Investors must look abroad as the global economy improves.
That’s largely because Canada’s recent economic performance has been inconsistent, says Luc de la Durantaye, first vice president of global asset allocation and currency management at CIBC Asset Management. He manages the Renaissance Optimal Inflation Opportunities Portfolio.
On one hand, our domestic economy has been sluggish due to lacklustre growth and credit activity. On the other, America’s ongoing recovery and relatively high oil prices are boosting trade.
Further, “the Canadian dollar has been relatively weak, which is also helping on the trade front,” says de la Durantaye. “It’s…the reverse of what we’d seen for a long time. [Previously], the consumer…was holding up the economy, while a strong Canadian dollar had been hampering” trade.
This turnaround will “leave the Canadian economy underperforming the U.S. for the next 12 months,” says de la Durantaye.
Across the border, another debt-ceiling extension is on tap, he adds, but don’t expect any fireworks.
“If we look at the debt ceiling in the U.S., the negotiations have seemed calmer,” says de la Durantaye. “The debt ceiling increase earlier this year was a non-event and we expect [the same] this fall.”
What’s more, he doesn’t “think the Republicans are in a position to make a lot of noise and jeopardize the current economic recovery” ahead of the 2014 congressional elections.
That means the path is clear for continued U.S. growth, says de la Durantaye.
But “equity markets—particularly in the U.S.—have been pricing in some of that recovery. We expect foreign markets to outperform the U.S., which would be a switch from what we’ve seen over the last year of U.S. equity outperformance.”
He suggests investors gradually move away from U.S. equities and into global stocks as the recovery ramps up across the world.