We remain fully invested and overweight in global equities. The global equity bull market is long in duration, but we see no recessionary catalyst on the horizon that will end this cycle over the next 6-12 months. Our macro themes include:
There are always risks that need to be monitored:
The US economy will continue to be a core component to support continued growth in other economies. With consumer spending, capital investment and global trade expected to persist, global earnings should continue to grow. This will help investors gain conviction in the global economic and market expansion.
The US Fed intends to stick to its gradual hiking path over the next couple of years as they believe the US economy is strong enough to return to normal yields and not derail the expansion. The Fed’s plans to slowly shrink a major portion of its $4.5 Trillion assets will also not negatively impact the economy. The capital base injected during “QE” largely remained in bank reserves and did not make its way into the economy.
As more economies continue to show strength and become self-sustaining, like Europe, the emergency monetary measures used since the global financial crisis may no longer be required, which is very positive.
For the European region, while Merkel was punished for her immigration policies in the election, the far-right populist policies did not coalesce as seemed feasible at the start of the year. Europe’s economy and markets continue to look promising, even with the political uncertainty that is holding back the European markets due to the Catalonia vote/non-vote, Brexit, and Greece still needing bailouts.
The BOC is now backpedaling from its tightening bias this summer as the CAD strength could be a detriment to Canada’s economic growth. A weaker currency is still necessary to help facilitate a multi-year rebalancing process of improving Canada’s productivity and rebuilding the manufacturing sector. We are confident in our core Canadian equity holdings long-term, but we remain underweight as there are better opportunities outside of Canada.
While the US economy will help drive global economic growth, European and Asian investment opportunities are more appealing from a valuation perspective. Any stimulus from Trump’s pro-growth policies of infrastructure spending, tax cuts and deregulation will provide positive market sentiment, but will only add marginally to economic growth over the next 12 months due to delays in getting policies passed and implemented. Regardless, the global economies and markets will remain in an uptrend.