@McGill Engineering Investment Group

2013-01-18 Volume 1, Issue 1

Inside this issue

First EIG Newsletter ....... 1 Financials & Economy .... 2 Commodities ................. 3 Commodities .................. 4

Newsletter
First EIG Newsletter
EIG is proud to present its first ever newsletter this week! In the upcoming semester, we shall provide weekly newsletters covering important updates regarding EIG as well as an overview of the market performance of 3 to 4 sectors throughout the week to our members . Please feel free to contact us at vp.comm@mcgilleig.ca for any feedbacks or suggestions regarding our newsletter. In addition, if you would like to opt out from receiving future newsletters, please contact us at the aforementioned email address. Enjoy! We would also like to extend a special thanks to our sponsor BMO Capital Markets for supporting the group!

Technology ..................... 5 Technology ..................... 6 Disclaimer ...................... 7

Market Analysis
Financials & Economy
Canada to get US growth surge in 2013 Canadas unemployment rate Canadian Acquisitions and Mergers in 2012 Canadians add US government bonds to their holdings

Financials & Economy

Canada to get US growth surge in 2013

The U.S. economy will grow the most rapidly this year in the developed world this year, such was the consensus at the Economic Club of Canadas 2013 outlook forum, held in Toronto and attended by some of Canadas top economists.
The six economists who were part of the forum all agreed that U.S. economic growth would probably grow steadily.

The forecast was that the U.S. economy would grow by 2.5% this year, compared with just 2% for Canada. The main reason behind this is the housing recovery in the U.S. as the most important contributor to the growth, whereas Canadas housing market is expected to cool this year. They went on to analyse how Canadas economy will be in transition this year and whilst housing and debt accumulation had fuelled GDP expansion over the last few years, Canada will now have to improve exports as households cut back on borrowing and the housing market slows. Canadas growth has slowed down over the past few months. Growth in October was just 0.1%, flat in September and a decline of 0.1% in August.

Canada's unemployment rate drops to 4-year low- 4th January 2013

The Canadian economy created 40,000 jobs in December and the unemployment rate was reduced to its lowest in four years, Statistics Canada reported. Ontario contributed to about three-quarters of the jobs added across Canada in December and most of the other provinces either saw gains or were stagnant. The only exception was Nova Scotia that lost 5,000 jobs. The federal agency said the national unemployment rate wet down to 7.1 per cent, its lowest level since December 2008. The results easily topped economist estimates for a gain of just 5,000 jobs nationally and an unemployment rate of 7.3 per cent.

Canadian Acquisitions and Mergers 2012

The total number and aggregate value of Canadian deals, and Canada's relative share of global Mergers and Acquisitions, increased in 2012. The number of deals over C$1-billion also increased, with 48 such deals valued at C$123.1billion in aggregate as compared to 34 deals valued at C$90.4-billion in 2011. The year's highest-profile announced transactions included the C$19-billion acquisition of Nexen by China's CNOOC, the C$6.1-billion acquisition of Viterra by Glencore International and its partners, the C$5.5-billion acquisition of Progress Energy Resources by Malaysia's Petronas, and the C$3.8-billion acquisition of Provident Energy by Pembina Pipeline.

Canadians add US government bonds to their holdings

Acquisitions of foreign debt securities by Canadian investors grew to $6.2 billion. This was the highest investment since March 2007 and the third consecutive monthly acquisition. The Activity was led by a $5.7 billion record purchase of US government bonds and resulted in a net acquisition of US government bonds between January and December 2012, compared with a net divestment for the same period in 2011 when acquisitions were mainly concentrated on equities.

The Canadian dollar traded higher against the US dollar for a fourth straight month in December, whilst the longterm interest rate differentials between the two countries were stable.

Commodities
Deutsche Bank on Commodities

Commodities
We were able to find the outlook from 2 banks: Deutsche Bank and Goldman Sachs. Deutsche Bank Article gave a more detailed view on most of the commodities whereas the GS one was more limited. However, we were able to find interesting GS presentations about their market view and outlook. Deutsche Bank [Commodities Now]

Crude Oil Bullish crude oil based on an acceleration in world growth and as pipeline and railroad expansion help to tighten WTI physical fundamentals Rising US shale oil production remains a key event risk and OPEC will most likely need to cut production levels before mid-year

Natural Gas US: Expect some level of support for natural gas prices in 2013 in response to more pronounced dry gas production declines Europe: Supply-side infrastructure risk is at a relatively low point, while demand-side dynamics are weak in both the residential/commercial and power sectors so gas-price forecast continues to build in a discount to oil

Precious Metals Prefer exposure to the PGMs at this juncture, particularly palladium as DB expect the market to remain in a considerable deficit in 2013 Our view of continued structural strength in the gold market is being tested. DB expect downside risks to gold start to build from 2014.

Industrial Metals Mildly positive for base metals in 2013 Expect that an acceleration in Chinese GDP growth and stability in economic activity in the Western World could result in modest appreciation particularly in the first half of the year Prefer lead and copper for exposure

Bulk Commodities Iron ore markets have moved sharply higher over the past month DB believe that prices could reach USD170/tonne over the next quarter This reflects a combination of expected re-stocking in China and possible weather issues affecting supply in Brazil over the next few weeks

Agriculture Recommend selectivity in agriculture in 2013; though see short-term value in oversold grains and oilseeds Constructive soybean oil, which lagged the complex in 2012, but cautious deferred hogs

Commodities
Goldman Sachs on commodities

GS Presentations:

YouTube Page

GS 2013 Outlook Commodities

2013 Global Economic Forecast: Jan Hatzius, Goldman Sachs

Deutsche Bank Commodity Views

Goldman Sachs [Commodities Now]

Base Metals Bullish Copper for now with prices expected to average $8,458/t, however expect prices to move down to average $7,250/t in 2014 and $6,875/t in 2015. Cautious on the outlook for aluminium over the short, medium and long term Bearish on nickel (from prices above $17,000/t) Relatively constructive on zinc on a medium/long-term horizon (from prices sub $2,000/t)

Gold Cycle set to turn on improved macro outlook Expect higher gold prices in coming months given GS economists forecast for weak growth early in 2013 as well as the uncertainty associated with the debt ceiling and potential budget sequestration Assuming that the sequester does not take effect on March 1, GS expect that the cycle in gold prices will likely turn later this year on improving US growth with prices gradually decreasing over the next five years to stabilize near $1,200/oz.

Platinum Group Metals (PGMs) Structurally bullish on palladium; platinum to be supported only near term

Bulk Commodities Iron ore will continue to see super-normal prices in 2013 (average $144/t), followed by a transitional year in 2014 (average $126/t) [Iron ore market is headed for a long period of significant oversupply, in our view, but this is still two years away] Metallurgical coal Prices are below marginal production costs and we see a 17% upside potential versus spot relative to our 2H2013 forecast of $185/t for premium HCC

Technology
Facebooks Graph Search Announcement

Technology
Facebooks Graph Search Announcement
January 15th ,2013 One of the biggest news this week was from a press conference held by the Facebook (NASDAQ:FB) staff in which they discussed the launch of a new search system called graph search. It allows for users to search for people by interests and location. For example by searching people who like Dexter in Montreal, it will generate a list of people fitting that criteria. The event did not help skyrocket the stock but it did have a slight increase. It opened at around $29 and closed down on the 15th at $30.10. This is most likely due to the fact that the conference didnt show investors clearly how the new feature would be monetized and managed. Nonetheless, many are speculating that Facebook plans to compete with Google (a task many failed to do).

Apples Weak iPhone 5 Demand

Facebooks share price over the past five days

Apples Weak iPhone 5 Demand

January 15th ,2012 The growing notion that the demand for iPhone 5 has shrunk has led to a big drop in Apples stock. Throughout the week we have seen drops of around 3.5% and the stock price even dropped below $500 a share at times on January 14th. This drop in stock price was primarily due to Apple cutting orders for iPhone 5 parts due to decrease in demand.

Apples share price over the past five days

eBay Finishes Strong in 2012

January 16, 2013 eBay had an amazing 2012. The company reported their Q4 earnings and earned $750 million on $4 billion worth of sales in the fourth quarter. This was an 18% boost from last years Q4 report. Its stock price rose as well by 3% and the company looks to be progressing very well.

Technology
eBay Finishes Strong in 2012

eBays share price over the past 3 months

McGill EIG
The McGill Engineering investment Group is a new engineering studentrun club that intends to educate engineering and non engineering students about the capital markets and the finance world as a whole. The club also aims to bridge the gap between theory and practice by organizing various events with people from the industry. In addition, EIG is in the process of building an investment portfolio that will be entirely managed by members of the group. For more info on our future events and activities, like our Facebook page and follow us on Twitter at @EIGNews.

Disclaimer
The information contained in any newsletter does not constitute an offer to sell securities or the solicitation of an offer to buy, or recommendation for investment in, any securities within Canada or any other jurisdiction. The information in any newsletter is not intended as financial advice. Moreover, none of the newsletter is intended as a prospectus within the meaning of the applicable laws of any jurisdiction and none of the newsletter is directed to any person in any country in which the distribution of such research report is unlawful. Any newsletter provides general information only. The information and opinions in each newsletter constitute a judgement as at the date indicated and are subject to change without notice. The information may therefore not be accurate or current. The information and opinions contained in newsletters have been compiled or arrived at from sources believed to be reliable in good faith, but no representation or warranty, express or implied, is made by the @McGill Engineering Investment Group as to their accuracy, completeness or correctness and the @McGill Engineering Investment Group does also not warrant that the information is up to date. Moreover, you should be aware of the fact that investments in undertakings, securities or other financial instruments involve risks. Past results do not guarantee future performance.

McGill EIG
Primary Business Address McConnell Engineering Building McGill University 3480 University Street Room 7 Montreal, Quebec, Canada H3A 2K6 E-mail: vp.comm@mcgilleig.ca Website: mcgilleig.ca