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BMO Bank of Montreal

April 18, 2012 09:00 ET

REPEAT-BMO Quarterly Market Commentary Report: Global Equity Markets Poised for Further Growth

- Global equity growth predicted despite macroeconomic risks

- U.S. GDP expected to grow 2 per cent over the next year

- Eurozone moving towards some stability

- Fixed income - opt for mid-term bonds over short, long-term options

TORONTO, ONTARIO and CHICAGO, ILLINOIS--(Marketwire - April 18, 2012) - BMO Harris Private Banking today released its quarterly market commentary report, A Return to Equities. The report notes that global equity markets showed continuing strength in the first part of the year, and should continue to advance at a slightly reduced pace despite a number of persistent macroeconomic risks.

"The global investment landscape became notably more optimistic in the first quarter," said Paul Taylor, Chief Investment Officer, Fundamental Equities at BMO Asset Management. "As fears about the eurozone credit crisis eased somewhat and U.S. economic data improved, investors demonstrated a renewed sense of confidence by returning to riskier assets. Equity markets around the world advanced as a result."

Mr. Taylor also noted that, in the coming 12 months, bond returns are expected to be positive, but lower than equity returns. "To align our clients' portfolios with this view, we will be modestly increasing their equity allocations relative to fixed income."

BMO Harris Private Banking made the following predictions in the report:

U.S. Economy on the Upswing

"We don't see any strong reasons to think that the U.S. economy will deteriorate in the near term," said Jack Ablin, Executive Vice President and Chief Investment Officer, Harris Private Bank. "Combined with the U.S. Federal Reserve's commitment to an accommodative monetary policy until at least 2014, this picture leads us to expect GDP growth of around 2 per cent over the next 12 months."

One shadow on the horizon for the U.S. economy is the potential for tax-related measures to dampen U.S. growth following the presidential election. "We expect this concern to grow as November nears," stated Mr. Ablin. "The Bush-era tax cuts for high-income earners are set to expire in December 2012, and automatic spending cuts in the Budget Control Act are scheduled to begin in 2013. The timing and impact of the spending cuts will depend greatly on the outcome of the elections, but a worst-case scenario would produce a fiscal drag of more than 3% of GDP beginning in 2013."

Eurozone - Headed Towards Stability

"It is likely that the eurozone's sovereign credit situation will continue to pose some kind of risk for several years," suggested Mr. Ablin. "Nevertheless, recent actions by the region's policymakers support our belief that they are committed to avoiding systematic damage. Since last quarter, we are more confident that the situation is slowly moving toward stability. In fact, the situation has improved so much that we no longer think the eurozone crisis will be the dominant factor driving the global economic and capital market outlook over the next 12 to 18 months."

China - Continued Growth

"We peg China's economic growth to be between 8 per cent and 9 per cent, a level that will continue to provide a supportive backdrop to the global recovery and Canada's resources sectors," stated Mr. Taylor. "Concerns about a hard landing are overblown in our view, but if China's economic growth does slow more than expected, the country's officials have powerful monetary and fiscal tools at their disposal."

Corporate Earnings - Single Digit Growth Expected

"After two years of strong growth, we believe the current business cycle is maturing to a stage where corporate earnings growth typically slows," said Mr. Taylor. "We think that top-line revenues still have the potential to grow and that price-to-earnings ratios can expand. We expect mid-single digit earnings growth over the next year in the United States and Canada."

Fixed Income

"We expect to see modest positive returns from Canadian fixed income investments in the next year," according to Mr. Taylor. "A slight increase in interest rates is possible, but rates will likely remain low for some time. We continue to believe that mid-term bonds have the most favourable outlook compared to short- or long-term bonds."

To view the full report, please visit: www.bmo.com/harrisprivatebanking

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