Canadian equities, which rallied strongly in the third quarter as gold and oil prices rose on geopolitical tensions, are expected to decline slightly over the remainder of the year.
Russell’s 4th Quarter Strategists’ Outlook & Barometer notes that Canadian equities are trading at a price-to-earnings (PE) ratio of 17, which is higher than American or emerging market stocks.
The U.S. Russell 1000 Index and Russell Emerging Markets Index trade at PE ratios of roughly 16 and 13, respectively.
“We deem the premium multiple as unwarranted,” says Shailesh Kshatriya, associate director, client investment strategies at Russell Investments Canada.
On the fixed income side, the yield on Government of Canada 10-year bonds moved from below 1.7% earlier in the year to more than 2.8%. Yields have since declined from their high, but Russell doesn’t expect them to retest their previous lows.
For the rest of the year, it forecasts yields to remain range-bound before resuming a gradual, yet volatile, move higher.
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