Foreign markets: Where are the opportunities now?
Investors may be anxious, but it’s important to look beyond short-term market shifts and focus on the big picture
By: DAVID ISRAELSON
Date: October 23, 2015
When investors look at global markets and see trouble, they should also look for opportunities, says Mike Banham, vice-president of wealth distribution at Sun Life Financial.
“Global stock markets have seen some wild swings in the past few months, and that activity is certain to make some investors anxious,” he says. “But those who keep their heads and stick to their investment strategy will recognize this kind of short-term uncertainty for its potential opportunities.”
Banham believes “advisors can work with investors to create well-balanced, diversified and disciplined investment plans. When these plans take the risk of market volatility into account, drastic market swings should have a minimal impact on their long-term goals.”
While there are always regions, countries and sectors that will lag and falter, it’s important to identify others that are doing well, says Sadiq S. Adatia, chief investment officer, Sun Life Global Investments.
“The U.S. economy looks decent – it continues to add jobs, but at a slower pace,” says Mr. Adatia. “Despite good numbers, the U.S. equity market may not live up to high expectations. We continue to expect a positive year for the U.S. equity market but we think record highs are likely behind us for now and risks are increasing.”
Looking beyond Canada to foreign markets is worthwhile at times when domestic markets are not performing well. That’s happening now, says Mr. Adatia.
“While it pains us to say it, our negative view on the Canadian economy has for the most part been realized,” he explains. “The economic impact of low oil prices continues to be a big burden in Canada.”
Investors looking beyond the border should consider markets that have not necessarily looked favourable in recent times, such as Europe, says Mr. Adatia.
“In Europe, we believe that a weak euro, improving business confidence and a better employment situation — not to mention stimulative monetary policy – should help drive the economy in the right direction,” he says.
Problems with the shaky Greek economy haven’t gone away, but that situation seems to be on the back burner. However, other emerging geopolitical issues loom in Europe – the Syrian refugee crisis and a possible referendum in Britain on exiting the European Union.
“We like European equities; however, we expect a bumpy ride,” says Mr. Adatia.
Markus Muhs, investment advisor at Canaccord Genuity Wealth Management in Edmonton also sees opportunities in the European markets.
“A good news story that was largely ignored when everyone fretted about Chinese manufacturing numbers was that European manufacturing numbers actually came in higher than expected,” says Mr. Muhs.
“I think economic growth leadership in the next few years will come less out of China and emerging markets and more out of developed markets.”
As far as the Chinese market is concerned, investors should be aware of ongoing challenges, says Mr. Adatia. But it’s important to look beyond the market’s ups and downs toward a bigger, more holistic picture.
“People have finally come to the realization that China is slowing down – growth is now expected to be closer to 5-6% in the coming years versus north of 10% not too long ago,” he says. “The economy has moved from investment-driven growth to consumer-driven growth.”
Shannon Dalziel, investment advisor at PWL Capital Inc. in Toronto, suggests that investors diversify by allocating a portion of their equities to emerging markets.
“Investing within emerging markets has historically resulted in higher returns, albeit with higher volatility for Canadian investors,” she says.
For investors who are feeling anxious, advisors can explain the risks and potential rewards offered by different foreign markets, as well as the investment products that make more sense for clients depending on their financial situation and time horizon.
If investors want to reduce market risk, advisors could suggest allocating some of their savings to guaranteed products such as payout annuities and segregated funds. “This is particularly true in retirement, when investors could be withdrawing assets at the same time as markets are losing value,” Mr. Banham says.
“The most important thing is to integrate choices into an overall strategy. The 24-hour business news cycle can convince investors to react to market shifts and take them away from their holistic investment plan,” he says.
“In times like these, a ‘stick-to-the-plan’ strategy is often the most prudent – as long as the plan is still meeting its objectives.”
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