe there will be more short-term pain as the weak global demand, coupled with the oversupply in the market, will have to play itself out and keeps us on the sideline.

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MARKET OVERVIEW SUMMARY It was a good month for markets around the world, save for those in Europe as the region continues to show signs of struggle without additional stimulus. The S&P/TSX Composite Index gained 2.0% and the S&P 500 posted another gain of 2.5% in US dollar terms. The US greenback gained another 2.2% back from its neighbour to the north, and is up 15% versus the Loonie this year. The best-performing market from October was the worst-performing index in November and was replaced by a long-time European safe haven. GLOBAL MARKET SUMMARY

It was a mixed month for the TSX overall as half the sectors were up and the other half down. The large move in Energy was abated this month finishing as the worst-performing sector on the TSX down 3.7%. It was a much better month for Health Care as it stopped the downward slide, closing up 1.5% after losing nearly half its value last month. Information Technology, the almost-forgotten sector on the TSX, was up 7.6% over the month helped by strong performance from CGI Group and Descartes. Happy holidays and successful investing in 2016. Stone Asset Management Limited, November 30, 2015

Market Return (%)* Canada (S&P/TSX) (0.2) US (S&P) 2.5 MSCI (World) 1.6 Best (Switzerland) 7.1 Worst (India) (1.8) * All in Canadian Dollar terms

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