Sun Life leaders, Rocco Taglioni and Sadiq S. Adatia, discuss the market outlook for 2016, and what you can do for clients.

Low oil prices unseen in a decade or more, the plummeting value of the Canadian dollar, volatile stock markets — what does it all mean to your business and your clients?

First and foremost, your clients are looking to you for your advice and direction. A recent poll suggests Canadians may be anxious about our national economy and their personal financial state: 1

  • 44% of respondents expect the Canadian economy to be weaker in 2016.
  • 36% expect their investments to be worse off this year, while 18% expect to be better off.

You can alleviate clients’ fears, especially when they become confused by negative news and contradictory forecasts from financial experts. In times of economic uncertainty, clients may try to hide from the chaos around them, allowing their retirement contributions to pile up in a stable, but low-earning money-market mutual fund. Not making a decision or choosing the seemingly safest path could ultimately reduce — not improve — their financial security in retirement.

To gain further insight into the year ahead, I asked my colleague, Sadiq S. Adatia , Chief Investment Officer, Sun Life Global Investments, for his perspective.

Rocco: Clients are hearing a lot about the low price of oil and the falling Canadian dollar. Should they be worried?

Sadiq: Oil has dropped far, breaking through US$35 a barrel during Q4 and falling below US$30 a barrel in 2016. The low Canadian dollar compared to the U.S. dollar is generally good news for producers, but bad news for consumers. The last time Canada’s dollar was worth more than the U.S. dollar was February 2013. We don’t see oil prices or the Canadian dollar recovering in this quarter.

Rocco: We’re seeing continuing low interest rates in Canada and the U.S., but are there signs they’ll rise slowly in 2016?

Sadiq: The U.S. Federal Reserve finally started raising rates after almost a decade. The dot plot (interest rate targets suggested by individual Federal governors) revealed that most Federal officials believe rates could go up another 4 times in 2016. This is quite aggressive, and something that most market participants may not have expected. So, though the uncertainty around the timing of the first rate hike is now over, the uncertainty surrounding the number and magnitude of future rate hikes is just starting.

Rocco: Compare the economic situation in the U.S. with Canada for us.

Sadiq: We expected the U.S. equity markets to bounce back, but not to hit another new high in Q4. And that looks to be our view in 2016 as well. We predict the U.S. equity market will have a positive year, but nothing to brag about, as we continue to see the risk/reward tradeoff deteriorate.

The story remains the same in Canada. As in recent quarters, slumping commodity and oil prices continue to take a toll on the economy. Despite seeing the Canadian dollar drop to its lowest level in over a decade, the manufacturing sector has not really seen much improvement and we doubt we’ll see much growth in this area.

With a new government in place, we should see some additional spending on infrastructure to stimulate employment and help offset additional job losses in the energy sector. Though we still see more pain in Canadian equities, there may finally be some opportunities, particularly in the energy sector, given current price levels. But, as with most things, patience is the key for clients.

Rocco: How do you interpret the international scene?

Sadiq: We feel the eurozone economy continues to head in the right direction, and we’re pleased with the progress there. We think that even more monetary stimulus will be in the cards for the eurozone in 2016, along with a weaker currency, and that makes us optimistic about investing in international equity markets.

We could see additional volatility in China in 2016. Market participants still seem to expect a lot from China, and that worries me a little bit. India continues to impress us, and we think the equity market will deliver another positive result next year.

Emerging markets is an asset class that could see a bumpy ride as the divergence among economies is quite prevalent, and a strong U.S. dollar is likely to be an ongoing headwind. Expert country and stock selection will be very important in this asset class in 2016.

Rocco: In summary, what does 2016 look like to you?

Sadiq: Though volatility decreased in Q4, we expect it to pick up again this year. We still feel there is a fair bit of nervousness out there, which could cause markets to have more of a roller coaster ride.

Our view has not changed about the U.S. economy, but when it comes to the S&P 500, we think returns are likely to be modest at best. We have grown more cautious since the market rebounded in Q4.

In Canada, all is not well. The continuing fall in oil prices will likely hit energy companies even harder than expected, and we feel more jobs losses are on the way. We do think the energy sector is looking more attractive given current price levels, but we’re not buyers at this time. Also, we expect Canadian bonds to continue to outperform their global counterparts.

Overall, we feel that volatility will be more predominant in 2016 and that further upside in most equity and bond markets may be limited. This will be a year when thoughtful asset allocation will be vital, as there will likely be more divergence among markets. We continue to take a conservative approach and will happily wait for opportunities.

Suggesting solutions before clients call

Thank you Sadiq. Your insights and views on the markets and the economy are truly appreciated, and are perspectives that can help advisors. One other aspect that I’d like to add into the discussion surrounds the high level of debt among Canadians. The average Canadian household owes $164 for each dollar of income it brings in annually.2 This situation, if not properly managed, increases the risk of not attaining financial security, and threatens retirement plans. Anything you can do to help clients manage and reduce their debt — paying off credit cards, cutting unnecessary expenses, budgeting better — and plan better for retirement, will make their financial year better.

Sometimes the best advice is worth repeating, so it’s very important to communicate with your clients regularly during these volatile markets:

  • Help them re-evaluate or remind them of their plan — short term, long term and retirement goals.
  • Reassure them about their portfolios’ investment strategy, and ensure that the portfolio asset mix is sound and/or rebalanced.
  • Help them stay focused and confident, so they don’t make emotional decisions about their investments that they may regret later.
  • Review their overall financial picture to ensure they’re mitigating the risks that can severely impact their plans. Well beyond investment performance, adverse health or life events can derail financial well-being. Make sure they don’t lose sight of this because of heightened noise surrounding the markets.
  • And remind clients that despite market uncertainty, if they keep making regular contributions to their savings and retirement plans, ideally through automatic payroll contributions, they won’t have to worry about market volatility as much. They’ll know regular contributions toward, for example, a registered retirement savings plan or tax-free savings account will lead to sound dollar cost averaging. In other words, down markets aren’t all bad news; they present opportunities!

Resources — for explaining economic activity and easing anxieties

  • See Sadiq’s Market updates and more news and commentary.
  • At the new Welcome to the Bright Side website, you can show your clients the benefits of being invested, diversified and balanced.
  • If you have questions or would like to discuss wealth strategies, please contact a member of the Sun Life Wealth sales team.

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1 Survey from early January 2016, commissioned by the Globe and Mail.

2 Statistics Canada, December 2015

Rocco Taglioni, Senior Vice-President, Head of Distribution, Individual Insurance and Wealth, is responsible for the overall leadership of Sun Life Financial’s distribution organizations across its Retail business in Canada. His role encompasses the leadership of the distribution company, as President Sun Life Financial Distributors Inc., as well as the Insurance and Wealth wholesaling sales organizations. Through the various leadership teams he oversees the development, direction, and execution of the Distribution strategies centered on wealth management, protection, retirement, and estate and financial planning.

Since joining Sun Life in 2004, Rocco has held various executive leadership roles, including Vice-President Business Development, Group Benefits; Head of Individual Wealth Management; Senior-Vice-President, Client Solutions; and most recently Senior Vice-President, Distribution and Marketing, Individual Insurance and Wealth. Throughout his tenure at Sun Life, Rocco has led various business strategies centered on building, transforming, and evolving organizations and teams to drive higher levels of performance and success.

Rocco has 36 years of experience in strategic leadership in the insurance and investment industries. He has served on and is a member of a number of boards. Rocco is currently President and Chair, Sun Life Financial Distributors (Canada) Inc. and is a member of the Sun Life Financial Investment Services (Canada) Inc. board. He is a member of various industry associations, including Advocis, GAMA Canada, the Canadian Pension and Benefits Institute, and the Association of Canadian Pension Management.

Rocco holds a Bachelor of Arts in Economics from York University.