By Kurt Reiman, Director, Chief Investment Strategist for Canada
Globally, investors have been piling into investments like gold, U.S. equities, and emerging market debt, but recent positioning in Canadian stocks and
bonds is less crowded. Here are some reasons why.
Compared to the wild market gyrations witnessed last summer when China devalued its currency, this August has been rather placid. Although the economic
data hasn’t been terribly robust in recent weeks, it hasn’t been disastrous either.
Meanwhile, the big financial news story of recent weeks has been whether the Fed will raise rates again during 2016, which just goes to show how starved
the media has been for real headlines. With little to jolt investors into making meaningful shifts in portfolio positioning, volatility has remained muted
and market participants are showing a tendency to gather around some of the same trades.
This isn’t necessarily a bad thing. As we wrote in our Global Weekly Commentary, some popular overweight positions still look
attractive to us, such as our preference for investment-grade credit and emerging market debt within fixed income, as well as our interest in gold as a
portfolio diversifier. One out-of-favor area we still like is emerging market equities, which show up as a modest underweight on our dashboard despite the
What do we see when we fix the lens on Canada? Earlier this summer, just before the Brexit vote, Canadian fixed income had become a popular overweight
while Canadian equities had been something of a modest underweight (see the chart below) among global investors. Since then, positioning in Canadian assets
has become much more balanced, implying less crowdedness on the part of investors.
The shift away from an underweight to a more balanced assessment of Canadian stocks likely reflects how strong year-to-date gains and investor enthusiasm
for precious metals have attracted inflows. That said, modestly high valuations and tepid Canadian economic activity have likely constrained enthusiasm.
Meanwhile, the less aggressive overweight to Canadian fixed income is likely a result of the post-Brexit decline in interest rates and likely better
opportunities in other corners of the bond market.
Kurt Reiman, Director, is BlackRock’s Chief Investment Strategist for Canada and is a member of the BlackRock Investment Institute (BII).
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