Last we spoke to our optimism for the coming year, especially for the Canadian investor. We also discussed the strength of the capital markets outside of Canada, and that the returns seen in 2013 are what could be referred to as an “outlier” and not the long term norm. The spreadsheet from our friends at Jarislowsky Fraser, seen below, put those returns into a better perspective.
Prospects for the Canadian economy improved as we ended 2013, which we believe will end being reflected in stronger GDP growth for Canada over much of the rest of the world’s developed economies. The cyclical recovery in global economic growth is ongoing, but likely to remain at a subdued level, the forecasts we have seen suggest an approximate 1.9% growth for Canadian GDP. For the developed, western economies, a growth level of 1.9% is modest, but higher than most. With the Canadian equity markets providing investors with “Canadian Dollar” returns that exceed most of the other major world markets over the longer term; we remain predominantly invested within Canada.
Given the continued modest global economic growth, the strong performance of certain global equity markets is at odds to that relatively weak economic data. It is our expectation that we will see the global equity markets revert back to their longer term norms driven by economic data. In aggregate the global economy is improving, and our expectation is to see final global GDP growth in the 3.0% to 3.5% range.
The U.S. Federal Reserve announced the January start to unwinding its extreme stimulus, which we expect will place more downward pressure on the Canadian Dollar. Our strategists are forecasting that the Canadian Dollar falls to the 90 cent level. Given the context of a lower Canadian Dollar, we would continue to hold foreign currency based investments, albeit in a balanced fashion.
Interest rates remain at historical lows and we doubt the Bank of Canada will be raising rates until at least the second half of next year, particularly with inflation continuing to run below its target.
This week we thought we would end our newsletter with a little commentary on the “Year of the Horse” as the Chinese Lunar calendar New Year is about to be celebrated at the end of this month.
According to the Travel China Guide website, the spirit of the horse is recognized to be a Chinese person’s ethos – making unremitting efforts to improve themselves. It is energetic, bright, warm-hearted, intelligent and able. People born in the year of the horse have ingenious communication techniques and in their community, they are clever, kind to others, cheerful, perceptive, earthy but stubborn.
Previous years of the Horse include 1918, 1930, 1942, 1954, 1966, 1978, 1990, and 2002. Some notable, or at least recognizable, celebrities born in the Year of the Horse include; Louisa May Alcott, Chopin, Davy Crockett, Aretha Franklin, Rembrandt, Teddy Roosevelt, Sir Isaac Newton, Denzel Washington, Harrison Ford, Paul McCartney, Genghis Khan and Oprah Winfrey.
As always, we welcome any feedback.
The Dekker Hewett Group