QUESTION OF THE WEEK

By RM Group of Richardson GMP

We don’t blame investors for asking such a question as the gains seen in Toronto during the first three months have now disappeared in the first few weeks of April.  We can’t say the same though for U.S. returns as they are still strong year to date even with many global equity markets pulling back. But let’s put a few things in perspective. First, declines have been driven recently by economic indicators that have missed expectations. While this data may have been disappointing on a relative basis, some of it is still reasonably sound on an absolute basis. For example, Chinese GDP growth was recently quoted at 7.7% annualized vs. expectations of 8.0%. Yes, this datapoint was not as high as expected, but in all honesty, growth of 7.7% out of China in this economic environment is not a level we would consider terrible. Since the beginning of the year, we have been promoting an expectation of moderate growth when it comes to both global economic growth and equity returns, and that view has not changed. We still believe that the U.S. economy has the capacity to accelerate moderately as we progress through 2013, we still believe that Europe will come out of recession by the end of this year, and we still believe that the Chinese economy will continue to stabilize over the next nine months. We were pleasantly surprised by the magnitude of the gains seen in the first quarter, so it doesn’t surprise us that some of those gains have been given back.

Admittedly, if you’re a Canadian investor, it’s probably more difficult to find a level of comfort with the TSX index versus other U.S. indices due to Toronto’s reliance on commodities. However, we hope that some of this short term pain can lead to longer term support for energy and base metals. Let’s not forget that lower energy prices are good for an economic recovery and that lower gold prices are also good for sentiment if you’re looking for broad global expansion. So yes, we have entered a period of increased volatility where returns have been disappointing over the past couple of weeks; however, our longer term view of moderate growth is still very much intact and we advise investors to adjust their return expectations accordingly if required. Don’t write off the rest of 2013 due to a poor April…after all, anyone who did that in May of last year missed out on positive returns in the second half of 2012. 

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Source: Richardson GMP Limited
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