Investors can expect more attractive returns for equities, emerging market bonds and high-yield credit in 2019, says CIBC Asset Management’s Luc de la Durantaye, as central banks hold steady after a correction in risky assets.
“The market can be reassured that 2019 will [see] continued growth and we are not seeing a recession,” said the chief investment strategist and CIO, multi-asset and currency management, at CIBC Asset Management in an early January interview. “We don’t have recession in our outlook.”
Though they’ve flattened in recent months, the yield curves on U.S. Treasurys and Canadian government bonds haven’t inverted. An inverted yield curve, when short-term bonds provide more liquidity than long-term, has been indicative of past recessions, including in 2008.
De la Durantaye expects global growth to decelerate for at least the first half of the year, creating “an environment that is supportive for assets. We see global growth decelerating from 3.5% to 3.3%.”
Citing heightened trade tensions and rising U.S. interest rates, the International Monetary Fund cut its forecast for world economic growth this year from 3.7% to 3.5%.
For Canada, the IMF’s estimate for growth in 2019 was 1.9%, down from a forecast in October for growth of 2.0%, while the Bank of Canada forecasts the Canadian economy to grow by 1.7% in 2019.
Growth in emerging-market countries is forecast to slow to 4.5% this year from 4.6% in 2018, says the IMF.
So which countries will provide the best opportunities for investors? De la Durantaye said that two-thirds of the countries his firm covers were trading below their fair value price earnings.
This includes Canada and emerging markets. The U.S. continues to be the most expensive market, he said, though it’s trading closer to its fair value.
Canada and emerging markets, “are trading well below their historical averages in terms of price earnings,” he said.
While he continues to be “more defensive” on the U.S. market, the valuations in Canada and emerging markets create opportunities for the next six to 12 months, he said.
Looking to specific sectors, corporate bonds are becoming more attractive, he said, and there’s more interest in high yield “given the widening of the spreads.”
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