Global Roundup - RBC Wealth Management

DECEMBER 14, 2012
RBC Wealth
Management
Global Insight Weekly
» China’s equity market stole the limelight again. The Shanghai Composite has
rallied 9.7% since the early December low.
» RBC Wealth Management’s strategy team has compiled a special edition of
Global Insight, which discusses our 2013 outlook and key themes. (pages 2-3)
» The EU signed a historic banking agreement. Is this a game changer? (page 4)
Global Insight – 2013 Outlook Now Available
With input from colleagues across RBC’s global platform, the Global Insight 2013 Outlook report includes the following
articles:
• Here We Go Again – Our proclamations from 2012, and an overview of our predictions for 2013.
• 2013 Outlook - The investment focus pivots toward the U.S.; economic activity accelerates in the second half of the
year; and stocks deliver worthwhile returns and outperform bonds.
• Europe - For all of the debate about the region’s crisis, Europe Inc. is not eurozone GDP.
• Emerging Markets - We’re guardedly optimistic about EM equities for 2013.
• Shale Oil - What does the shale revolution mean for North America and global oil prices?
• Fixed Income - The best offense is to play defense in 2013.
• Gold - The long-term uptrend in gold prices has further to go, but what about gold equities?
Equity Scorecard – December 14, 2012
Index (local currency) Level 1 week MTD YTD
S&P 500 1,413.58 -0.3% -0.2% 12.4%
S&P/TSX Comp 12,296.72 1.1% 0.5% 2.9%
FTSE All Share 3,098.41 0.2% 1.1% 8.4%
Hang Seng 22,605.98 1.9% 2.6% 22.6%
Dow (DJIA) 13,135.01 -0.2% 0.8% 7.5%
NASDAQ 2,971.34 -0.2% -1.3% 14.1%
Russell 2000 823.75 0.2% 0.2% 11.2%
STOXX Europe 600 279.40 0.1% 1.3% 14.3%
German DAX 7,596.47 1.0% 2.6% 28.8%
Nikkei 225 9,737.56 2.2% 3.1% 15.2%
Straits Times 3,168.43 2.0% 3.2% 19.7%
Shanghai Comp 2,150.63 4.3% 8.6% -2.2%
Brazil Bovespa 59,604.92 1.9% 3.7% 5.0%
Note: Equity returns do not include dividends.
Author
Kelly Bogdanov – San Francisco, United States
kelly.bogdanov@rbc.com; RBC Capital Markets, LLC
Contributors
Adrian Brown & Lucy So – Toronto, Canada
adrian.brown@rbc.com, lucy.so@rbc.com; RBC Dominion Securities Inc.
Frédérique Carrier – London, United Kingdom
frederique.carrier@rbc.com; Royal Bank of Canada Investment Management (UK) Ltd.
Jeff Musial & Jay Roberts – Hong Kong, China
jeff.musial@rbc.com, jay.roberts@rbc.com; RBC Dominion Securities Inc.
All values in U.S. dollars unless otherwise noted.
Priced as of December 14, 2012, market close
(unless otherwise stated).
For Important Disclosures, see pages 5-6.

Market Scorecard – December 14, 2012
Govt Bonds (bps chg) Yield 1 week MTD YTD
US 2-Yr Tsy 0.234% -0.4 -1.2 -0.5
US 10-Yr Tsy 1.702% 8.1 8.7 -17.4
Canada 2-Yr 1.127% 6.1 5.9 17.1
Canada 10-Yr 1.791% 8.1 9.1 -15.0
UK 2-Yr 0.326% 7.2 1.1 -0.1
UK 10-Yr 1.862% 11.9 8.7 -11.5
Germany 2-Yr -0.043% 3.4 -5.3 -18.7
Germany 10-Yr 1.348% 5.3 -3.8 -48.1
Commodities (USD) Price 1 week MTD YTD
Gold (spot $/oz) 1,695.30 -0.5% -1.1% 8.4%
Silver (spot $/oz) 32.24 -2.5% -3.5% 15.8%
Copper ($/ton) 8,052.00 0.5% 0.9% 6.1%
Oil (WTI spot/bbl) 86.73 0.9% -2.5% -12.2%
Oil (Brent spot/bbl) 111.70 3.1% -1.2% 2.8%
Natural Gas ($/mlnBtu) 3.15 -5.6% -9.1% 5.5%
Agriculture Index 462.39 -3.0% -3.4% 6.5%
Currencies Rate 1 week MTD YTD
US Dollar Index 79.58 -1.0% -0.7% -0.7%
CAD/USD 1.01 0.2% 0.8% 3.6%
USD/CAD 0.99 -0.2% -0.8% -3.5%
EUR/USD 1.32 1.8% 1.4% 1.6%
GBP/USD 1.62 0.8% 0.9% 4.0%
AUD/USD 1.06 0.7% 1.3% 3.5%
USD/CHF 0.92 -1.8% -1.1% -2.1%
USD/JPY 83.48 1.2% 1.2% 8.5%
EUR/JPY 109.88 3.0% 2.6% 10.3%
EUR/GBP 0.81 1.0% 0.4% -2.3%
EUR/CHF 1.21 0.0% 0.2% -0.7%
USD/SGD 1.22 -0.1% 0.0% -5.9%
USD/CNY 6.25 0.3% 0.3% -0.8%
USD/BRL 2.09 0.5% -2.3% 11.7%
Source: Bloomberg. Note: Bond yields in local currencies. Copper and Agriculture
Index data as of Thursday’s close. Dollar Index measures USD vs. six major
currencies. Currency rates refl ect market convention (CAD/USD is the exception).
Currency returns quoted in terms of the fi rst currency in each pairing.
Data as of 9:31 pm GMT 12/14/12.
Examples of how to interpret currency data: CAD/USD 1.01 means 1 Canadian
dollar will buy 1.01 U.S. dollars. CAD/USD 3.6% return means the Canadian dollar
rose 3.6% vs. the U.S. dollar year to date. USD/JPY 83.48 means 1 U.S.
dollar will buy 83.48 yen. USD/JPY 8.5% return means the U.S. dollar rose 8.5%
vs. the yen year to date.
Markets & the Economy
Equity liquidity is drying up across regions as
more and more market participants take a break
for the holidays. As additional portfolio managers
go on vacation over the next two weeks, we expect
equity volatility to increase, just like it normally
does at the end of each year.
One market has already experienced heightened
volatility recently, but not because of the calendar.
For the second-straight week China’s Shanghai
Composite Index led major stock markets—only
this time it surged 4.3% on Friday. While improved
manufacturing data helped boost the Shanghai
Composite, other factors also played a role (see
page 4).
The Shanghai rally took a number of North
American and European cyclical stocks along
with it, specifi cally steel, infrastructure, and
mining equipment companies with exposure
to China. The Materials sector was the bestperforming
S&P 500 sector for the week, rising
1.6%.
In the U.S., once again there was little progress in
resolving fi scal cliff provisions, yet the market gave
Washington more breathing room, closing only
slightly lower for the week.
Federal Reserve Chairman Ben Bernanke
surprised analysts by moving away from setting
a time frame on the zero interest rate policy and
announced specifi c economic measures that will
help drive interest rate decisions (see page 3).
More importantly, European Union fi nance
ministers signed a deal to give the European
Central Bank (ECB) supervisory powers over
the region’s banks. Yet again, as often has been
the case in the development of the eurozone
crisis, this agreement is a positive step in the right
direction, though it does not solve the issue. Key
points have been left unaddressed (see page 4 for
analysis).
Special Report: 2013 Outlook
RBC Wealth Management’s strategy team has
compiled a special edition of Global Insight, which
discusses our 2013 outlook in detail, as well as key
themes investors should consider.
RBC’s base-case forecast for 2013:
The investment focus pivots toward the U.S.
where economic activity accelerates in the
second half of the year. China’s economy
should gather momentum. These developments
would have positive implications for growth in
Canada, the U.K., and Europe.
Stocks deliver worthwhile returns
and outperform bonds. Valuations are
undemanding in most markets and cheap in
select Asia Pacifi c and European markets.
In fi xed income, defensive positioning is
our preferred strategy with an emphasis on
shorter maturities, favorably mispriced sectors,
selective credits, and ample liquidity.
20
18
16
14
U.S. GDP is Still Well Below Potential
While it should begin to catch up soon,
it would take strong growth to reach potential GDP by 2017.
Actual Projected
Implied
growth of
4.4% per
annum for
4 years
12
Recession
GDP
10
Potential GDP
2000 2005 2010 2015 2020
Source - RBC Wealth Management, Congressional Budget Offi ce (CBO),
National Bureau of Economic Research
Potential GDP is the CBO’s estimate of the output the economy would
produce with a high rate of use of its capital and labor resources.
1.0
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0
2 GLOBAL INSIGHT WEEKLY – DECEMBER 14, 2012

A great deal hinges on policy. The U.S. fi scal
cliff negotiations could conclude in a way that
produces more, not less, uncertainty. Separately,
there is a possibility European debt and banking
issues will fl are up again.
RBC’s Global Insight 2013 Outlook report
expands on our base-case forecast and
alternative scenarios. It also includes articles
about Europe, emerging market equities, the shale
oil revolution, gold, and a deep analysis of fi xed
income markets.
Following is a brief sampling of interesting
statistics and analyses in the report:
Global GDP could accelerate to 3.5% in real
terms in 2013 compared to just under 3% in
2012. Typically, such growth is consistent with
equity returns of 5%-10%.
Corporate revenue growth expectations seem
too cautious. 2013 consensus sales forecasts
of 3.5% in the U.S. and 2.6% in Europe are
well below the International Monetary Fund’s
4.9% global nominal GDP forecast (includes
infl ation). Normally, U.S. corporations tend
to grow sales at roughly 2% above the rate of
global nominal GDP growth.
Canada’s GDP growth is rarely more than a
fraction of a percent different from that of the
U.S. and is almost always headed in the same
direction. However, in recent years, the degree
to which it outperforms or underperforms the
U.S. has been increasingly explained by the
infl uence of Chinese growth on commodity
prices and shipments.
Europe Inc. is not eurozone GDP. Europe offers
a wealth of world-class, global companies that
generate a mere 50% of aggregate revenues in
Europe.
The dividend yield of the Continental
European market is an attractive 4%, the
second-highest of all regional markets after
Markets & the Economy
the United Kingdom. On a cyclically-adjusted
basis, the European price-to-earnings (P/E)
ratio is 38% below its 30-year average. It is also
at a 44% discount to the U.S. P/E ratio, the
widest gap over the same period.
2013 marks an important turning point for
emerging economies. According to IMF
estimates, it will be the fi rst year the total GDP
of emerging nations exceeds that of advanced
economies (see page 4 chart).
We believe the underperformance of emerging
market equities compared to developed market
stocks (particularly U.S. stocks) appears close
to an end.
In the global gold market, central banks
emerged as a new source of buying power in
2010 after two decades of being net sellers. As
a group, central banks grew to represent an
impressive 10% of all demand in 2011 and have
slightly exceeded this level so far in 2012. We
believe the long-term uptrend in gold prices
has further to run.
To access the Global Insight 2013 Outlook, please
contact your RBC advisor, private banker, or
relationship manager.
Gold Discovered (M oz)
As Gold Discoveries Declined, Gold Prices Surged
180
160
140
120
100
80
60
40
20
0
1990
1992
1994
1996
Gold Discovered
World Mine Production
Gold Price
1998
2000
2002
2004
2006
2008
Source - Metal Economics Group, RBC Dominion Securities
Note: Represents 189 gold deposits discovered since 1990, each with at
least 2M oz of gold in total reserves, reserves, resources and past production
(or at least 1M oz in reserves).
2010
$1,800
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
Gold Price
Global Roundup
United States
The Fed’s new strategy to set formal economic
thresholds for the unemployment rate (6.5%) and
infl ation expectations (2.5%) to help determine
interest rate policy was not without controversy.
While the thresholds seem clear cut at fi rst blush,
Chairman Bernanke’s comments indicated
they aren’t so clear. He essentially admitted
what our economists have long asserted: the
unemployment rate is a poor measure of the
labor market. Our chief U.S. economist wrote,
“Of all the indicators that the Fed could have
chosen, we remain surprised that they chose to
highlight the unemployment rate.”
Furthermore, we believe the infl ation
expectation threshold gives the Fed some policy
fl exibility—after all, it will be based on the Fed’s
own infl ation forecast. Our economist wrote, “In
other words, as long as their forecast (not the
actual observed infl ation rate) is below 2.5%, they
will not have to raise rates. How convenient.”
Coming up: Housing data (Dec 18-20); Philly Fed
(Dec 20); Durable Goods (Dec 21).
Canada
Canadian equities ended the week higher, lifted
by Consumer Staples, Consumer Discretionary,
and Financial stocks, while Materials suffered.
Notable strength was seen in Progress Energy
after the Canadian government approved the
company’s acquisition by Petronas.
Canadian government bond yields moved higher
across the yield curve with the largest increase
in yields experienced in maturities of 10-years or
greater.
Canadian Manufacturing sales declined 1.4% in
October, well below consensus expectation which
had forecast a 0.1% decrease. The decline was the
largest since January 2012, as inventories reached
their highest level since January 2009.
3 GLOBAL INSIGHT WEEKLY – DECEMBER 14, 2012

Coming up: International Securities
Transactions (Dec 17); Retail Sales (Dec 20);
Gross Domestic Product and Consumer Price
Index (Dec 21).
Europe
The banking agreement between EU fi nance
ministers is a meaningful deal in that it resolves
a long-held disagreement between Germany
and France over how far the ECB’s supervisory
powers should stretch. The ECB will have direct
oversight of banks with over €30 billion of assets
or balance sheets accounting for 20% or more
of national GDP, or around 200 banks. Smaller
banks, like Germany’s savings banks, will be
looked after by national supervisors, though the
ECB will have power to step in.
Key points, however, have been left
unaddressed. How exactly will the ECB be able
to override national supervisors of smaller
banks? What is the timing of this agreement
translating into direct recapitalisation of
troubled banks by the European Stability
Mechanism (the eurozone rescue fund)?
With this unclear, it is too soon to claim the
agreement is a game changer.
Moreover, and crucially, while the ECB will
now be in a position to identify problem banks
and demand action, the responsibility of
fi xing the problem remains with the member
states. A true banking union would include two
elements—a single resolution fund to clean
up failed banks and a single deposit-insurance
scheme to prevent bank runs. This is the only
way to break the vicious circle between weak
sovereigns and weak banks. The agreement is a
step in the right direction, but doesn’t address
the key issues.
In other news, Bank of Canada Governor Mark
Carney, who will take the helm of the Bank of
England (BoE) in June 2013, spoke in Toronto
on “Central Bank Policy Guidance.” According
to Carney, when conventional monetary policy
Global Roundup
70%
60%
50%
40%
30%
Source - IMF World Economic Outlook, October 2012, RBC Wealth
Management
Actual data for 1980-2011, IMF estimates for 2012- 2017. Advanced
Economies comprise the 35 most-developed nations.
targeting infl ation has been exhausted after a
long time of unprecedentedly low nominal rates,
other monetary tools should be explored.
Although at pains to explain that his comments
were generic and not aimed at any one economy
in particular, his speech was widely taken
to suggest that the BoE should abandon
infl ation targeting in favour of nominal GDP
targets. Nominal GDP targets are no holy
grail of monetary policy, however, as they may
overlook credit growth and, thus, may not be
consistent with fi nancial stability. Nevertheless,
Mr. Carney’s novel, thinking-out-of-the-box
approach should serve the Bank of England well
when he takes over next year.
Coming up: UK CPI (Dec 18); BoE minutes,
Germany IFO (Dec 19).
Asia Pacifi c
Share of World GDP 1980-2017
Developing economies are projected to account for
more than half of world GDP beyond 2012.
Advanced Economies
Other Economies
1980 1984 1988 1992 1996 2000 2004 2008 2012 2016
Positive Chinese data and speculation about
state institutions buying back shares helped
the Shanghai Composite post its largest daily
gain in three years on Friday, rising by 4.3% to
2,150, the highest level since August 10. Trading
volume was double the average over the
previous 30 days.
November’s Chinese industrial output climbed
10% over the prior year, while retail sales grew
14.9%. Chinese exports increased 2.9% in
November, below the 9% forecast. However,
with 2012 almost over, Chinese exports have
risen by 7.3% year to date. The State Information
Centre, a leading Chinese government think
tank, forecasts exports and imports to rise by
8% and 7.8%, respectively, in 2013. HSBC’s
Flash December Manufacturing PMI for China
came in at 50.9, indicating modest expansion in
factory output. November’s 50.5 reading was the
fi rst time the index surpassed 50 in over a year.
These data points suggest Chinese economic
activity continues to stabilize and support our
view of China achieving 8.3% GDP growth in
2013.
Indonesia’s central bank maintained its reference
interest rate at 5.75%, a record low, for the 10th
straight meeting.
Mergers and acquisitions news in the Energy
sector dominated headlines. Chinese energy
companies’ interest in Canadian assets
continues. The Canadian government approved
CNOOC’s (0883.HK) $15.1B acquisition of Nexen
and Petroliam Nasional Bhd.’s $5.2B takeover
of Progress Energy Resources. Following the
decision, which outlined future limitations on
takeovers of Canadian energy fi rms by foreign
state-owned companies, PetroChina (0852.
HK) announced it intends to purchase $1.2B,
or 49.9%, of an Alberta-based shale formation
owned by Encana.
Coming up: China’s November property prices;
Chinese foreign direct investment growth
(expected -3.1%); Japan’s All Industry Activity
Index (expected 0.2% growth); Japanese general
election; Bank of Japan Target Rate (consensus:
unchanged at 0.1%).
4 GLOBAL INSIGHT WEEKLY – DECEMBER 14, 2012

Important Disclosures
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personal views of the responsible analyst(s) about any and all
of the subject securities or issuers. No part of the compensation
of the responsible analyst(s) named herein is, or will be, directly
or indirectly, related to the specifi c recommendations or views
expressed by the responsible analyst(s) in this report.
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Jeff Musial, Adrian Brown, Jay Roberts, and Lucy So, employees
of RBC Wealth Management USA’s foreign affi liate RBC Dominion
Securities Inc.; and Frédérique Carrier, an employee of RBC
Wealth Management USA’s foreign affi liate Royal Bank of
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Investment Banking Services
Provided During Past 12 Months
Rating Count % Count %
Buy (TP/O) 797 51.09 272 34.13
Hold (SP) 689 44.17 176 25.54
Sell (U) 74 4.74 8 10.81
Defi nitions of Rating Categories
An analyst’s “sector” is the universe of companies for which
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Ratings:
Top Pick (TP): Represents analyst’s best idea in the sector;
expected to provide signifi cant absolute total return over 12
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analyst’s recommendations.
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over 12 months.
Sector Perform (SP): Returns expected to be in line with sector
average over 12 months.
Underperform (U): Returns expected to be materially below sector
average over 12 months.
Risk Qualifi ers:
Average Risk (Avg): Volatility and risk expected to be comparable to
sector; average revenue and earnings predictability; no signifi cant
cash fl ow/fi nancing concerns over coming 12-24 months; and/or
fairly liquid.
Above Average Risk (AA): Volatility and risk expected to be above
sector; below average revenue and earnings predictability; may
not be suitable for a signifi cant class of individual equity investors;
may have negative cash fl ow; and/or low market cap or fl oat.
Speculative (Spec): Risk consistent with venture capital; low
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5 GLOBAL INSIGHT WEEKLY – DECEMBER 14, 2012

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products which may be offered to their residents, as well as the
process for doing so. As a result, the securities discussed in this
report may not be eligible for sale in some jurisdictions. This
report is not, and under no circumstances should be construed
as, a solicitation to act as securities broker or dealer in any
jurisdiction by any person or company that is not legally permitted
to carry on the business of a securities broker or dealer in that
jurisdiction. Nothing in this report constitutes legal, accounting or
tax advice or individually tailored investment advice. This material
is prepared for general circulation to clients, including clients who
are affi liates of Royal Bank of Canada, and does not have regard
to the particular circumstances or needs of any specifi c person
who may read it. The investments or services contained in this
report may not be suitable for you and it is recommended that you
consult an independent investment advisor if you are in doubt
about the suitability of such investments or services. To the full
extent permitted by law neither Royal Bank of Canada nor any of
its affi liates, nor any other person, accepts any liability whatsoever
for any direct or consequential loss arising from any use of this
report or the information contained herein. No matter contained in
this document may be reproduced or copied by any means without
the prior consent of Royal Bank of Canada. Additional information
is available upon request.
To U.S. Residents: This publication has been approved by RBC
Capital Markets, LLC, Member NYSE/FINRA/SIPC, which is a U.S.
registered broker-dealer and which accepts responsibility for this
report and its dissemination in the United States. RBC Capital
Markets, LLC, is an indirect wholly-owned subsidiary of the Royal
Bank of Canada and, as such, is a related issuer of Royal Bank of
Canada. Any U.S. recipient of this report that is not a registered
broker-dealer or a bank acting in a broker or dealer capacity
and that wishes further information regarding, or to effect any
transaction in, any of the securities discussed in this report,
should contact and place orders with RBC Capital Markets, LLC.
International investing involves risks not typically associated with
U.S. investing, including currency fl uctuation, foreign taxation,
political instability and different accounting standards.
To Canadian Residents: This publication has been approved
by RBC Dominion Securities Inc. RBC Dominion Securities Inc.*
and Royal Bank of Canada are separate corporate entities which
are affi liated. *Member-Canadian Investor Protection Fund.
®Registered trademark of Royal Bank of Canada. Used under
license. RBC Wealth Management is a registered trademark of
Royal Bank of Canada. Used under license.
To European Residents: Clients of United Kingdom subsidiaries
may be entitled to compensation from the UK Financial Services
Compensation Scheme if any of these entities cannot meet
its obligations. This depends on the type of business and the
circumstances of the claim. Most types of investment business
are covered for up to a total of £50,000. The Channel Islands
subsidiaries are not covered by the UK Financial Services
Compensation Scheme; the offi ces of Royal Bank of Canada
(Channel Islands) Limited in Guernsey and Jersey are covered by
the respective compensation schemes in these jurisdictions for
deposit taking business only.
To Hong Kong Residents: This publication is distributed in
Hong Kong by RBC Investment Services (Asia) Limited and RBC
Investment Management (Asia) Limited, licensed corporations
under the Securities and Futures Ordinance or, by Royal Bank
of Canada, Hong Kong Branch, a registered institution under
the Securities and Futures Ordinance. This material has been
prepared for general circulation and does not take into account
the objectives, fi nancial situation, or needs of any recipient. Hong
Kong persons wishing to obtain further information on any of
the securities mentioned in this publication should contact RBC
Investment Services (Asia) Limited, RBC Investment Management
(Asia) Limited or Royal Bank of Canada, Hong Kong Branch at 17/
Floor, Cheung Kong Center, 2 Queen’s Road Central, Hong Kong
(telephone number is 2848-1388).
To Singapore Residents: This publication is distributed in
Singapore by RBC (Singapore Branch) and RBC (Asia) Limited,
registered entities granted offshore bank status by the Monetary
Authority of Singapore. This material has been prepared for
general circulation and does not take into account the objectives,
fi nancial situation, or needs of any recipient. You are advised
to seek independent advice from a fi nancial adviser before
purchasing any product. If you do not obtain independent advice,
you should consider whether the product is suitable for you. Past
performance is not indicative of future performance.
Copyright © RBC Capital Markets, LLC 2012 - Member NYSE/
FINRA/SIPC
Copyright © RBC Dominion Securities Inc. 2012 -
Member - Canadian Investor Protection Fund
Copyright © RBC Europe Limited 2012
Copyright © Royal Bank of Canada 2012
All rights reserved
6 GLOBAL INSIGHT WEEKLY – DECEMBER 14, 2012