Investment managers at Fiera Capital are cautiously optimistic that today’s synchronized global expansion will remain intact in the coming year, thanks to accommodative monetary policy which should allow the expansion to continue uninterrupted in 2019.
“Our base case remains that the environment of synchronous global growth will outweigh the uncertain geopolitical backdrop at hand,” writes Fiera’s vice president and global asset allocation portfolio manager, Candice Bangsund. “We expect the most likely outcome to be that the global economy continues to grind higher in a synchronous manner, with all major regions contributing to the advance.”
She says growth in the Canadian economy should moderate somewhat, to a more sustainable, above-trend pace.
Yield curves are expected to steepen in the coming year. Global government bond yields are expected to remain higher, pushing prices lower, thanks to global growth, rebuilding inflationary pressures and coordinated monetary policy normalization.
In equities, although market sentiment remains fragile, Bangsund says conditions for a recession remain elusive at this time. “Global equity markets should remain well supported by the vigorous economic backdrop, healthy corporate earnings prospects and reasonable valuations, while the pragmatic approach to central bank normalization should allow the (current) economic upswing to continue on uninterrupted in the coming year, helping to counter any geopolitical uncertainties at hand,” she writes. “While volatility is surely set to prevail as investors adjust to the environment of rising rates, lingering global trade uncertainties and political upheaval in Europe – the fundamental underpinnings for risk assets (will) remain largely intact over the coming year, in our view.”
She adds that Canadian equities should thrive amid the current conditions (stronger global growth, accelerating earnings expectations, rising commodity prices and steeper yield curves). Expectations for a faster pace of rate highs from the Bank of Canada should also help to narrow interest rate differentials between Canada and the United States and boost the Canadian dollar going forward.
The report, Global Investment Outlook 2019, also examines factors which could derail the optimistic outlook (trade protectionism, stagflation and geopolitical instability) and includes a currencies and commodities outlook for the coming year.