Since the 2008 financial crisis, central bank interventions in developed countries have essentially sought to stimulate economic growth by reducing rates not only at the short end of the yield curve, but also at the long end. These “quantitative easing” (QE) measures enabled businesses and consumers to finance their projects—including mortgage financing—at historically low rates. Central banks also wanted to devalue their currency to boost exports.
Another effect of low rates was to encourage investors to take more risk to obtain returns. Many opted for more aggressive investments, like stocks and high-yield bonds, to increase their portfolio’s potential.
It seems that the monetary policies of the major central banks are becoming increasingly ineffective, and even counterproductive. According to many economists, however, the economic fundamentals are relatively solid, if not buoyant.
U.S. gross domestic product (GDP) should grow by 2.0%1 in 2016, while euro zone growth should remain at 1.5%1. In both cases, growth should be driven by domestic demand.
Canada will likely post GDP growth of 1.4%2. The weak loonie could boost the manufacturing sector, among others, and increase our exports to offset the drag of the energy sector.
Reactions in China
Economic indicators continue to show a marked slowdown in China. The Purchasing Managers’ Index (PMI) fell for the seventh consecutive month, from 49.43 in January to 49.03 in February. A number below 50 indicates a contraction in economic activity. The Chinese authorities decided to take new steps to stimulate growth, including lowering the minimum down payment necessary to buy a new home.
1 PIMCO Cyclical Outlook, March 2016.
2 Monetary Policy Report, Bank of Canada, January 2016.
3 Global Economic Indicators, Yardini Research Inc., April 2016.
Responding to the opportunities
Our managers expect a particularly volatile year on the markets, with continued modest returns from the various asset classes. However, this volatility could produce opportunities for our managers. Considering the performance of the FDP Tactical Asset Allocation Private Portfolio, which represents 10% of the overall portfolio of our Private Portfolio Management and Private Securities Management clients, we are sticking to our proactive approach and aim to capitalize on the best opportunities created by these market swings.
Don’t hesitate to contact your Wealth Management Advisor or your Advisory Manager to discuss any question relating to your investment portfolio. Remember that your investment strategy was carefully developed according to your risk tolerance and your long-term financial goals. Rest assured that we keep a close eye on the markets and that our primary objective is to protect your portfolio.
Robert Naoum, B.A.A., CIMTM
Portfolio Management Advisor