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Global Investment Outlook 2017

Toronto Chapter AGM & Dinner event May 24, 2017 Mid Year Economic update Kurt Reiman , BlackRock Doug Porter, BMO Bart Melek , TD Securities. ADMASTER-STAMP!20170519-163172-450051. Global Investment Outlook 2017. Kurt Reiman, Chief Investment Strategist BlackRock Canada

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Global Investment Outlook 2017

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  1. Toronto Chapter AGM & Dinner eventMay 24, 2017Mid Year Economic updateKurt Reiman, BlackRock Doug Porter, BMO Bart Melek, TD Securities

  2. ADMASTER-STAMP!20170519-163172-450051 Global Investment Outlook 2017 • Kurt Reiman, Chief Investment Strategist BlackRock Canada • BlackRock Investment Institute • May 2017 20170519-163172-450051

  3. ADMASTER-STAMP!20170519-163172-450051 On a year to date basis, Canada is underperforming all major equity markets >>>Currency strengthening vs. Canadian Dollar • Currency performance vs. Canadian dollar - year to date • Total returns across major equity indexes - year to date • Sources: BlackRock Investment Institute, Thomson Reuters and MSCI Inc., • 18th May 2017. • Notes: All returns are shown in local currency. Equity markets are represented by the MSCI Japan, Switzerland, USA, Sweden, UK, Hong Kong, Taiwan, Australia, Canada, China, South Korea, South Africa, Brazil, India, European Economic and Monetary Union (EMU), Mexico, Singapore, Denmark, Russia, and Malaysia indexes. It is not possible to invest directly in an index. Past performance is no guarantee of future results. • Sources: BlackRock Investment Institute, Thomson Reuters and the Bank of Canada, • 18th May 2017. • Notes: The bars represent the year to date percent change in the spot rate for selected currencies vs. the Canadian dollar. Past performance is no guarantee of future results 20170519-163172-450051

  4. ADMASTER-STAMP!20170519-163172-450051 U.S. stocks have surged past Canadian equities over the past eight years… • Cumulative total return of selected stock indexes in Canadian dollars Sources: BlackRock Investment Institute, Thomson Reuters and MSCI Inc., 18th May 2017. Notes: Chart shows total return of the MSCI Canada, USA, Japan, Europe, and Emerging Market indexes. It is not possible to invest directly in an index. Past performance is no guarantee of future results. 20170519-163172-450051

  5. ADMASTER-STAMP!20170519-163172-450051 …as U.S. earnings have far outstripped Canada’s • One year forward earnings per share estimates in local currency Sources: BlackRock Investment Institute, Thomson Reuters and MSCI Inc., 18th May 2017. Notes: Chart shows 12-month forward EPS estimates based on MSCI Canada, USA, Japan, Europe, and Emerging Market indexes. It is not possible to invest directly in an index. 20170519-163172-450051

  6. ADMASTER-STAMP!20170519-163172-450051 Despite underperformance, Canadian investors exhibit a strong home bias Canadians invest 3/4 of their portfolios domestically Canada represents just over 3% of the world index 76% Canada 24% Rest of the World Sources: BlackRock and MSCI Inc., 18th March 2017. Notes: The chart shows the country weightings for the MSCI All Country World Index (MSCIACWI) for the top 10 largest constituents. It is not possible to invest directly in an index. • Top countries in the MSCI ACWI Index • Percent of Canadians’ investments in Canada vs. abroad • Sources: BlackRock Investor Pulse Survey, July/August 2015. • Notes: This report focuses on the findings in Canada where a nationally representative sample of 2,000 Canadians between the ages of 25 and 74 and either sole or dual financial decision makers for their households were interviewed using an online survey methodology. Included in the study was a group of 200 affluent Canadians (those with investable assets of $150,000 or more). 20170519-163172-450051

  7. ADMASTER-STAMP!20170519-163172-450051 International equities look more attractive as global growth picks up Beta of earnings per share (EPS) to global industrial production European PMIs and flows in to Europe ex-UK equity funds Source: BlackRock Investment Institute, Thomson Reuters and EPFR Global, April 2017. Notes: Flows represent monthly cumulative net flows into Europe ex-UK equity funds from 2012 to 30th April 2017. PMI stands for Purchasing Managers’ Index. • Investors appear hesitant to allocate to European equities, despite an improving economic backdrop • We favour regions with greater exposure to a pick-up in global activity • Sources: BlackRock Investment Institute, MSCI Inc. and Thomson Reuters, • December 2016. • Notes: Calculations are based on monthly data from January 2001 to December 2016. Regions are represented by the MSCI Canada, USA, Europe ex-UK, Emerging Markets, and Japan indexes. 20170519-163172-450051

  8. ADMASTER-STAMP!20170519-163172-450051 We are overweight emerging market (EM) equities in a low-return world Developed and emerging market equity valuations Price to book ratio of MSCI Asia ex-Japan Index Long-term average Trough • Sources: BlackRock Investment Institute and Thomson Reuters, April 2017. • Notes: The line represents the price to book ratio of the MSCI Asia ex-Japan Index. It is not possible to invest directly in an index. • … and absolute valuations are positive too • Sources: BlackRock Investment Institute and Thomson Reuters, April 2017 • Notes: Lines represent the 12m forward P/E ratio of the MSCI World Index and the MSCI Emerging Markets Index. It is not possible to invest directly in an index. Past performance is no guarantee of future results. • EM valuations look relatively attractive… 20170519-163172-450051

  9. ADMASTER-STAMP!20170519-163172-450051 Political risks have the potential to shake up 2017 UK Brexit negotiations Ongoing Early Election June 8 U.S. Key Fed meetings June 13-14 Sept. 19-20 Dec. 12-13 Japan Key BoJ meetings Apr. 26-27 July 19-20 Oct. 30-31 North Korea U.S. probe into weapons program Ongoing Eurozone Key ECB meetings Apr. 27 June 8 July 20 Sept. 7 Oct. 26 Dec. 14 China 19th Party Congress Fall 2017 Germany German elections Sep. 24 Italy Italian elections Timeline unknown • Sources: BlackRock Investment Institute, April 2017. • Notes: The US Federal Reserve and European Central Bank (ECB) meetings are those accompanied by press conferences. The Bank of Japan (BoJ) events shown are followed by the publication of the central bank’s outlook report. 20170519-163172-450051

  10. Inventory Erosion Required Before Oil Jumps — OPEC Discipline, Less Hedging and Firm Demand the Key Catalysts Commodity Outlook – May 2017 Bart Melek Global Head of Commodity Strategy

  11. OPEC Policy Uncertainties Keeping Crude Oil Range-bound in the Near Term — but Prices to Trend Toward $60 as Producers Limit Output, Tight Credit Reduces Supply Elasticity • High inventories, firming US drilling activity and OPEC agreement uncertainty to prevent further rally near-term, but low spare global capacity/investment and pending deficits to lift crude into $60/bbllater in 2017. • Only modest growth in US shale production, less Venezuelan output, and OPEC/Russia cuts suggest tighter fundamentals as global demand growth continues to be very a robust 1.3 million bbls/d in 2017. • Reduced borrowing basis, weak risk appetite, higher cost of capital, and financial impairment across the petroleum industry, all imply that the very capital-intensive non-conventional crude supply is unlikely to show much growth, even as prices rally toward $60/bbl. • Investment is at a multi decade low — Oil discoveries at 70-year low signal a potential supply shortfall ahead.

  12. OPEC Market Share Loss to Shale Oil and Other Non-conventional Producers Triggered Move Away from Swing Producer Role—This is Now Changing Again OPEC Share of Oil Supply on the Rebound Global Crude Oil Production Share

  13. Fiscal Breakeven Prices Going Down as Social Spending Drops—but Still Much Higher Than Current Price OPEC Countries Tightening Fiscal Belts

  14. US Shale Oil Plays Takeover Swing Producer Role from OPEC— Switching from Oligopoly to Market Mechanism as Price, Supply Driver

  15. Oil Market Supply/Demand Fundamentals to Shifting into a Deep Deficit Starting to in Q2-2017 US Shale Won't Stop Market Rebalancing 22

  16. Inventories Soon to Become a Diminishing Problem Aggregate US Crude Oil, Gasoline, & Distillate Inventory Crude Oil Inventory

  17. OPEC Complying With Cuts OPEC Cuts Show Agreement Pledges Being Met, Mostly

  18. Well Completions On Pace For May Rebound New US Oil Output Keeping Up With Declining Production from Legacy Wells Oil: Emerging from Darkness into the Dawn

  19. Oil Market Earnings Oil Market Investment Oil, Energy Equity Markets and CAPEX

  20. Toronto Chapter AGM & Dinner eventMay 24, 2017Mid Year Economic updateKurt Reiman, BlackRock Doug Porter, BMO Bart Melek, TD Securities

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