As interest rates rise south of the border, so too might the valuations of late-cycle stocks.

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“There’s some upside potential built into the industrial sector,” and in materials, says Stephen Carlin, managing director and head of equities at CIBC Asset Management. In the engineering and construction spaces, “we see good fundamentals, backlogs improving [and] initiatives for more infrastructure spending. […] Against that backdrop [is] where we have positioned our portfolios.”

But he’s avoiding the paper and forest products space. “We don’t have much exposure to it simply because we don’t see the positive fundamentals,” says Carlin, who manages the Renaissance Canadian Dividend Fund. Most recently, the U.S.-Canada lumber dispute has resulted in added risk for that space, but Carlin was already bearish.

Looking to currency, he predicts the loonie will likely continue to struggle. While the loonie has rebounded from its early May 2017 low of US$0.7276 — on June 12, it was sitting at US$0.7454 — the U.S. economy is expected to grow and counter that increase.

Also, says Carlin, “In the U.S., they’ve already begun the process of a rising-rate environment. And, as you look at the various currencies around the world, Canada’s prospects don’t look as rosy.”

Read: Short-term upside for the loonie: Desjardins

One benefit of a weaker loonie is opportunities for exporters, he explains. In the energy sector, “a lower dollar would help keep cost structures lower, relative to a commodity that’s traded in U.S. dollars.” Conversely, importers suffer due to the prices on fruit and other goods from the U.S. rising.

But Carlin doesn’t expect dramatic effects either way. He says the loonie will “trade in a relatively narrow range and won’t materially influence the outlook for [exporters or importers], as we’ve seen in prior periods where the Canadian dollar had weakened quite significantly relative to the U.S. dollar.”

Read: More opportunity than risk for the Canadian economy

Of course, monitoring potential currency movements means monitoring those of President Trump. Carlin does this daily, but says, “We’re monitoring [Trump] more for risk than opportunity. We are not making much in the way of […] adjustments in our portfolios because we really don’t have a clear vision on what U.S. policies […] might look like.”


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