From a geopolitical and macroeconomic perspective, 2020 will be “a fascinating year,” according Duane Green, president and CEO, Canada, of Toronto-based Franklin Templeton Investments (FTI).
In his opening remarks for the company’s annual global investment outlook event in Toronto on Tuesday, Green noted that the global political landscape is particularly “dynamic,” given Canada’s new federal government, upcoming elections in both the U.K. and U.S., and China trade tensions.
Following Green’s remarks, a lineup of investment and economic experts offered a broad view of what they expect in the coming year.
Modest expectations for traditional asset classes
Bill Yun, executive vice president of multi-asset solutions at FTI, said his expectations for equities and government and corporate bonds across the globe are modest.
Based on seven- to 10-year projections, Yun forecasted that returns would likely fall below current 20-year averages. International equities may return 5.9%, compared to 4.1% over the last two decades, but Yun expected the yield of Canadian equities to drop to 6% from 7.2%, while both domestic government and investment-grade bonds dip to 1.8% and 2.9% from 4.8% and 5.4%, respectively.
As for real GDP, Yun projected the global seven-year growth average would to linger between 2% and 3%, with developed economies underperforming emerging leaders like China and India, both of which are forecasted to see growth of around 6% or more within the next decade.
Approach Canadian securities with caution
Ian Riach, a senior vice president and portfolio manager at FTI, said he would approach Canadian securities with caution in the year to come. He said the domestic portion of his portfolio is where he’s “deviating the most.”
Canada is facing what Riach called “a recipe for lower growth,” due to high manufacturing inventory, low capital investment and growing household indebtedness. Canadians owe $1.75 for every dollar earned, he said, up from $0.90 in 1990, whereas U.S. consumers are in a much better position.
High domestic exposure to the energy and materials sectors is also a cause for concern, Riach said, but he added that Canada’s vulnerabilities “are not just in resources.” Corporate fundamentals are “not dire but are weakening,” he said, adding that other hurdles include business tax rates and policy instability.
China still an “important market” for exporters
Guy Saint-Jacques, a former ambassador to China and currently the honorary chair of the China Policy Centre, shared his views on China and its global influence.
While Canada’s exports to China are down more than 10% compared to 2018, dipping to 2017 levels, he emphasized that China remains “an important market for domestic exporters.”
China’s growth is expected to remain between 4% and 6% for years to come, Saint-Jacques said, though the U.S. trade war is having an impact on that growth.
For 2020 and beyond, Saint-Jacques suggested that Canada should review how it engages with China, bolster trade ties with Asia and Europe, and improve its relationship with the U.S.