Investment outlook neutral entering later stage of business cycle, finds new report

Don’t expect most assets to blow the doors off in the later half of the year, according to the latest investment outlook from GLC Asset Management Group Ltd.

The report recommends an overall neutral stance on markets going forward in 2018, calling for one per cent total returns for fixed income and single digits for equity price gains. “The world economy and financial markets continue to progress through the later stage of the business cycle,” said Brent Joyce, chief investment strategist at GLC. “We caution against extrapolating the trends of the past several years, especially in the darling areas of information technology, high yield bonds or emerging markets.”

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Investment grade corporate bonds remain the most attractive, as GLC anticipates yields will move higher, putting pressure on the asset class overall. As for equities, the report notes that diversity in geographic allocation will be key. It also favours Canadian and U.S. stocks over Britain and emerging markets, but remains neutral on the rest of Europe, as well as Japan. Expecting a 10 per cent return for Canadian equities and a three per cent dividend, the report suggests more robust prices in commodities would be supportive while a sideways move would be enough to maintain double-digit returns for Canada. 

Oil, for example, presents a mixed picture going forward. On the positive side, global demand is estimated to rise as growth continues. Conversely, however, for Canada, there’s been a waning interest in domestic oil from foreign investors, according to the outlook.

As for the rising trade tensions, the report notes that Canada is better off with the North American Free Trade Agreement than without, but it isn’t a perfect state of affairs for many of Canada’s major companies. The loonie is also in for something of a fear discount, the report anticipates.

“Today, investor, business and consumer optimism is high. Yet as a natural progression, the further along the economy rolls the harder it becomes for conditions to improve,” the outlook notes. “Eventually, a normal slowing of the economy is healthy and to be expected. We are closer to the end of the expansion cycle than the beginning and we see the relative outcomes for asset classes subject to greater uncertainty.”

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