Around The World In 100 Words : MAY 2016; Week 20

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We’re 4 weeks until the mid-point in 2016 and stock markets continue to be range-bound, with net returns still slightly negative for the year. The focus remains on the imminent decision by the US Central Bank over the direction of interest rates. All signs point to a 25 basis point rate hike, suggesting that the outlook for the world’s largest economy continues to improve. This would be a net positive for the global economy and Canada’s in particular (75% of our exports go to the US). The short term effect of this on equity markets may be negative, as higher borrowing costs impact corporate profits. Looking beyond this however, a normalization of interest rates represents a positive development which would restore a healthy equilibrium between savers and borrowers.

An improving economic outlook does not mean that the world economy is returning to the old growth rates of previous decades. China is slowing as it reaches maturity, demographics are unfavourable and tax-and-spend governments limit the ability of the private sector to generate wealth. Together, these combine to act as a drag on economic growth going forward and we remain of the view that new reality for Developed Economies is one of lower productivity, lower interest rates and lower growth.
That said, we are confident in our portfolio models and are of the view that they are well-positioned to deliver solid, risk-adjusted returns. Government bonds, high-quality investment-grade bonds and dividend-paying blue chip equities offer investors a globally diversified platform for building wealth over the long term. Year-to-date our portfolios have outperformed the MSCI World Equity Index on both relative and absolute basis. Steady as she goes and look forward to speaking with you after June 30th Q2 statements are sent.