The political and economic implications of the U.K. exit from the European Union are difficult to assess at this early stage. What we do know—there are more uncertainties and risks today than if the Remain vote had won. Increased uncertainty and market volatility are the last things the fragile global economy needs when the cyclical outlook is not improving. Slower global growth seems inevitable for many reasons including: the need to slow credit growth in China, increasing pressure on the profitability of European banks and a profit recession in the U.S.
Fixed Income vs. Equity - We are adopting a more neutral stance between equity and fixed income for the time being to reflect the various global economic and political uncertainties.
Equity - Declining profit margins in developed nations combined with currency issues that impact global competitiveness are clouding the outlook for equities.
Fixed Income - Bonds are likely to remain well supported. Corporate bonds are expected to outperform due to their higher running yield as the global search for yield continues.
Currencies - The Canadian dollar is expected to start losing steam and give up some of its recent gains against the U.S. dollar.
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