My account

Yann Furic
B.B.A., M. Sc., CFA

Senior Portfolio Manager, Asset Allocation and Alternative Strategies

Uncertainty prevails

The events of last week and the weekend unfolded very quickly, with continuous news on the evolution of COVID-19 and its economic impacts. This has been a very difficult period for the markets. Since the situation is exceptional, investors are finding it difficult to assess the overall impact of the coronavirus on the global economy, and fear is driving the markets.

Governments and central banks take action

To help support the economy and to provide much-needed assistance to SMEs, workers and persons affected by the pandemic, governments and central banks announced several fiscal and monetary measures this week.

Government fiscal measures

In Canada

On March 18, the Canadian government rolled out major fiscal measures to support individuals and businesses.
CONSULT  THE  MEASURES

In the United States and around the world
Several governments have already announced measures to help their workers make ends meet. Germany, among others, put in place an unprecedented 460-billion-euro program to support its economy and its citizens.

Central bank monetary policies

Central banks have taken exceptional measures more quickly than during the 2008 financial crisis.

The drop in the Bank of Canada’s policy rate to 0.75% and the 1% rate cut by the U.S. Federal Reserve (Fed) on March 15 seek above all to increase liquidity in the financial system so that it can continue to work properly.

Anticipated effects

Consumer confidence is a key variable because if consumers decide to reduce their spending, the economy could slow even more quickly. That’s why governments are ready to invest heavily to reduce layoffs and to keep liquidity flowing in the economy

How long will it last?

The duration of the epidemic remains the most important factor. Good news: the number of new cases is decreasing in both China and South Korea. China’s economic data for January and February 2020 showed a sharp slowdown, while more recent data show signs of a recovery.

Even if this recovery is still weak, the planned deployment of infrastructure projects in China should help companies in the energy, basic materials and industrial products sectors, as well as in the financial sector, in the coming quarters.

The situation continues to evolve rapidly. Europe remains particularly hard hit at this time. Government restrictions and the isolation demanded of people are expected to lead to a marked slowdown in both tourism and in the restaurant and entertainment industries.

Should we expect a recession?

Given the current circumstances, we can expect a recession whose extent is not yet known. Note, however, that the term recession means two consecutive quarters of declining gross domestic product (GDP).

Certain sectors will be favoured, such as consumer staples (grocery stores), telecommunications and, particularly, e-commerce. Amazon has just announced the hiring of 100,000 employees to meet the increase in demand.

Thanks to the monetary and fiscal measures put forward, this temporary slowdown of the economy should be reversed in the second half of the year. In this context, investments in quality companies with low debt which are less subject to economic cycles should better weather market turbulence.

What are we doing?

At the Financial, our portfolio managers invest in quality companies which, overall, outperform the stock market indexes. These stocks add value.

We believe that over a longer-term investment horizon, equities should outperform bonds.

As for government bonds, bear in mind that in times of turmoil, these investments act as shock absorbers and offset losses from equities. In the current environment, bonds should be a core holding in your portfolio.

LISTENING TO YOUR CONCERNS!

Pre-authorized contributions: should I continue or stop?

Some clients are wondering whether they should end their pre-authorized contributions. Systematic saving has always been a simple and effective way to save regularly, while avoiding big lump sum investments. It’s also a great way to protect yourself against market setbacks.

By buying regularly, you avoid investing at the top of a financial cycle when stock prices are high, and you benefit from the price declines caused by market downturns.

Here is an example that compares the return on the TSX of a single lump sum invested on January 1, 2008 with an investment of the same amount, spread over 24 months.

So investors who have adopted this saving method should not interrupt it during market shocks: they have everything to gain by maintaining their PACs, if their professional and personal situation allows it, of course.

Should I sell my investments?

These days, many people are wondering if they should sell their investments or make changes to their investment portfolio.

Remember that creating wealth is a process, not an event. Your wealth is built over time, not in the context of a particular event. This is not the time to be guided by your emotions.

Consider how you started your savings: you developed a plan with your advisor, one that takes into account your risk tolerance. Stick to this plan and trust in its strength.

In addition, big rises usually occur right after big declines. Exiting the market now would mean that you’re going to crystallize losses which are only on paper now and that you’ll miss out on the rebounds which enable you to recoup the value of your investments more quickly.

 

Even if the news from the stock markets is not very encouraging right now, staying the course is definitely the best decision you can make.

We remain vigilant and will continue to keep you informed of new developments. We remain attentive to your needs and we want to respond to your concerns. Check our website regularly to learn more.

 

Yann Furic, B.B.A., M. Sc., CFA
Senior Portfolio Manager, Asset Allocation and Alternative Strategies

For an analysis of your situation,
get in touch with one of our advisors