The CPBI kicked off the new year with its 7th annual Pension Investment Forecast, held at the Toronto Board of Trade yesterday. This year’s theme was “Venturing into Unchartered Territories.”
Paul Summerville of the Centre for Global Studies at the University of Victoria began the morning’s sessions with an overview of the big economic picture.
“2012 is the year of living dangerously,” he said, “and the economic outlook for the year is as ugly as it is dangerous.”
Summerville said that the monetary and fiscal policies have been compromised by the magnitude and scope of the problems we face. Among those problems is a negative outlook for Japan, the U.S., Europe and China. Japan has AIDS (advanced investment depressed syndrome), he said. And Europe has a payments crisis and can’t adjust. It’s trapped in a currency union and missing the labour mobility.
Greece and Italy are structurally uncompetitive, he continued, and the U.S. faces downside risk from the euro crisis. Meanwhile, China’s flaws include falling property prices, which will have a negative effect on developers and government revenue.
From the big picture, Eric Bushell of Signature Global Advisors zeroed in on the global capital markets.
He said the functioning of the credit markets, banking markets and equity markets and the new regulations in derivatives are going to reshape the way business is done, with many banks exiting the credit business.
For 30 years, there has been a reorganization of the real economy (trade, global integration) and the financial economy. But it took the 2008 financial crisis for regulators to wake up, he said.
“The risks to the Canadian economy are going to come from outside of the Canadian economy,” he said.
Bushell said 2012 will be similar to 2008, ’09, ’10 and ’11. Equity markets will be driven by the development in debt and credit markets, meaning asset managers will need to be flexible, and liquidity will be very low.
But those with permanent capital structures own the world, he said, as there will be big liquidity premiums. “It will be rewarding to have permanent capital.”
Moving to investment choices, Jesper Alsing of ValueInvest Asset Management shared the firm’s screening process of choosing companies in which to invest.
ValueInvest measures what the volatility is in operating profit in order to understand how a company is moving during a business cycle. That’s the way we calculate fair value, he said
Alsing pointed out that a low-growth environment can still be a winner and that investors should keep in mind the following:
- purchase quality companies at prices significantly below fair value;
- understand the business model and the earnings power;
- put a value on what you can see here and now; and
- look for instability and dividend yield.
Finally, Richard Sneller of Baillie Gifford looked at investing opportunities in China pointing out a few considerations for investors, such as how the country’s infrastructure spending continues to lag requirements in transportation, and how more attention needs to be paid to China’s hidden wealth.