Russell Investments' quarterly outlook: Canadian economy battling several headwinds
Softer housing market expected to weigh on consumer spending
Higher U.S. bond yields likely to keep the Canadian dollar below parity
TORONTO, Aug. 2, 2013 /CNW/ - Russell Investments has released its quarterly outlook for global capital markets, projecting a weaker Canadian economy amid continuing improvements in the U.S., Europe and Japan. The 3rd Quarter Strategists' Outlook and Barometer features in-depth analysis of key economic and market indicators by Russell's global team of investment strategists, who help guide Russell's multi-asset portfolios and services.
In the report, Shailesh Kshatriya, Associate Director, Client Investment Strategies at Russell Investments Canada Limited, discusses Russell's adjusted forecast for Canada's economic growth due to the softer housing market and the continued high level of consumer debt. He also discusses their revised forecast for the Canadian dollar slightly lower to a range below parity with the U.S. dollar and sees bond yields in a range slightly higher than in the 2nd Quarter Strategists' Outlook and Barometer.
The latest report also includes projections from Russell's team of global strategists, who see steady growth in the U.S. market over the next 24 months, and forecast that the U.S. economy has sufficient spare capacity to grow without generating inflation pressures.
Even after the strong rally in global equity markets, Russell's strategists favor equities over bonds and cash, although equities are expected to outperform bonds by a smaller margin than in the first half of 2013. Within global equities, Russell strategists prefer Europe and Japan due to slight improvements in the Eurozone, the success of 'Abe-nomics' in Japan, and the overall attractiveness of Japanese and European equity valuations relative to U.S. valuations.
"We expect in the months ahead to see economic growth in the U.S. to remain modest but robust, Europe to emerge from recession and Japan to accelerate," said Andrew Pease, Global Head of Investment Strategy for Russell Investments. "The gains in global equity markets and rises in bond yields mean that we head into the second half of the year with equity markets offering reasonable, but not outstanding value and with bond markets less dangerously overvalued."
Canadian equities, meanwhile, are expected to struggle to remain in the "black" for the rest of the year, as the economic weakness is expected to create a formidable headwind for corporate earnings. Russell has revised the year-end forecast for the S&P/TSX Composite Index down to 12,400 from 12,600 previously.
"The gold sector is grappling with high costs and lacklustre growth prospects," Kshatriya noted. "Meanwhile, the banking sector will probably be weighed down by the expected slowdown in consumer spending. Additionally, with crude oil prices volatile, the outlook for the energy sector is uncertain. As these are the three dominant sectors in the index, we are cautious on the prospects for the TSX."
Relative-return barometer
Russell's strategists also offer a look at key global asset class pairings to determine which asset class in each pair currently signals better return prospects. Their model currently signals a preference towards U.S. and International equities, respectively, relative to Canadian equities.
Russell's updated forecasts for Canada include:
| Original | Updated | ||||||
| Gross Domestic Product growth | 1.7%-2.0% | 1.7%-2.0% | |||||
| Canada 10-year bond yield (year-end) | 1.9%-2.2% | 2.1%-2.4% | |||||
| Bank of Canada target rate | 1.0% | 1.0% | |||||
| USD/CAD | $0.95-$1.05 | $0.90-$1.00 | |||||
| S&P/TSX Composite Index (year-end) | 12,600 | 12,400 | |||||
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For more information, please see the 3rd Quarter Strategists' Outlook and Barometer or Perspectives du marché canadien.
About Russell Investments
Russell Investments (Russell) is a global asset manager and one of only a few firms that offers actively managed multi-asset portfolios and services that include advice, investments and implementation. Working with institutional investors, financial advisors and individuals, Russell's core capabilities extend across capital market insights, manager research, portfolio construction, portfolio implementation and indexes.
Russell has $250.3 billion* in assets under management (as of 6/30/2013) and works with over 2,500 institutional clients, independent distribution partners and individual investors globally. As a consultant to some of the largest pools of capital in the world, Russell has $2.6 trillion in assets under advisement (as of 12/31/2012). It has four decades of experience researching and selecting investment managers and meets annually with more than 2,200 managers around the world. Russell traded more than $1.4 trillion in 2012 through its implementation services business. Russell also calculates approximately 700,000 benchmarks daily covering 98% of the investable market globally, which includes more than 80 countries and more than 10,000 securities. Approximately $4.1 trillion in assets are benchmarked to the Russell Indexes.
Russell is headquartered in Seattle, Washington, USA, and has offices around the world including Amsterdam, Auckland, Beijing, Chicago, Frankfurt, London, Melbourne, Milan, New York, Paris, Seoul, Singapore, Sydney, Tokyo and Toronto. For more information about how Russell helps to improve financial security for people, visit www.russell.com or follow @Russell_News.
*includes US$69 billion of derivative overlay assets under management not included prior to June 30, 2013
Important information
Nothing in this publication is intended to constitute legal, tax, securities or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. This information is made available on an "as is" basis. Russell Investments Canada Limited does not make any warranty or representation regarding the information.
Unless otherwise stated all index data is sourced from ©BNY Mellon Asset Servicing. All rights reserved.
Russell Investments and the Russell Investments logo are either trademarks or registered trademarks of Frank Russell Company, used under license by Russell Investments Canada Limited.
Russell Investments Canada Limited is a wholly owned subsidiary of Frank Russell Company and was established in 1985. Russell Investments Canada Limited and its affiliates, including Frank Russell Company, are collectively known as "Russell Investments".
Copyright © Russell Investments Canada Limited 2013. All rights reserved. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments.
RETAIL-2013-07-26-0594 (EXP-07-2014)
SOURCE: Russell Investments Canada Limited
Rob Baird
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