Less than a week into the new year, Canadian investors are being warned they face an uphill battle.
“For those whose job it is to manage money, you’re going to earn your keep this year by providing anything above small positive return,” warned Avery Shenfeld, chief economist with CIBC World Markets, speaking at the Economic Club of Canada’s Economic Outlook 2012 conference in Toronto.
But despite his dour outlook, Shenfeld tried to bring a smile to the faces in the audience with musical analogies. Without losing the tone of seriousness that such discussions deserve, he used song titles from the ’80s and ’90s to set out various themes of financial markets.
“For equities, it’s not ‘Celebration’ [Kool & the Gang], which is what we’d like, but probably ‘Whip It’ [Devo],” he said. “Yes, we are getting some good news to start the year, but the bad news on Europe is still lurking. We’re going to hear recession numbers out of Europe; we’re going to play around with the European debt scenario for at least another few quarters.”
The markets, he said, are going to play out much the same ways as the year gone by. In other words, 2012 won’t be a banner year for stocks.
Shenfeld predicted that market rallies will last for a week or two followed by a market correction but said that by the end of the year, equity markets will be higher than they are now having priced in the gloomy outlook.
“The companies are ‘Back in Black,’” he said, slipping in an AC/DC song title, “but expectations for earnings are too high, particularly in a world in which commodity prices are likely to be generally flat over the year.”
Within the equity market, he predicted that “best bets this year could be still some of the same assets that did well in 2011.”
Fixed income, on the other hand, will be in dire straits according to Shenfeld who summed up its value as an asset class by calling it “Money for Nothing.”
“You don’t make anything on fixed income these days, particularly at the short end of the curve,” he said but added, “you can’t entirely abandon that asset class given those potential event risks in places like Europe and Iraq.”
On commodities, Shenfeld said base metals and industrial commodities largely depend on global growth of which there has been little, and he sees no reason to expect that to change.