View Sample PDF - RBC Direct Investing

More documents

Recommendations

Info

Regional Outlook – U.S. Ray Mawhinney Senior V.P. & Senior Portfolio Manager RBC Global Asset Management Inc. U.S. markets were under significant pressure during May after moving sideways through the first two months of the quarter. For the three-month period as a whole, the S&P 500 fell about 5%, though it is still up significantly from the early-October lows. Investor sentiment has turned decidedly negative after the surprising results of the Greek election, a continuing slowdown in economic activity in China and other emerging economies, and widespread economic weakness in the Eurozone. While U.S economic data has been relatively decent over the period, the probability of Greece giving up the euro has increased dramatically and, as a result, global stock markets have moved down to reflect the rising odds of defaults and a breakdown of the Eurozone. At the moment, the main fear driving markets is that, with global growth slowing, a credit event in Europe could push the world into a recession much like the one experienced after the bankruptcy of Lehman Brothers in 2008. Given these fears, sectors most tied to global growth, such as Materials, Industrials and Energy, have underperformed significantly relative to domestically linked sectors with relatively stable cash flows, such as Utilities, Telecommunication Services, Consumer Staples and Health Care. In the Financials sector, shares of global U.S. banks have faltered lately, but for the sector as a whole, capital levels are good, loan growth is picking up and dividends have been reinstated or raised. In the Information Technology sector, the build-out of the mobile United States Recommended Sector Weights RBC Investment Strategy Committee May 2012 Benchmark S&P 500 May 2012 Energy 10.0% 10.9% Materials 3.3% 3.4% Industrials 10.5% 10.5% Consumer Discretionary 12.5% 11.3% Consumer Staples 12.5% 11.4% Health Care 12.0% 11.8% Financials 14.0% 14.2% Information Technology 21.2% 19.7% Telecommunication Services 2.0% 3.1% Utilities 2.0% 3.7% Source: RBC GAM 3311 2026 1240 759 464 284 174 106 65 Brad Willock, CFA V.P. & Senior Portfolio Manager RBC Global Asset Management Inc. Jun. '12 Range: 1154 - 1938 (Mid: 1546) Jun. '13 Range: 1302 - 2186 (Mid: 1744) Current (01-June-12): 1278 40 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: RBC GAM Internet, strong demand for consumer devices such as smartphones, tablets and ultrabooks, and the expansion of data centres are combining to drive solid top-line growth, and profit margins are at all-time highs. The macroeconomic environment remains challenging. China, the main engine of global growth over the past S&P 500 Equilibrium Normalized Earnings and Valuations SAMPLE decade, is slowing significantly in part due to the weakness of its largest export customer, Europe, and also because it spent all of last year raising interest rates to fight inflation. Now, with growth and inflation slowing, China and other leading emerging economies such as Brazil and India have started cutting interest rates, 54 I The global investment outlook RBC INVESTMENT Strategy coMMITTEE Summer 2012
Regional outlook – U.S. • Ray Mawhinney • Brad Willock, CFA which should help stimulate their economies during the second half of this year. In the near term, the prospect of a Greek exit from the Eurozone will likely keep markets from making too much progress. In the medium term, U.S. markets will be influenced by the presidential elections scheduled for November and the expiration of tax cuts and other stimulus measures on January 1, 2013. This so-called fiscal cliff could hurt gross domestic product to the tune of 3% to 4% if all items are allowed to expire. We anticipate significant anxiety surrounding this issue, but believe that the fiscal drag will ultimately amount to 1% to 2% of GDP. We are positioned defensively, but intend to take advantage of any market weakness over the next few quarters to increase our exposure to economically sensitive companies that exhibit solid profitability and good prospects for long-term dividend growth. The tone of recent U.S. economic data has been much better, as employment, housing and consumer spending are all showing signs of improvement. In terms of the job market, unemployment claims remain in a downtrend and surveys indicate that companies are planning to boost hiring. In the housing market, the improvement is even more broad-based and impressive, as the number of homes for sale has returned to pre-crisis levels and the median asking price is rising thanks to record affordability. Rents are increasing at a 10% clip in many regions and, combined with record-low mortgage rates and the drop in home prices, investors and first-time homeowners have stepped back into the market. Given that the employment and housing markets are healing, the U.S. consumer is again starting to contribute to economic growth. Consumer confidence is at cycle highs, credit is expanding and household formation is finally on the upswing after 6 ½ years of a flat or declining trend. While the improvement in household formation is not great, the trend appears to be selfsustaining enough to have encouraged 1 million people to get out of their parents’ basement and into their own place. It’s about time! Despite the gyrations in the macroeconomy, corporate fundamentals remain in good shape. Stocks are attractive in valuation terms. They trade at a roughly 5% trailing freecash-flow yield and 12 times this year’s estimated earnings. Interestingly, more than 50% of the stocks in the S&P 500 index sport dividend yields greater than the yield on the 10-year Treasury bond. The only other time that this happened was in March 2009 - near the market low. While this seems worth exploiting, the real attraction of the stock market lies in the fact that the payout ratio is at an all-time low, while cash levels and profitability are at alltime highs. The potential for companies to raise dividends meaningfully over time is extraordinary. While the focus of the media and most investors is on near-term political events in Europe, there are many exciting long-term developments occurring in the U.S. The energy industry is undergoing a supply revolution, as it harnesses new technologies that will lay the groundwork for growing surpluses in crude oil, natural-gas liquids and natural gas. This has profound implications for employment, economic growth, the trade deficit, the U.S. dollar and energy security. In particular, U.S. manufacturing is enjoying a renaissance due to this new energy-cost advantage, relatively high productivity growth and subdued labour-cost growth. In China, manufacturing wages have been rising at a 20%-plus rate over the past several years. Add in China’s strengthening currency and higher shipping costs, and it is no longer a clear-cut decision to move manufacturing across the Pacific Ocean. In fact, dozens of companies have announced plans to bring capacity back to the U.S. A road to a more energy-secure U.S. will take years to play out and policymakers could always derail the momentum, but the potential is huge and needs to be part of investors’ analytical framework. SAMPLE The global investment outlook RBC INVESTMENT Strategy coMMITTEE Summer 2012 I 55
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 and 12: Capital markets performance • Mil
Page 13 and 14: Global Investment Outlook Eric Lasc
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 55: Currency markets • Dagmara Fijalk
Page 59 and 60: Regional outlook - CANADA • Stuar
Page 61 and 62: Regional outlook - Europe • Domin
Page 63 and 64: 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: This report has been provided by RB
show all

View Sample PDF - RBC Direct Investing

Create successful ePaper yourself

Delete template?

Save as template?