Market opportunities amid improving economic growth

Global equities and bond markets look promising amid continued economic recovery and favourable market conditions. 

In a recent interview, Michael Sager, managing director and head of multi-asset and currency management with CIBC Asset Management, noted some specific opportunities. 

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Sager highlighted the potential for “catch-up performance” for Canadian and emerging market equities, given their underperformance the past couple years and an improving cyclical economic outlook.

Further, valuations in Canada and the emerging markets, broadly, are “fairly neutral,” he said. “That compares, for instance, to U.S. large cap, where valuations remain more challenging.”

In emerging markets, Sager had a preference for regions outside China, such as India and Latin America.

His insights were informed by a backdrop of stronger-than-expected economic growth in developed markets as well as improving growth in parts of the emerging markets.

“A better growth outlook is good for corporate earnings, and corporate earnings, of course, are good for equity performance,” Sager said.

However, there are some caveats, he added. Geopolitical risk remains high, and he expects market volatility will increase as the fall U.S. elections approach. A more immediate risk is sticky inflation — a potential headwind for equities if rates remain higher for longer.

Despite these challenges, Sager said he was constructive on equities for the next six to 12 months, given his growth outlook.

Turning to fixed income, the U.S. 10-year Treasury yield is above 4.5% versus close to zero in 2020. Given that indicator of long-term return combined with the diversification benefit of bonds — particularly in the face of geopolitical tensions, U.S. politics and inflation — Sager said he was “more constructive on the core role of fixed income than was previously the case.”

He favours global fixed income over Canada, he said, citing the potential for interest rate carry. 

He also noted that market performance has broadened to sectors beyond tech and the Magnificient Seven. Referring to tech’s performance last year, Sager said, “There always seems to be a reason … to time the market; there’s always a better opportunity, so it seems, than the 60/40 portfolio.”

But timing the market is difficult, including “efforts to enter and exit equity markets on a tactical basis,” he said.

Further, based on data, “over the long term, a balanced portfolio is a really coherent way for a majority of investors to get exposure to markets … in a way that delivers their long-term goals and objectives,” Sager said.  

While market-timing strategies or identifying themes that will outperform in the short term may be appealing, “in hindsight, the balanced portfolio has delivered in a way that takes emotion away and minimizes the errors that come with market timing,” he said.

This article is part of the Advisor To Go program, powered by CIBC Asset Management. It was written without input from the sponsor.