RBC Dominion Securities Inc. ECONOMIC UPDATE What to do with investments. Clementine Van Veen, Vice President & Portfolio Manager

Transcription

1 RBC Dominion Securities Inc. ECONOMIC UPDATE 2015 What to do with investments, Vice President & Portfolio Manager

2 GDP GROWTH OF MAJOR REGIONS

3 CENTRAL BANK INTEREST RATES September 2015 September 2016 est USA 0.25% 1.00% CAN 0.50% 0.50% EUR 0.05% 0.05% UK 0.50% 1.25% CHINA 4.60% 3.85% Source: RBC Investment Strategy Committee

4 INFLATION RATES 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% est 2016 est 1.50% 1.00% 0.50% 0.00% US CAN EUR UK EM* *EM Includes China

5 10 YEAR GOVERNMENT BOND YIELD September 30, 2015 September 20, 2106 est USA 2.05% 2.75% CAN 1.43% 1.75% EUR 0.59% 1.0% UK 1.76% 2.75% CHINA 3.29% N/A 5 year GIC 2.20% short term money 0.75% Source: RBC Investment Strategy Committee

6 CANADA Loonie hit new lows in September as long-term oil estimates lowered 2016 est is $57 WTI/BBL Expect the loonie to stabilize as exports should start to pick up House construction remains firm in spite of calls for a slowdown Business capex and government spending weak will this change with a new government? Consumer attitude strained by resource sector job loss and stagnant wage growth. BOC expects spending in energy sector to decline 20% in 2016 following a 40% drop in 2015 November 17, 18, 2015

7 USA Private sector grew 3.3% y/y in spite of bad weather early in 2015 House sales remain strong(ish) Unemployment claims at 40 year lows Leading indicators and confidence are elevated but have shown signs of weakness rate of increase in employment slowing Recovery continues - but not at a great pace No signs of recession

8 EUROPE & UK EUROZONE Positive growth continues Private sector lending up y/y for the past 7 months after almost 3 years of decline Business confidence and industrial production are on the rise UK Services sector and trade driving GDP Construction and business capex flat Oil sector subtracted Employment softer

9 CHINA Internal indicators are mixed and weak Fixed asset investment slowing as economy continues transition to a consumer based economy Manufacturing has turned negative again Consumer and business confidence softer Some firming in house prices PRBOC has cut rates 5 times and more cuts are expected Devaluation of currency to reflect more realistic value

10 EQUITY MARKETS In midst of long expected correction See this as a correction in bull market Expect US equity markets to move upwards once correction over Canadian market will remain weak given weakness in commodities and pressure on banks from slowing loan growth.

11 INDEX RETURNS

12 Election Results are in Implications are sector specific Engineering and construction should benefit from infrastructure spending Potential changes to regulations to Telco's TPP if ratified Auto sector reduction in minimum content rules mitigated by: Costly shipping of many products due to size or parts already manufactured overseas US Election Not enough visibility to make a call on policy implications

13 ECONOMIC UPDATE SUMMARY Global economies OK but not great Growth OK but not great US most important economy to world and Canada almost 0 sign of recession hence.. we are positive on US equity markets Politics could upset the applecart Overall mildly positive

14 WHAT DOES IT ALL MEAN??? Bond investors continue to earn sub-par returns and could see negative returns. Equity markets continue to offer better opportunities as economic environment favours stocks over bonds Dividend yields remain higher than bond yields Stocks provide hedge against inflation

15 Asset allocation we remain underweight bonds/canadian equity Challenging environment for those traditionally invested in Fixed Income Risks to capital and purchasing power Time to reassess financial situation Reassess Investment Policy Organizations committing some investment to equity

16 RETURNS IN A RISING INTEREST RATE WORLD Bond and stock portfolios

17 CONCLUSION The world is what it is Our job is to deal with it Vice President & Portfolio Manager

18 QUESTIONS?

19 Disclaimer **Rates [and/or yields] as of October 31, Rates [and/or yields] are subject to change and availability. This commentary is based on information that is believed to be accurate at the time of writing, and is subject to change. All opinions and estimates contained in this report constitute RBC Dominion Securities Inc. s judgment as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. Interest rates, market conditions and other investment factors are subject to change. Past performance may not be repeated. The information provided is intended only to illustrate certain historical returns and is not intended to reflect future values or returns. RBC Dominion Securities Inc. and its affiliates may have an investment banking or other relationship with some or all of the issuers mentioned herein and may trade in any of the securities mentioned herein either for their own account or the accounts of their customers. RBC Dominion Securities Inc. and its affiliates also may issue options on securities mentioned herein and may trade in options issued by others. Accordingly, RBC Dominion Securities Inc. or its affiliates may at any time have a long or short position in any such security or option thereon. RBC Dominion Securities Inc.* and Royal Bank of Canada are separate corporate entities which are affiliated. *Member-Canadian Investor Protection Fund. RBC Dominion Securities Inc. is a member company of RBC Wealth Management, a business segment of Royal Bank of Canada. Registered trademarks of Royal Bank of Canada. Used under licence Royal Bank of Canada. All rights reserved.