Finding bargains in Canada and emerging markets.

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Luc de la Durantaye, chief investment strategist and CIO, multi-asset and currency management.
As we start 2019, we’re seeing, given the correction that we’ve seen across the board in risky assets, risk premium have increased throughout 2018. We’re beginning the year 2019 with somewhat more attractive expected return for equity markets across the board and, also, for parts of credit including high yield and, finally, emerging bonds, emerging sovereign bonds are also more attractive than last year.
This valuation advantage is certainly of interest at the start of 2019, and provides better opportunities than we have seen most of the year last year. What we need to be comfortable with, as we start 2019, is that Central Bank continue to pause and that the deceleration in growth stabilizes around the world, so that we have … The market can be reassured that 2019 will be a continued growth and that we are not seeing a recession.
Our sense is that we don’t have recession in our outlook. We think that growth can stabilize at a lower rate. We see global growth decelerating from 3.5% to 3.3%. That’s still an environment that is supportive for assets, particularly in the case, at least for the first half of the year, where Central Banks are going to be in pause and being in data monitoring. That provides an opportunity for better performance, at least for the first half of the year.
In terms of where we see opportunities, well, as our corporate fixed income specialists, I think they’re starting to see some degree of attractiveness in corporate bonds, some degree of interest also, better interest, in high yield given the widening of the spreads. Across the board, in terms of equity markets, I think what we’re seeing is quite an improvement.
Equity valuation, for example, at the start of the year, roughly two thirds of countries that we cover are trading below their fair value price earning, which is almost the opposite of last year where, back then, two thirds of countries that we covered were trading above their historical price earnings. That’s definitely an improvement.
In specifically the US, nevertheless, continues to be the most expensive market, although it’s trading closer to its fair value. When we look at Canada in particular and emerging markets, these markets are trading well below their historical average in terms of price earnings. That creates opportunities, relative opportunities, between the US market, where we would continue to be more defensive towards, and opportunities towards the Canadian equity market and emerging markets for the next six to 12 months.

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