Russell Investments' quarterly outlook: Canadian economy sluggish but resilient

Home sales have slowed but prices remain stubbornly high

Pipeline capacity constraints remain a headwind

TORONTO, Oct. 30, 2013 /CNW/ - Russell Investments has released its latest quarterly outlook for the global capital markets, predicting modest gains for equity markets and higher bond yields in 2014 as the world's major economies continue to grow.  The 4^th Quarter Strategists' Outlook & Barometer offers in-depth analysis of key economic and market indicators from Russell's global team of investment strategists, whose insights help to guide the firm's multi-asset portfolios and services.

In the report, Shailesh Kshatriya, Associate Director, Client Investment Strategies at Russell Investments Canada Limited, discusses the prospects for the Canadian economy given the ongoing strength of the housing market and the continued growth of household debt, as well as the constraints posed by the limited pipeline capacity for Canadian oil exports.

The most recent report also includes projections from Russell's team of global strategists, who note that politicians and policy likely remain the biggest threats to economic recovery, and they point to U.S. monetary policy and political pressures worldwide that could impact the 2014 performance of various asset classes.

"As we look toward 2014 we're forecasting synchronized growth across the U.S., Japan and Europe for the first time since 2010," said Andrew Pease, global head of investment strategy at Russell. "We also see a strengthening low-inflation recovery that favors equities over bonds, despite relatively full equity market valuations."

QE has minimal impact on portfolio guidance

Quantitative Easing (QE) has had little influence on the portfolio weighting guidance suggested by Russell's investment strategists. When the winding down of QE eventually happens, they expect it to trigger some market volatility; however, they do not believe the U.S. Federal Reserve has significantly distorted asset prices. In fact, they see little evidence that QE has pushed asset prices beyond levels that can be justified by the current combination of stable economic growth, low inflation and moderate corporate earnings growth.

Canadian equities trading at premium multiple

Canadian equities, which rallied strongly in the third quarter as gold and oil prices rose on geopolitical tensions, are expected to pull back slightly over the remainder of the year. Kshatriya notes that Canadian equities are currently trading at a higher price-to-earnings ratio than U.S. or Emerging Markets equities.

"We deem the premium multiple as unwarranted," Kshatriya said. Although crude oil prices have moved higher, there is still significant volatility in the spread between Western Canada Select (WCS) versus its American counterpart West Texas Intermediate (WTI), which he expects to continue until there is expanded pipeline capacity.

This includes "improving capacity within Canada's borders (i.e., west-east pipeline), extending capacity to the U.S., as well as shipments offshore. The increased news flow regarding all three options has been encouraging; however, concrete developments leading to actual "ground breaking" has yet to materialize in a meaningful way," he noted.

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 International equities relative to Canadian equities, and towards Canadian equities relative to fixed income.

For more information, please see the 4th 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. Russell stands with institutional investors, financial advisors and individuals working with their advisors—using the firm's core capabilities that extend across capital market insights, manager research, portfolio construction, portfolio implementation and indexes to help each achieve their desired investment outcomes.

Russell has more than C$253.7 billion* in assets under management (as of 9/30/2013) 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 US$2.4 trillion in assets under advisement (as of 6/30/2013). 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 US$1.4 trillion in 2012 through its implementation services business. Approximately US$4.1 trillion in assets are benchmarked to the Russell Indexes.

Headquartered in Seattle, Washington, Russell operates globally, including through its offices in Seattle, New York, London, Paris, Amsterdam, Sydney, Melbourne, Auckland, Singapore, Seoul, Tokyo, Beijing, Toronto, Chicago, San Diego, Milwaukee and Edinburgh. For more information about how Russell helps to improve financial security for people, visit http://www.russell.com/ca or follow @Russell_News.

*includes more than US$70 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.

SOURCE: Russell Investments Canada Limited

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