Home bias not such a bad idea

As the rest of the world struggles to stave off economic hardships—recession in Europe, inflation in the emerging markets—one market has remained relatively safe: Canada. Not only do investors avoid currency risk, but the domestic market continues to benefit from resource demand.

This makes market dips enticing buying opportunities.

“When we think about Canadian equities today, we’re encouraged by some of the quality businesses we can buy at below average valuations,” says Colum McKinley, vice president, equities, CIBC Global Asset Management.

“We do recognize that we are likely to have a period of sluggish economic growth for a number of years, but companies have been very aggressive in cutting costs, so we think margins will be maintained.”

On the macro-economic level, Canada benefits from the political stability of a majority government, he says. “That’s a stark contrast to what we’re seeing around the world where we see a lot of indecision.”

While much of Canada’s economic growth has been driven by exports of raw materials to the emerging economies, McKinley says there are underlying strengths in the financial system that supports extraction industries.

“We all know the Canadian banks did quite well through the credit crisis in the United States, and we think that’s likely to remain true as people’s concerns about Europe continue,” he says. “That gives a strong foundation to the Canadian economy.”

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.