The global recovery continues, with 2013 off to a great start! The US market was up 7.8% for the quarter, the Global market 6.7%, and the Canadian market 2.3%.
Once again, the Canadian market lagged behind most of the world and especially the US. This is because of the high concentration of the Canadian stock market in energy, mining and precious metals. This concentration was a boon for Canada during an unusually long bull run for natural resource prices prior to the recession. Of late it has been a bane, and with continuing weakness in these sectors our managers are increasingly looking abroad, particularly to US blue chip companies which continue to post record profits and boost dividends. General economic trends in the US are much like a re-run of the last couple years and remain positive. Most importantly, home prices continue to recover and unemployment levels continue to drop.
Compared to equity returns, fixed income returns were mut¬ed in the first quarter, albeit modestly, as interest rates rose. The strengthening US dollar versus most major currencies also helped to offset underlying lo¬cal price appreciation, leading to losses in many global bond indexes. Demographics, as well as equity volatility since 2008, may have produced a bond bubble ready to burst. With millions of baby boomers in or approaching retirement the demand for lower risk, income producing investments has driven bond prices to potentially unsustainable levels. Segregated funds with guaranteed income, annuities, and real estate based investments look more attractive than traditional government or corporate bonds; the run that bonds have had over the past few years cannot continue forever.
The economic situation in Europe is still poor but appears to be increasingly stable. Markets reacted minimally to news that Cyprus had become the fifth European Union nation to require a bailout. Despite the fact that for the first time, depositors in a EU bank (whose deposits were said to be guaranteed by the government in Cyprus, and arguably by the EU as Cyprus is a member country) had a percentage of their assets erased by a one-time levy. This could have sparked a continent-wide bank run but fortunately it did not. Investors are accustomed to this sort of crisis in Europe so it takes more than the situation in the tiny nation of Cyprus to cause a true panic. Commenting on the situation, a senior executive of the largest investment company in the world stated: "Between now and lunchtime, the U.S. will create the GDP of Cyprus." Some banks were said to be too big to fail; Cyprus was viewed as too small to matter.
With the notable exception of Japan, Asia's economy continues to grow, with China as the principle driver. Barring a trend reversal akin to what we saw in Japan in the 1990s or military conflict on the Korean peninsula, China is on pace to become the largest economy in the world within the next 15-20 years. The immediate threat facing Asia is North Korea's increasingly belligerent and militaristic tone which is directed at their neighbors to the South as well as to the US. The "Dear Leader" Kim Jong Un is a young, third generation dictator with nuclear weapons and one of the largest armies in the world. However, like his father and grandfather before him, these threats appear to be an attempt to extort concessions from the West – if history is said to repeat itself, war is unlikely.
Together, with our fund managers, we continue to provide a wide range of investment options to suit investors with different needs. Please feel free to contact me at 604-688-5262 or at firstname.lastname@example.org to review your investing and financial planning needs.
All the best,
Anthony Ciccone, B.Comm., CHFC
PS: To achieve superior returns and diversify away from the stock market, many of our clients are turning to real estate based investments. Please ask us for details.