ECONOMIC UPDATE
First and foremost, I hope you and your families are safe and healthy as we continue through these unusual times. My team and I continue to monitor the markets and the implications of the COVID-19 virus on our clients' portfolios.
While I will still send my regular newsletter at the end of this month, I wanted to provide an update and some insights from the last couple of weeks.
Globally, we appear to be approaching the first of what will likely be many crossroads. Thankfully, the COVID-19 numbers seem to be improving or stabilizing in most of the world, leading many countries to start exploring how to best re-open their economies. While being in this position is a good sign, I don't believe we will be back to normal any time soon.
Still, as we consider the way forward, I've found Howard Marks'
most recent missive
quite insightful. In it, Marks outlines his reflections around what's required to control the virus, questions to consider as we examine the outlook for the curve, and how, as a society, we will react when social distancing measures are gradually lifted.
When considering his comments, along with my other research, I believe it will likely take at least a year for the global economy to regain its footing. In particular, the next six to nine months will see continued market volatility. However, by 2022, global GDP should recover to 2019 levels.
We will continue rebalancing our portfolios, and may even increase the equity exposure of our models. As Warren Buffett is fond of saying, "I'm fearful when others are greedy, and greedy when others are fearful." If presented with the opportunity, I will be greedy.
In short, my intention is to ensure that when the economy returns to previous levels, our portfolios are worth more than before this started.
As always, I can be reached at 416-777-6368, or matthew.lekushoff@raymondjames.ca, if you have any questions about the markets or economy. If you'd like more timely information, I will be frequently updating my social media channels, particularly
Twitter
, during this uncertain period.
Take care and stay safe,
Matthew
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MARKET OVERVIEW
Much  has changed since my last newsletter. Although the markets remain volatile, they have risen considerably since last month.
Most global indices are about 15 per cent lower this year, but, as always, there are exceptions and they are the usual suspects.
Canada has slightly underperformed, trading 17 per cent lower in 2020, while real estate investment trusts (REITs) have rebounded to trade roughly 23 per cent below their end of December values, after plummeting 40 per cent on the year last month.
Energy Stocks
But the real outliers have been Canadian energy stocks, bonds, and gold. Although having rebounded dramatically from their depths, domestic oil producers remain almost 58 per cent lower this year.
While a step in the right direction, last weekend's OPEC+ deal to curb oil production by 9.7 million barrels per day will only slow, not reduce, the current production glut. Before reaching the deal, the global oil surplus was estimated to be
at least 20 million barrels per day
. As a result, oil prices, and correspondingly energy stocks, remain very low.
Bonds and Gold
On the positive side, the Canadian bond index trades about four per cent higher in 2020. However, it's important to remember that all fixed-income investments are not equal. The debt of heavily indebted companies are negative on the year, some considerably so. Thankfully, the frustrating discount to the net asset value (NAV) issue that I discussed in
my March 19 note
has mostly abated.
Though bonds have performed well, the clear standout is gold. The yellow metal has risen 11 per cent on the year and 34 per cent over the last 52 weeks. But for Canadian investors, it's much better than that. Gold is priced in U.S. dollars - a currency that has been very strong against the loonie. When priced in Canadian dollars, gold has returned an amazing 28 per cent this year for Canadians, and 51 per cent over the last year.
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The views of the author do not necessarily reflect those of Raymond James. This article is for information only. Raymond James Ltd. Member-Canadian Investor Protection Fund.
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