Global stock market volatility accelerated in recent days on renewed global economic weakness concerns. Continued economic and stock market weakness in China has received much of the blame for the recent volatility. Last week’s devaluation of the Chinese renminbi against the U.S. dollar was an attempt by the Chinese government to boost exports, but may also signal an economy that is weaker than official reports indicate.
Today, a preliminary estimate of Chinese manufacturing showed that activity contracted for the sixth month in a row, with the index at its lowest level in six years. Additionally, Chinese stock market volatility returned to extreme levels in recent trading sessions, despite government efforts to stabilize their markets.
Closer to home, uncertainty around the timing and magnitude of the U.S. Federal Reserve’s interest rate tightening cycle continues to weigh on investor sentiment. The Canadian economy sits on the precipice of a recession, while a potential change of power in Ottawa casts uncertainty over the direction of fiscal policy.
At the moment, the Investment Team views the current correction to be just that...a correction. Perhaps Canadian investors have been lulled into a false sense of security over the past few years, with very few corrections in major North American indices. However, corrections are part of equity investing. That being said, the Team remains vigilant over the possibility this may be something more.
In our Investment Team’s view, stock market valuations – while not cheap - are not considered to be expensive, particularly in relation to those prevailing before major bear markets, such as in 2007-2008. In fact, they continue to see equities as offering a more attractive opportunity set compared to fixed income. Our Team also maintains an optimistic view on U.S. equities, given relative strength in its domestic economy, healthy corporate earnings, and a currency that has exhibited defensive properties in times of investor risk aversion.
Last, but far from least, is our Investment Team’s ongoing goal to deliver downside protection and upside participation through their value oriented style of investing. By focusing on high quality companies trading at what they think are attractive valuations, they believe they can help build wealth for our clients over the long term, while aiming to manage volatility.
This document includes forward-looking information that is based on the opinions and views of Empire Life Investments Inc. as of the date stated and is subject to change without notice. This information should not be considered a recommendation to buy or sell nor should they be relied upon as investment, tax or legal advice. Information contained in this report has been obtained from third party sources believed to be reliable, but accuracy cannot be guaranteed. Empire Life Investments Inc. and its affiliates do not warrant or make any representations regarding the use or the results of the information contained herein in terms of its correctness, accuracy, timeliness, reliability, or otherwise, and do not accept any responsibility for any loss or damage that results from its use.