Despite sluggish global growth expectations for 2013, returns are out there for advisors willing to take a more active and diversified approach in their portfolios, according to the 2013 Annual Global Outlook from Toronto-based Russell Investments Canada Ltd.
In 2013 the Canadian economy and world financial markets are expected to be “resilient but underwhelming,” says Shailesh Kshatriya, senior investment analyst, Canadian strategy group with Russell Investments, and as such advisors need to take a multi-asset, multi-strategy approach to their client portfolios.
In addition to investing in various asset classes in the coming year, the report emphasizes the importance of diversifying portfolios across countries. According to the report, equities in emerging markets are expected to outperform developed markets in 2013 for two main reasons. The first is stock valuations, says Kshatriya, which are more attractive than in developed markets, such as Canada.
The second reason is because of expected growth in China. “While there has been sort of a cloud over the Chinese economy over the last several years,” he says, “we’re in the initial stages of seeing a turnaround.” Although China is not expected to return to double-digit growth, he says, the economy should expand between seven and eight per cent, which is enough to support global growth, particularly in regards to emerging markets.
On the other hand, Canada will grow at a much slower pace in 2013, says Kshatriya, because of lacklustre oil prices and a general slowdown in the housing market. According to the report, FactSet Research Systems Inc. (an investment research software company) predicts a 14% increase in earnings per share in the Canadian equity market in 2013. However, analysts at Russell Investments anticipate only a 5% increase for earnings per share for Canadian equities.
Canadian equities may get a small boost from a stronger Chinese economy’s demand for industrial metals, such as copper, says Kshatriya. However, crude oil prices are expected to stay within the $85 to $115 range it has followed for the past few years. As such, Kshatriya does not expect profitability of energy companies to be robust enough to warrant double-digit growth in earnings per share of Canadian equities.
As well, a slowdown in the housing market and a consistent effort by Canadians to lower their household debt in the coming year will have a negative effect on the financial sector, says Kshatriya, which is the largest division of the TSX. “All of that is a headwind for the banking sector,” he says, “So, we think [earnings per share] growth for Canadian banks specifically will be challenged [in 2013].”