Canada’s equities market will outperform its global developed-market counterparts — including that of the U.S. — over the next 12 months, driven by a rebound in oil prices and a pick up in base metals, said Jean-Guy Desjardins, founder and CEO of Montreal-based Fiera Capital Corp. while addressing investment industry professionals at a luncheon in Toronto on Monday during which he presented his company’s Economic and Capital Market Forecast 2016.
Specifically, Desjardins expects that oil prices will rebound to between US$75 and US$80 a barrel by the end of next year and will be a main driver of the Canadian equities market as well as the economy. (Crude oil is currently trading at about US$45 a barrel.) Similarly, Desjardins also expects a pick up in the prices of base metals, but to a much lesser extent than oil. Still, he expects the increase to benefit Canadian commodities-producing companies.
Desjardins contends that the economic downturn in Canada has been heavily concentrated in the energy sector and thus a pick up in energy prices will benefit the economy as well as result in a stronger Canadian dollar. There will be “no economic recession in the current economic cycle,” he forecasts.
Higher oil prices, says Desjardins, will be boosted by a decline in U.S. oil production, supported by demand resulting from synchronized global growth. “The U.S., Europe and Japan are still experiencing an economic gap,” he says, referring to the potential for these geographic areas to continue to grow to achieve their true economic potential.
Economic momentum in the U.S, will remain resilient although the U.S. Federal Reserve Board has to contend with disinflationary forces stemming from a strong U.S. dollar and muted inflationary pressures resulting from an upbeat domestic economy, Desjardins says.
Europe is experiencing sustained economic momentum and will probably raise interest rates earlier rather than later, he contends.
He is also optimistic about Japan, in which the Bank of Japan has resisted additional stimulus measures on the back of its confidence that it can reach its inflation target.
China is experiencing a normalized growth rate of 7%, says Desjardins, alluding to the fact that he is not overly concerned about its slowdown. He says the Chinese government has been more focused on putting measures in place to stimulate the market rather than the economy.
Although Desjardins believes that emerging markets, in general, have good investment potential, he says Fiera currently does not have any management expertise in this area. As such, the firm is looking to make an acquisition of a specialized emerging-market asset manager, preferably in the U.S. or in the U.K.
Another area in which Fiera plans to focus on is growth in the alternative strategies space, particularly in floating-rate notes. Desjardins says that “over the next three years or so, interest rates would be normalized, making floating-rate notes an attractive option for investors.”
In the meantime, Desjardins will shift about 5% — or $1.5-$2 billion — of Fiera’s equity assets invested in the U.S. market into Canadian equities. Currently, Fiera’s portfolios are overweight in U.S. and international equities and underweight in Canadian equities, but the shift in strategy will increase exposure to Canada.
Fiera currently has $90.3 billion in assets under management, with 57% in fixed-income, 33% in Canadian and global equities, 5% in alternative strategies and 5% in other asset classes.