the US, and a lot of that has to do with oil prices collapsing in the last 12 months. If you see the US hiking rates and the Bank of Canada remaining on hold, then we’ll likely see currencies move as a result. The loonie will weaken versus the US dollar, and that will benefit Canadian companies that have revenue exposure to US markets. We might also see some Canadian companies benefit from higher interest rates in the US – for example, Canadian life insurance companies such as Sun Life and Manulife, can be sensitive to rising rates and specifically to rising rates in the US. Canadian energy companies may get a bit of a tail wind in terms of sales, as oil is priced in US dollars. And then you have Canadian National or an auto parts company like Magna, that will likely benefit from the
Murenbeeld: It is likely to be under 4%, certainly for this year and 4% for next year. There are institutions that put together different models for measuring growth, but we follow the International Monetary Fund’s (IMF) World Economic Outlook composition of world growth, and they are looking at something in the neighbourhood of 3.6% for next year, and 3.1% for next year. The reason I mention 4% is that we have a chart on which we plot real commodity prices change year-over-year against world growth, and when that growth drops below 4% for a year, the real commodity price chart goes negative year-over-year. It is pretty consistent. The average price of the two bundles we chart are down sharply in 2015 over 2014; of course depending on how much oil is in the
“The impact of the US interest-rate increases should be counterbalanced to some extent by opposite trends in other developed countries” Sergei Strigo, Amundi Asset Management, a sub advisor for the Excel High Income Fund currency differential. Strigo: The fact they have actually decreased is beneficial for emerging market bonds, and we’ve seen a good performance in some of the emerging-market countries. If the Federal Reserve doesn’t hike interest rates sharply, we believe it will be supportive for emerging market debt. Clearly the countries that will benefit the most from this low interest rate environment will be the countries under some macroeconomic imbalances, high levels of debt or potential refinancing issues, such as Turkey or South Africa. What’s the forecast for global growth?
bundle, the decline would be even sharper. Next year, if commodity prices stay where they are, you’ll have a year-over-year decline for next year. The good news is, if we follow this simple model, commodity prices could increase a little – so long as it increases at a slow rate, so that the average would still be below the average of this year, but we actually have a very mild rising in commodity prices. And I am biased to that scenario, that we have hit bottom for most commodities. What we’re recommending is that advisors carefully dollar-average into the commodity sector – not aggressively – just gently start to average. These sectors have been beat up terribly, but our models indicate there is
likely to be significant value in these sectors. Strigo: Rates will go up – but the question is by how much and when. Chances are they will go up in December 2015 or next year. We are forecasting a gradual increase in the US of 25 basis points. But in the rest of the developed world, we are seeing the opposite. Interest rates are going to stay lower for much longer. The European Central Bank is talking about increasing its quantitative easing program beyond September 2016; the Bank of Japan will also have to do something similar, as Japan’s economy is not doing very well at the moment. The impact of the US interest-rate increases should be counterbalanced to some extent by opposite trends in other developed countries. Wang: Globally, I would expect interest rates to stay the same. In Europe and Japan, we are likely to see expanded QE programs that will act as a dampener on interest rates. What about Nor th American economic growth? Murenbeeld: Let’s start with the US. Our outlook for the US hasn’t changed a lot since we came out of the great recession. We’ve been talking about – for the last five years at least – about a 2% to 2.5% kind of economy. It turns out the US economy has averaged 2.2% since then. There are a number of reasons why, and some of these are going to continue forward. One reason is, the US dollar is too high, and that has two immediate effects – it boosts imports and reduce exports, and it tends to dampen business investment. Fiscal policy has generally not been supportive of growth. You would, in a different environment, expect governments to have much larger deficits than they’ve had – the reason they don’t is that they’re already heavily in debt, and there’s a political demand that they not go further into debt on the Republican side. The situation in Canada is to some degree similar. We’re a resource producer, much like Australia, so when commodity prices are down, the Canadian economy feels it quite
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