The Canadian dollar is expected to remain weak versus the greenback. So, to diversify, Vincent Lépine is continuing to look for opportunities outside of North America.

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The challenge is choosing where to invest, says Lépine, vice-president of Global Economic Strategy (Asset Allocation and Currency Management) at CIBC Asset Management. “Two years ago, […] you could just go to the U.S. and buy U.S. assets. This year, it’s going to be a bit different.”

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He explains, “If you look at the U.S. as an alternative, there’s potential but the […] equity market is already quite expensive, so potential returns are quite limited. You’ve got to look elsewhere to get the currency gain, but also get returns in local currency terms.”

Emerging markets are one alternative, he suggests. “And it’s not just [EM] equity markets; it’s also emerging bond markets. Having said that, the challenge is to find the right [markets],”given they’re all “quite different” in terms of their economic, political and market outlooks.

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For example, Lépine favours countries such as India, Indonesia and Russia. In comparison, he says, other EM countries aren’t as attractive due to their political landscapes or economic fundamentals, or even both. “We’ve got to be careful with that.”

Take Brazil, which was a strong emerging market pick in previous years. These days, says Lépine, “Brazil is no longer the growth story it used to be; this is an economy that has major structural issues and even the currency hasn’t really done well over the last year or so. From that angle, […] it’s not as appealing as it used to be.”

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Uncertainty is also weighing on China. Despite its potential, he says, “there’s a change in the currency regime happening that is not fully understood. So there’s a potential risk [of loss] there on the currency.”

Overall, “China is trying to emerge out of its old way of doing things […] and it’s not clear that this [strategy] is going to be a success,” Lépine adds. “I’d be prudent with China at this stage.”


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