Since the beginning of 2016, stock markets have experienced significant fluctuations and portfolio volatility has been a cause for concern for investors. Should they be worried? We present below a review of a changing economic and financial environment.
In the wake of 2015…
The Canadian stock market saw high volatility and dramatic swings in the first quarter of 2016. Economic, financial and even political news, both domestic and international, often had an excessive impact on equity markets. Global economic developments that began in 2015―a weakening Chinese economy and a devaluation of the renminbi (RMB), the oil crisis and the global supply-demand imbalance, a more robust asset buying program by the European Central Bank, the Fed’s about-face on interest rate hikes―added to the surrounding volatility, much to the chagrin of investors. In these conditions, how is the Canadian stock market holding up?
Canadian stock market in remission
Despite this climate of uncertainty, the Canadian stock market turned in one of the best performances in the first quarter, with the TSX Index gaining 4.54%, topped only by the Brazilian stock market, which jumped 19.72%. Following some big swings, the Canadian dollar rose 13% late in the quarter to US$0.77, after hitting a low of US$0.68 on January 20, 2016.
The oil situation continues to produce contradictory effects. The low price is a boon for consumers, but investments in the sector have fallen. After many swings in the price of a barrel, the energy sector still led the way on Canada’s TSX in the first quarter, thanks to the performance of oil transportation and pipeline stocks, as well as exploration and production companies. Integrated oils (Suncor Energy, etc.) and refiners were hard hit by the U.S. government’s decision to lift the embargo on crude imports. The price of natural gas suffered a similar fate due to a drop in demand.
Banks and insurance: winners and losers
The Canadian banking system remains strong, and in the first few months of the year, the banking sector equalled the performance of the TSX, despite some brief corrections. It even outperformed the financial services sector as a whole, including insurance (+3.73%), a sector hurt by low interest rates.
Gold bounces back
Canada’s stock indices also received a boost from materials. Fueled by a 16.2% rise in the price of gold at March 31, 2016, the gold sector doubled the gain of the materials sector.
Valeant under the knife
The saga of the pharmaceutical company Valeant has been a bumpy one. Initially praised by the markets for the avant-garde vision of its management team, Valeant saw its stock hit highs in August 2015, only to lose 76% of its value by the end of the first quarter of 2016. The causes of this plunge are many: lack of transparency, accounting irregularities, late filing of financial statements… the list goes on and on. In the end, the Valeant “bubble” has caused investors considerable anxiety…
The Canadian market remains volatile, but according to economists, the Canadian economy remains fundamentally sound. Although unsettling, periods of volatility offer many investment opportunities, which our teams of portfolio managers are quick to exploit. The best thing an investor can do is stay the course. Unless there is a major change in your professional or personal situation, stick to your investment policy. And never give in to panic. Your team of wealth management experts at the Financial has the situation well in hand and is dedicated to protecting your assets. Should you have any questions, don’t hesitate to contact your Advisor!
Source : Bloomberg, Marc 31, 2016
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The opinions expressed here do not necessarily represent the views of Professionals’ Financial. The information contained herein has been obtained from sources deemed reliable, but we do not guarantee the accuracy of this information, and it may be incomplete. The opinions expressed are based upon our analysis and interpretation of this information and are not to be construed as a recommendation. For any questions, please consult your Wealth Management Advisor.