As the Toronto Stock Exchange has generated double-digit annualized returns during the past five years, managers predict the Canadian equity market will produce a return of 6% this year. Better returns are expected to come from international and emerging markets, with median forecasts of 8% and 8.4%, respectively.
However, there is little consensus around these predictions, with a wide range of forecasts and some managers actually expecting double-digit declines.
Research In Motion, which rose 126% in 2007, is expected to be one of the top performing Canadian large cap stocks this year, along with TD Bank and CIBC. And despite recent weakness due to the impact of the subprime mortgage mess, managers expect financials to be the most attractive sector in Canada.
Healthcare and consumer discretionary are forecast to be the worst-performing sectors in 2008. The managers are split on the performance of the energy and materials sectors; some expect resources to do well, while others expect them to lag the market.
Canadian equities are predicted to slightly outpace bonds, which are expected to deliver returns of about 4%. Managers predict lower short-term rates in response to the continuing subprime credit market. Still, more stable interest rates are expected over the long term.
Investment managers also expect the Canadian dollar to be at parity with the U.S. dollar at the end of the year.
“The strong and rapid appreciation of the Canadian dollar over the course of 2007 and the associated negative Canadian dollar returns on unhedged foreign investments have renewed interest in currency management for Canadian pension plan sponsors”, says Peter Muldowney, head of Mercer’s investment consulting business in Canada. “Many plan sponsors now have higher exposure to foreign assets, due to the elimination of the foreign content rule. This adds to the importance of the decision on currency management.”
There were 54 Canadian and global institutional investment managers that took part in the survey. Together, these firms manage more than $11.9 trillion for Canadian pension funds and other investors globally.
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