BULLISH OR BEARISH?

THE FINANCIAL POST’S GEOFF ZOCHODNE ASKED THREE INVESTING EXPERTS WHAT THEY EXPECT FROM MARKETS IN 2018

KURT REIMAN, BLACKROCK’S CHIEF INVESTMENT STRATEGIST FOR CANADA

Q Are you bullish or bearish heading into 2018?

A There’s still a sense of caution, that something is lurking around the corner, ready to pounce, and so investors are taking a bit of a wait-and-see approach. We actually think that there’s room to run both for the economy and markets, and that we’re measuring the duration of this economic expansion in years, not quarters. We don’t see anything that’s going to interrupt this expansion. As a result, we’re overweight stocks.

Q Do you see housing as a driver or a drag?

A I see room for it to moderate as a driver of economic activity. We are seeing the higher interest rates across the curve, we know the consumer is a bit levered here, and we know that, as a result, that tends to limit the potential for economic growth. And then you add to it the macro-prudential policies that have come into play. So I don’t think that housing continues to be the star performer given the moderation in the overall market, but that doesn’t mean there can’t be other areas for the Canadian economy to pick up some of the slack.

Q What investment ideas are you excited about?

A I think, especially relative to consensus, I would still favour stocks over bonds. I would look to position my equity portfolio in favour of cyclical sectors, like financials, and technology, and energy. And I would look overseas. I do think that Canada can play catch-up to the U.S., especially if the value factor is rewarded. We’re still sticking with some of our long-held preferences to look to international markets, look overseas, especially to (emerging markets) Japan, and Europe.

CRAIG FEHR, CANADIAN INVESTMENT STRATEGIST AT EDWARD JONES

Q Are you bullish or bearish heading into 2018?

A Categorically, I’d say we’re still bullish on equities, insofar as I think the bull market in stocks continues again in 2018. I would couch that inside of the comment that I think market volatility is going to increase substantially in the coming year, and I think the probability of an official market correction, in the order of a 10-per-cent pullback, is certainly in the cards. And I think returns are going to be lower in the coming year than we’ve enjoyed in past years, certainly relative to this year.

A How will Canadian equity markets perform in 2018?

Q I don’t see a reversal in the trend. Put differently, I think that Canadian equities are likely to underperform again in 2018. Now, I expect positive returns from the domestic market as well. But I think the combination of some of the fundamental factors that are going to play out in Canada — that being slower economic growth, as a function of some greater economic imbalances — and the actual composition of the domestic market itself — meaning the over-leverage to materials, energy and the financial services sector — probably put a little bit more restraint on overall equity market returns in 2018.

Q What sectors do you see outperforming?

A I think one of the more compelling stories will be the sectors that are going to be tied to not only to the North American, but the global economic cycle. Technology did exceptionally well in 2017. As an investor you want to always make sure that you’re not just chasing the best performer, but I think as we look ahead, the role of technology in the domestic and the global economy is going to continue to increase, and so that’s a sector where we continue to see lots of opportunities. Health care, which is dramatically underrepresented in the domestic market, is another area that we’re quite compelled by.

GREG NOTT, CHIEF INVESTMENT OFFICER, RUSSELL INVESTMENTS CANADA

Q Are you bullish or bearish heading into 2018?

A We are cautiously positive on our outlook for equities. We don’t see a bear market. We do see equity markets continuing to move higher from here throughout the year, but don’t expect it to be nearly as strong as what we’ve seen in the last year or two, and would expect to see those higher returns come with an increased level of volatility as well that we haven’t seen in the last few years. What keeps us from being outright bullish is really the valuations. That said, the cycle is still supportive for equities. We’re seeing continued synchronized global growth in both developed and emerging markets, and that should be positive for risk assets.

Q What sectors are you wary of ?

A The Canadian consumer is quite over-levered, in our opinion. This may be more of a 2019 story … in terms of higher rates really hurting the Canadian consumer, but we expect, in the latter part of 2018, to start to see a bigger impact. In terms of sectors, it has us slightly concerned on the banking sector. The Canadian banks are very solid companies, we don’t expect any sort of crisis in the banking sector, but given how strong their earnings have been, given where valuations are currently, given expectations, we think that the banking sector is more than fully valued right now. Pipelines are another.

Q What sectors for investors then?

A We continue to have a pretty positive outlook on global growth, which should support commodity prices. So the oil and gas producers we like. I recognize that the Canadian price of oil is trading quite a discount to WTI or Brent, and would expect to see that close maybe a little bit. The higher prices in the oil patch are not reflected in the share prices right now. We also tend to have a positive view towards the insurance sector, which is a bit different than the banks. They’ve got fairly strong asset management franchises that are helping drive earnings. And if rates do move a little bit higher, that should help insurance companies, as well, help their insurance book.