How Does Canada Fare In This Low Growth Environment?

How Does Canada Fare In This Low Growth Environment?

by Ryan Lewenza, CFA, CMT, Private Client Strategist, Raymond James

• I was recently out west on a marketing trip with our Chief US Investment Strategist, Jeff Saut. His core message was that despite the US equity markets being overdue for a 10% correction, he remains long-term bullish on US stocks given that we’re in a secular (i.e., multi-year) bull market. Our presentation focused on the weakening economic outlook for the emerging markets, and its implications for commodities and in turn Canada.
• The slowdown in China and across many of the emerging market countries is having a significant impact on commodity prices. China’s economy for example has slowed from roughly 10% in 2010 to 7% today. As China and these emerging markets slow, demand for commodities has waned which explains the steep declines in copper, iron ore, etc.
• Resources represent nearly 20% of our economy’s GDP. Therefore, lower demand for commodities is surely to provide a headwind to our economy. Indeed, the Canadian economy contracted by 0.6% (annualized) in Q1/15, and with April’s -0.1% M/M reading we’re off to a rough start for Q2/15.
• We believe investors should adjust their investment strategy to focus on investments which stand to benefit from this new market environment of lower commodity prices. These strategies include: 1) underweight resources in portfolios, particularly materials stocks; 2) overweight the consumer discretionary and information technology sectors; 3) overweight the US; and 4) invest more globally, with our preference for US and European equities.

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Weekly Trends July 10, 2015 (1)