2014’s a year to explore the world – especially if you’re an investor.
Sadiq Adatia, CIO of Sun Life Global Investments, says the TSX will be in negative territory next year. “Stay away from Canada; we see a lot more headwinds continuing on.”
Those headwinds include our high levels of debt, which will dampen consumer discretionary spending. He adds our housing market should see a 10% to 15% decline over the next few years.
And as the U.S. economy improves, materials, energy and gold will “see another year of pain in the market,” he says.
This will also put more pressure on the Canadian dollar. “As our economy softens, we’ll lose our safe-haven currency appeal,” Adatia says. He anticipates the loonie will hover around 90 cents in 2014. “That will cause people to be worried about their investments in Canada, and create opportunities for foreign investments. They’ll not only get the benefit of a better foreign market, but there’s a currency play there as well.”
For those reasons, Adatia favours the U.S., emerging markets and even Europe.
South of the border, he says 5 million homeowners have gotten out of negative equity positions over the last few years – “and that’s 5 million people who can spur the economy and continue to save.” To play that recovery, he points to the home building, financial and technology sectors, as consumers spend more and companies update their software, for instance.
Healthcare and financial stocks should also do well, since boomers will need medical devices and wealth management advice as they age. The S&P will grow between 7% and 10%, he forecasts.
Tapering is possible at any time, but Adatia suggests it won’t happen until March. He can’t see Bernanke ending his term with a taper. Besides, “Yellen likes to give forward guidance, and there’s none right now.”
Emerging markets and Europe
Adatia’s confident about emerging market growth in 2014, as consumers in those countries continue to become wealthier. He recommends consumer discretionary, financials and telecoms, since “a lot of people don’t have smartphones yet.”
As for the Eurozone, he says it’s where the U.S. was a few years ago. The region’s GDP, unemployment and export numbers are all improving. While there’s still downside risk, he suggests looking for companies with strong balance sheets in sectors such as tech and healthcare.
He remains concerned about Italy, as its debt continues to rise. “It has a large bond market, so the impact could be quite big.” He’s pleased that 10-year government yields have come down to about 4%, but he’d like to see further debt reduction, especially considering that in Greece and Ireland, “things have improved dramatically.”
Adatia’s four messages for 2014:
1. Be in equities. They’ll provide better returns, less downside risk and better yields.
2. Be more global.
3. Reduce your bond allocation. If you must own them, buy foreign fixed income.
4. Dividend stocks will continue to pay off.