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RBC Capital Markets survey: world's executives expect slow recovery; China to lead in market growth and stability

Current anxiety and uncertainty fostering "creative tension" and positive momentum in markets

NEW YORK, October 1, 2009 — Despite signs of economic revival, the world's finance executives fear a slow, weak recovery, are uncertain about the economy's direction and anticipate major changes in borrowing sources and the relative growth and stability of countries' capital markets, according to a new RBC Capital Markets survey of 736 senior finance executives conducted by the Economist Intelligence Unit. The executives are from commercial and investment banks, hedge funds, private equity firms and non-financial companies which raise money in the capital markets.

Few executives (6 per cent) surveyed expect a sharp economic rebound in the next six months, with growth returning to previous levels over the next two years. A solid majority (58 per cent) expects a gradual economic recovery over the next year, with global growth resuming at a below-trend rate over the following year. Another quarter (24 per cent) does not expect a meaningful recovery for at least one year, followed by negligible growth at best. Ten per cent expect a prolonged period of global economic weakness lasting at least two years.

"Finance executives believe that full recovery will be a slow, difficult process," said Marc Harris, co-head, Global Research, RBC Capital Markets. "However, one of the benefits of the current climate of anxiety and uncertainty is that it produces a creative tension that can help make markets. When you have both motivated buyers and motivated sellers, you have the potential for positive momentum in the markets. The huge moves in the equity markets since March, in spite of recession in the broader economy, are proof of this."

A third of executives (30 per cent) think the U.S. dollar will lose its reserve currency status - not in a generation, but within the next five years. Executives also believe the dollar's successor may come from far away: nearly half (47 per cent) of banks, hedge funds and other capital providers said they have the most confidence in the growth and stability of China's capital markets over the next two years. The U.S. ranks third, trailing not only China but India as well. Interestingly, there was a divergence in opinion between capital providers and capital raisers, with the latter group most confident in the U.S. capital markets followed by China and India. Among all survey respondents, China led the way, followed by the U.S. and India.

Amid concerns about a muted recovery and weaker growth, more than half of executives (51 per cent) believe that corporate profit margins and returns on capital will not return to pre-crisis levels for at least five years. Few expect a quick rebound for the capital markets, with nearly three-quarters saying that transaction volumes over the next year will remain the same or shrink over the next 12 months for IPOs, secondary market offerings and investment-grade and high-yield debt. Only M&A activity is projected to grow, and even that only slightly.

"It's hard to overstate the impact of the credit crisis on the capital markets, even for seasoned professionals. What we are seeing is a fundamental re-examination of traditional beliefs such as efficient market theory, the role of the U.S. dollar as the primary global reserve currency, and credit rating agencies," said Richard E. Talbot, co-head, Global Research, RBC Capital Markets. "That said, the resiliency of the markets should not be underestimated. Past cycles have clearly shown that some of the greatest returns have been earned during times of uncertainty as asset prices bottom and climb a 'wall of worry'. This is borne out by the strength of the markets during the past six months."

Executives have low visibility about the macro environment. Nearly half (48 per cent) of the executives surveyed have little or no confidence in their ability to predict whether prices and rates in the financial markets will go up or down, even within the next year. Underscoring the uncertainty, the respondents split nearly equally on whether inflation or deflation was the greater threat.

Given this backdrop, companies are taking action to rebuild balance sheets and reevaluate the sources of financing. More than half of the executives (54 per cent) say their companies hope to raise fresh financing during the next two years, but few expect to do so via investment-grade debt, IPOs or secondary equity offerings; nearly half of those planning to raise capital (43 per cent) hope to obtain it from private equity funds rather than in the public markets.


About the Survey
In July and August of 2009, RBC Capital Markets commissioned the Economist Intelligence Unit to survey senior executives at 736 borrowers and investors from around the globe, including both clients and non-clients of the firm, on their outlook for the future of capital markets. Of the executives, 415 were involved in raising capital and 321 in investing capital. Three out of 10 came from non-financial corporations ranging in size from $75 million to over $100 billion in annual revenues. The average size was about $5 billion. About 38 per cent (281) came from commercial or investment banks and 13 per cent (101) were asset managers or asset owners. There were 60 hedge funds, 57 private equity investors and a handful of central banks. Financial institutions ranged in asset size from below $50 billion to over $1 trillion, with an average size of about $250 billion.

About RBC Capital Markets
RBC Capital Markets is the corporate and investment banking arm of RBC and is active globally in debt origination, sales and trading, foreign exchange, infrastructure finance, structured products, metals and mining, and energy. Its North American platform includes leading equity, underwriting, sales, trading and research businesses and a significant U.S. investment banking franchise. Bloomberg ranks the firm as one of the Top 20 investment banks globally.

- 30 -

Kevin Foster,
RBC, (212) 428-6902, kevin.foster@rbccm.com

Loretta A. Healy,
The Hubbell Group, Inc., (781) 878-8882, lhealy@hubbellgroup.com

Stephanie Lu,
RBC, (416) 974-5506, stephanie.lu@rbc.com


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10/01/2009 10:04:20