Our economy and dollar will likely remain weak for at least the next quarter.
“The Canadian economy has a current account deficit, partly because of an uncompetitive export sector and declining oil prices,” says Luc de la Durantaye, managing director of asset allocation and currency management at CIBC Asset Management. He manages the Renaissance Optimal Inflation Opportunities Portfolio.
To mitigate that, “a weak dollar is necessary to become more competitive and turn around the merchandise trade,” he adds. And, he expects oil prices to remain below $60 a barrel—also keeping the Canadian dollar weak.
As a result, “It’ll be difficult for the Canadian dollar to regain ground over the next six months.” De la Durantaye’s analysis shows the loonie should not fall below US$0.78, but that cyclical forces and oil prices should limit upside to US$0.82.
So what does that mean for Canadian equities? “There’s a lack of positive catalyst for them,” he says, “so the market is not attractive from a valuation perspective.”
He also points out that Canadian consumers are still highly indebted, which he says means continued sluggish growth. Canadian households’ debt-to-income ratio for Q1 2015 was 163.3%, down slightly from 163.6% in Q4 2014 but up from 163.0% in Q3 2014.
Read: Is Canada in recession?
Thanks to these gloomy stats, he notes, “we fail to see what would be the catalyst for the Canadian equity market to start outperforming other markets around the world.”
For more tips on global investing, read: