Recently, I attended the iA Securities Advisor Summit in Quebec City.

While there were many fascinating topics and speakers, I would like to share highlights from Clement Gignac's presentation. Clement is Senior Vice-President and Chief Economist at our parent company iA Financial Group.

Summarized from Clement Gignac’s presentation on September 23, 2019 at the iAS Advisor Summit:

• We are currently experiencing the longest bull market in history, but bull markets do not die of old age
• The service sector is resilient however, the manufacturing sector is slowing down
• ISM Manufacturing Index is at 50, signalling a slowdown, which is confirmed by a CEO survey indicating that 60-70% expect a slowdown
• GDP expected to end at 2.9%, down from 3.6% in 2018
• Policy mistakes or external market shocks could jeopardize business cycle
• Financial markets are very sensitive to trade settlements developing in USA
• Global trade contraction outside of recession is a first, due to the rise in protectionism
• Analysts are not calling a recession yet, however, if USA imposes additional tariffs in December, this will have a significant impact
• Historically, a US president has never been re-elected in a recession. The emphasis will be on President Trump to get changes enacted before additional tariffs are enacted in mid-December
• The labour market is posting its best results in 16 years
• Canada has the highest immigration growth of the OECD countries and the highest level of education with 65% of immigrants aged 25-45 having post-secondary education
• Fair value of the Canadian dollar is closer to 80 cents
• Bond yields are very low. Global bond yields have hit a record low. There are now 14 trillion bonds in the world with negative interest rates—this means that citizens are financing government funds to borrow from them

International perspectives—bottom line

Risk factors:

• The trade relationship between China and the US remains tense and brings significant uncertainty to global supply chains
• The weakness of manufacturing activity could lead to larger global economic downturn, especially in Europe with Germany
• Geopolitical risks remain high (tensions in the middle east)
• Political uncertainty around Brexit

Positive elements:

• The US consumer remains confident and has an adequate level of savings
• China is using its fiscal policy in a recession scenario
• Germany is open to using its fiscal policy in a recession scenario
• Many central banks are now pointing to further monetary easing

This information has been prepared by Greg Frost who is an Investment Advisor for HollisWealth®. Opinions expressed in this article are those of the Investment Advisor only and do not necessarily reflect those of HollisWealth. HollisWealth® is a division of Industrial Alliance Securities Inc., a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.

2018 Review

Investors are having a hard time adjusting to central bank tightening, trade war rhetoric, and a global growth slowdown. This has led to sharp valuation compression. Almost 90% of all global asset classes have generated negative returns, the highest proportion recorded in over a century. Meanwhile, cash is outperforming global equities and bonds for the first time since 1994. So, it seems fair to say that 2018 has been a tough year.

2019 Outlook

If excessive monetary tightening, escalating trade wars and a growth slump form the basis for worry, then the investment outlook for 2019 is beginning to brighten:

§ U.S. monetary authorities have signaled that they will slow their pace of tightening, while other major central banks push out the date for when they might start their respective tightening cycles;

§ The Sino-U.S. trade war appears to be de-escalating, the USMCA has been signed and the largest bilateral trade deal in history, between the EU and Japan, goes into effect March 2019;

§ A global recession seems unlikely over the next year. Ongoing growth will be aided, in large part, by the world’s two largest economies - U.S. and China.

The Big Picture

A look back at 2018 and outlook for 2019

Clement Gignac, Senior VP, Chief Economist

iA Financial Group

According to Deutsche Bank, close to 90% of combined bonds, equities and commodities indices are posting a negative YTD return. A first since 1901...

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