One-minute market update - RBC Global Asset Management

1 For more on our current view and outlook, consult The Global Investment Outlook. NEW YEAR 2019. One-minute market update Economy $'()*+*,-*). After enjoying solid and accelerating Global growth in 2017. CANADIAN EQUITIES Fair value range S&P/TSX Composite Index and the first half of 2018, momentum has waned and we Over the three-month 25600 Nov. '18 Range: 14,397 - 21,838 (Mid: 18,117). expect this trend to continue into 2019. Nov. '19 Range: 14,442 - 21,906 (Mid: 18,174) period ended Nov. 30, the 12800 Current (30-November-18): 15198 index decreased by Protectionism, European politics, rising interest rates, firming Valuations remain below 6400 the midpoint of the fair inflation and troubles besetting specific emerging- market value band.

2 3200. countries are among the risks to our outlook. 1600. We budget for slower growth moving forward as financial 800. conditions have worsened and the boost from the fiscal 400. stimulus program begins to fade. 1960 1970 1980 1990 2000 2010 2020. We have lowered our Global growth expectations slightly, Source: RBC GAM. but they are still near the upper end of the range of the past !" #$%&&. $'()*+*,-*). EQUITIES Fair value range S&P 500 Index seven years. 5120 The stock market Fixed income Nov. '18 Range: 2141 - 3563 (Mid: 2852). 2560. Nov. '19 Range: 2218 - 3691 (Mid: 2954) declined by in local Current (30-November-18): 2760 currency terms over the Central banks have been tightening monetary policy in response 1280 three-month period ended Nov 30.

3 Valuations are now to diminishing economic slack and above-average inflation. 640. slightly below equilibrium. 320. Our models suggest North American 10-year sovereign-bond . 160. yields are near equilibrium, but that unsustainably low yields 80. in other regions represent significant valuation risk. 40. 1960 1970 1980 1990 2000 2010 2020. We continue to believe that yields will rise over the long term, . driven by an increase in real interest rates to historical norms, Source: RBC GAM. but slowing economic growth could limit how far yields rise in 8)-2924'$:636;3-'6.$<45'=. EUROPEAN EQUITIES Fair value range Eurozone Datastream Index the shorter term. 3200 European equities We remain underweight bonds as even a modest rise in rates Nov.

4 '18 Range: 1679 - 3831 (Mid: 2755). Nov. '19 Range: 1804 - 4114 (Mid: 2959) declined by in will be a headwind for fixed-income investments. However, 1600 Current (30-November-18): 1538 USD terms for the three month period ended recognizing that bonds can provide a cushion in an economic 800. Nov. 30 2018. Negative performance since the downturn, we took advantage of the increase in yields earlier 400. start of the year has this quarter to add to our fixed-income allocation. 200 caused valuations to fall below the lower limit of the fair value band. Equity markets 100. 50. Equities have experienced steep declines in most regions in 1980 1985 1990 1995 2000 2005 2010 2015 2020.

5 2018, especially in emerging markets. Source: Datastream, Consensus Economics, RBC GAM. While valuation risk has been reduced, rising interest rates 8.'-F*4F $G6-H'3$:636;3-'6. $<. 45'=. Emerging Markets EMERGING MARKETS Fair value range Datastream Index and firming inflation may restrain multiple expansion. Moreover, earnings growth is expected to slow as tailwinds Nov. '18 Range: 242 - 455 (Mid: 348). Emerging- market equities 640. Nov. '19 Range: 263 - 495 (Mid: 379) declined by in USD. from tax cuts fade, economic growth decelerates and profit Current (30-November-18): 253 terms in the three month 320 period ended Nov. 30 2018. margins come under pressure. At current levels, emerging 160.

6 market equities are nearing Stocks still offer superior return potential versus bonds under their most attractive 80. reasonable assumptions, as long as earnings continue to grow valuations since the great financial crisis. as analysts expect. 40. We remain overweight equities, but our tactical weight is well 20. 1995 2000 2005 2010 2015 2020. below our peak exposure from earlier in the cycle. Source: Datastream, RBC GAM. * Fair value estimates are for illustrative purposes only. It is not possible to invest directly in an unmanaged index. One-minute market update New Year 2019. This report has been provided by RBC Global Asset Management (RBC GAM) for informational purposes only and may not be reproduced, distributed or published without the written consent of RBC Global Asset Management Inc.

7 (RBC GAM Inc.). In Canada, this report is provided by RBC GAM Inc. (including Phillips, Hager & North Investment Management ). RBC GAM is the Asset Management division of Royal Bank of Canada (RBC) which includes RBC GAM Inc., RBC Global Asset Management ( ) Inc., RBC Global Asset Management (UK) Limited, RBC Investment Management (Asia) Limited, and BlueBay Asset Management LLP, which are separate, but affiliated subsidiaries of RBC. Any investment and economic outlook information contained in this report has been compiled by RBC GAM from various sources. Information obtained from third parties is believed to be reliable, but no representation or warranty, express or implied, is made by RBC GAM, its affiliates or any other person as to its accuracy, completeness or correctness.

8 RBC GAM and its affiliates assume no responsibility for any errors or omissions. All opinions contained within constitute our judgement as of December 15, 2018, are subject to change without notice, and are provided in good faith without legal responsibility. This report is not intended to provide legal, accounting, tax, investment, financial or other advice and such information should not be relied upon for providing such advice. The investment process as described in this report may change over time. The characteristics set forth in this report are intended as a general illustration of some of the criteria considered in selecting securities for client portfolios.

9 Not all investments in a client portfolio will meet such criteria. RBC GAM takes reasonable steps to provide up-to-date, accurate and reliable information, and believes the information to be so when printed. RBC GAM reserves the right at any time and without notice to change, amend or cease publication of the information. This report may contain forward-looking statements. The words may , could , should , would , suspect , outlook , believe , plan , anticipate , estimate , expect , intend , forecast , objective and similar expressions are intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance. Forward-looking statements involve inherent risk and uncertainties, about the general economic factors, so it is possible that predictions, forecasts, projections and other forward-looking statements will not be achieved.

10 / TM Trademark(s) of Royal Bank of Canada. Used under licence. RBC Global Asset Management Inc. 2018. 100757 (12/2018). 015 GAM163_100757 (01-2019)_1MU_EN_v1_2_FNL 12/21/2018.