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Luc de la Durantaye, chief investment officer at CIBC Asset Management.
Well, following the recovery that we’ve seen in the first quarter, some of the undervaluation of many equity markets has been reduced, and what I think is important from here is first to focus on the remaining equity markets that offer some decent valuation and look at the prospects of growth at the same time.
In there, you have a number of countries. Like, Canada is trading at not too expensive price earnings multiple. If there is a stabilization in global economic activity, that should help the Canadian market. Particularly I think for the Canadian market what is interesting is the recent stabilization that we’ve observed in the Chinese data. That bodes well for supporting commodity prices. We’ve seen oil prices remaining at elevated levels. We’ve also seen commodities like copper also remaining at elevated levels. Those are elements that are typically favourable for a resource sort of tilted market.
At the same time, you have the Federal Reserve that seems to be probably staying on the sideline for a good portion of 2019. That alleviates some of the pressure that came last year from rising interest rates in the U.S. and a rising U.S. dollar. That alleviates pressure in the Canadian market for sure. It also alleviates pressure in the emerging market complex. Again, here, looking at opportunities in the emerging markets where you can still find attractive valuation and decent growth prospect, particularly in the Chinese market, for example, where if growth is stabilizing particularly in China and looking more at domestic opportunities there, is providing some attractive opportunities.
Where we see still some challenging outlook is to look at Europe. On the one hand, you can see that there’s a number of markets there that look cheap, but we have to be careful about falling into some value traps where economic activity is still not showing signs of bottoming in Europe. We have to keep in mind that policy in Europe, policy leeway both from a monetary policy and a fiscal policy, the policy leeways are not very strong. We have to be a lot more nimble in European markets. You really have to pick your spot there.
From a U.S. perspective, while it remains an overvalued market, it hasn’t prevented it from performing relatively well. But we continue to hear noise, and I think this is another area that, going forward, we’re going to have to be very careful in monitoring as we continue to hear noise about regulation in the technology sector. We see some well-known names in the U.S. that could be affected by regulation or new entrants and competitiveness, so we’re still a little bit hesitant about the U.S. market, given the valuation and given some of the risks in regulation there.
Generally speaking, a lot of the good returns that we’ve seen in the first quarter, we think that it is possible that overall with continued stabilization in economic activities for the rest of the year, we will get some decent returns, but certainly they will be more modest than the returns that we’ve just witnessed in the first quarter.