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Capital markets performance • Milos Vukovic, MBA, CFA Equity Markets: Total Return 3 months (%) YTD (%) GLOBAL Periods ending mAY 31, 2012 USD 1 year (%) 3 years (%) 5 years (%) 3 months (%) MSCI World* (8.51) 0.78 (11.02) 8.99 (4.07) (3.79) (4.87) 6.96 MSCI EAFE* (13.62) (3.79) (20.48) 3.40 (7.34) (9.16) (14.99) 1.48 MSCI Europe* (14.77) (5.13) (24.10) 2.94 (8.38) (10.37) (18.86) 1.02 MSCI Pacific* (11.57) (1.32) (12.98) 4.48 (5.07) (7.00) (6.97) 2.54 MSCI UK* (11.40) (3.50) (13.49) 8.57 (5.60) (6.83) (7.51) 6.56 MSCI France* (17.19) (6.42) (32.29) (2.64) (11.07) (12.91) (27.61) (4.45) MSCI Germany* (15.69) 1.04 (26.10) 2.96 (7.56) (11.34) (20.99) 1.04 MSCI Japan* (10.66) (1.90) (10.47) 0.74 (7.49) (6.04) (4.28) (1.13) MSCI Emerging Markets* (15.20) 0.08 (20.31) 7.91 0.07 (10.82) (14.81) 5.90 Sector: Total Return 3 months (%) YTD (%) GLOBAL EQUITY SECTORS Periods ending mAY 31, 2012 USD 1 year (%) 3 years (%) 5 years (%) 3 months (%) Energy (16.40) (9.45) (18.38) 4.47 (1.95) (12.08) (12.74) 2.53 Materials (17.20) (5.51) (26.06) 5.45 (3.80) (12.92) (20.95) 3.49 Industrials (9.76) 0.73 (13.83) 11.85 (3.80) (5.10) (7.88) 9.77 Consumer Discretionary (5.51) 7.81 (3.45) 16.77 (1.31) (0.63) 3.23 14.60 Consumer Staples (1.09) 2.49 0.99 15.21 4.79 4.01 7.97 13.07 Health Care (1.89) 2.39 (2.46) 12.26 0.85 3.18 4.28 10.17 Financials (11.82) 1.73 (20.41) 1.48 (14.75) (7.27) (14.91) (0.40) Information Technology (6.55) 7.11 1.00 14.19 1.02 (1.72) 7.98 12.06 Telecommunication Services (3.27) (2.62) (9.92) 9.22 (2.55) 1.73 (3.69) 7.19 Utilities (4.83) (3.97) (9.41) 1.76 (5.75) 0.08 (3.15) (0.13) CAD 1 year (%) CAD 1 year (%) 3 years (%) 3 years (%) SAMPLE * Net of Taxes Note: all rates of return presented for periods longer than 1 year are annualized Source: Bloomberg/MSCI The global investment outlook RBC INVESTMENT Strategy coMMITTEE Summer 2012 I 10
Global Investment Outlook Eric Lascelles Chief Economist RBC Global Asset Management Inc. Summer washout The global economy is locked in a curious seasonal rhythm, surging each winter and early spring before petering out in the summer and fall. Alas, right on schedule, it is again showing signs of distress as the mercury rises. A promising winter is once more melting into a summer washout. Economic data is weakening, global risks are growing, and market confidence is faltering. These grim comments need to be put into context. Conditions aren’t all bad. Recession remains unlikely outside of Europe. Long-standing American economic dysfunctions are beginning to heal. While enormous risks abound and should not be idly discounted, we do not ultimately expect most of them to transpire. Should these risks eventually be swept aside, past experience demonstrates that markets can perform decently even if underlying economic growth is merely sluggish. Downward data trend Global economic data has ceased to cook up the saccharine confections that so enamoured markets in early 2012. Instead, economic releases have soured, disappointing markets (Exhibit 1). This transformation has been underway for several months, and there is little evidence it is about to reverse. In the past, these patterns have normally taken the better part of six months to completely unfurl, suggesting at least several months of further deterioration. Daniel E. Chornous, CFA Chief Investment Officer RBC Global Asset Management Inc. EXHIBIT 1. Index, 1 Std Dev=100 Manufacturing PMI 80 60 40 20 0 -20 -40 -60 -80 Global Economic Surprises Turn Negative G10 EM Negative Surprises John Richards Investment Strategy Research Analyst RBC Global Asset Management Inc. Positive Surprises Jun-10 Oct-10 Feb-11 Jun-11 Oct-11 Feb-12 Jun-12 Source: Citigroup Alpha Surprise Index, RBC GAM EXHIBIT 2. 65 60 55 50 45 40 35 30 Downshifting Data Contraction U.S. Euro Area China Expansion SAMPLE 2006 2007 2008 2009 2010 2011 2012 Note: PMI refers to Puchasing Managers Indices, proxies for economic activity. Source: Haver Analytics. RBC GAM The extent of the economic downshifting varies by country but spans the bulk of economic indicators and nations (Exhibit 2). This decline is the product of several malign influences. First, warm weather artificially boosted winter activity in North America (Exhibit 3), rendering economic growth in the spring and summer comparatively underwhelming. Second, seasonal factors may have been modestly distorted by the financial crisis, consequently overstating the extent of winter good cheer. Third, commodity prices, and oil in particular, surged again over The global investment outlook RBC INVESTMENT Strategy coMMITTEE Summer 2012 I 11
Page 1 and 2: The Global Investment Outlook RBC I
Page 3 and 4: Contents Executive Summary 2 The Gl
Page 5 and 6: Executive summary • Sarah Riopell
Page 7 and 8: Recommended Asset Mix Asset mix - t
Page 9 and 10: Recommended Asset Mix Balanced Asse
Page 11: Capital markets performance • Mil
Page 15 and 16: Global Investment Outlook • Eric
Page 37 and 38: Global Fixed income markets • Soo
Page 45 and 46: Currency Markets Dagmara Fijalkowsk
Page 47 and 48: Currency markets • Dagmara Fijalk
Page 57 and 58: Regional outlook - U.S. • Ray Maw
Page 59 and 60: Regional outlook - CANADA • Stuar
Page 61 and 62: Regional outlook - Europe • Domin
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Regional outlook - Asia • Yoji Ta
Page 65 and 66:
Regional outlook - emerging markets
Page 67 and 68:
Eric Lascelles Chief Economist RBC
Page 69 and 70:
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