The number of countries on the trade war’s casualty list is growing quickly. For the first time in more than a decade we are projecting a pronounced global growth slowdown, with world real GDP growth falling below 3% over the next twelve months. While global investors were relieved to hear that central bankers are taking a dovish turn, market jitters have not completely disappeared.
Asset class highlights
Fixed Income vs. Equity: For a longer-term investment horizon, equities have a more attractive risk premium than bonds. But the path from the short term to the long term may be quite volatile. In this challenging environment, we are also turning to non-traditional asset classes like gold and emerging markets local-currency debt.
Equity: Canadian equity valuation is slightly less attractive than international equities, but Canada does not face the same structural slow growth. With low interest rates, U.S. equity valuation is expensive but not excessive.
Fixed Income: U.S. Treasury 10-year yields will most likely hover in a range of 2-2.50% over the next 12 months, with an increasing probability of yields below 2% if the global slowdown lingers.
Currencies: The Canadian dollar remains more fundamentally challenged than most developed market currencies.
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