Politicians hold key to markets
Investors need more positive signs before jumping back in
Investors will likely need to see more developments on top of recent easing efforts by China, Europe and the United States before shifting into risk assets such as Canadian resource stocks, say Aurion Capital Management’s equity portfolio managers.
“The next step will have to be something material enough to give investors confidence that they can look over the issues dominating the headlines and reverse some of their flight to safety,” said Robert Decker.
Until people lose money in areas such as REITs, pipelines and bond funds, he thinks they will be unlikely to unwind those defensive positions.
There is no shortage of uncertainty, including the loom- ing U.S. fiscal cliff, which is why so many investors sat out the summer U.S. equity rally.
As a result, the managers have sold some of their higher-beta names in the current rally.
“The U.S. economy is recovering slowly, housing and autos are doing pretty well, but employment isn’t,” said Craig MacAdam, who also runs the Aurion II Equity Fund with Decker and Gregory Taylor. “They had to throw QE3 at it to get asset prices up and keep sentiment positive.”
Across the pond, European Central Bank president Mario Draghi’s promises of a fix are encouraging but MacAdam believes any recovery will continue to be bumpy.
As for China, significant infrastructure spending announcements have been made, but a leadership change looms.
“If we get more clarity in China and the re-ignition of growth actually works, we have a pretty good foundation for a decent rally in stocks for the next few months,” MacAdam said.
But in the short term, Taylor thinks the market is ahead of itself. “We have a messy earnings season coming up as we’ve already seen a lot of warnings in the pre-announcements.”