Canadian investors should brace for a rough 2015: survey

Canadian investors should brace for more market volatility and expect only modest gains in equities both at home and across international indices in 2015, according to a new survey of professionals who help mind and manage money.

The CFA Institute 2015 Global Market Sentiment Survey shows investment professionals expect global markets to increase by an average of just 2 per cent in 2015.

The muted outlook is due to concerns about slow growth in both developed and emerging markets, including the slowdown in China and economic troubles in parts of Europe.

“Our members are wary of sluggish developed market economic growth and the effects of political disruptions,” says Kurt Schacht, managing director, CFA Institute.

Canada’s main S&P/TSX Composite Index is expected to fall short of the global average, with growth forecast at just 1.5 per cent next year, the survey shows. That compares with an anticipated 4.8-per-cent lift in America’s S&P 500 and a 1.9 per cent increase for the Euro Stoxx 50, which includes stocks in the Eurozone.

The results are based on responses from about 5,200 portfolio managers, research analysts, and C-suite executives surveyed from around the world in mid-to-late October, before the price of oil began its free fall.

“Since then, there has been quite a change in the markets, particularly those that are commodity-based in Canada,” says Sue Lemon, CEO of the CFA Society Toronto.

The energy-heavy TSX has fallen about 12 per cent in the past three months, excluding Tuesday’s surge.

Lower oil prices can have both positive and negative implications for Canada’s economy and individual equities. On the positive side, cheaper gas prices could spur consumers to spend more money on other goods and services. The lower Canadian dollar, which often comes with a drop in the oil price, could also boost business in non-energy industries, such as manufacturing.

Still, Canada’s economy is tied heavily to its energy sector. The CFA survey says respondents expect Canada’s GDP will increase by 1.7 per cent in 2015.

That number might have been lower if the survey were redone today, given the drop in oil prices to a five-year low around $60 (U.S.) a barrel, down 40 per cent from where it traded just six months ago.

“Canada is very dependent on the oil industry. Some people are concerned about that from an overall economic perspective,” says Lemon.

The global GDP outlook is also bleak, according to the survey results. On average, respondents from around the world expect the global economy to grow a meagre 2 per cent next year. The survey’s predictions are well below the World Bank’s global growth forecast of 3.4 per cent for 2015.

The survey says Europeans are more optimistic about global economic growth, while professional in the Americas and Asia Pacific are pessimistic.

When it comes to risk factors that could drag down the markets, respondents from around the world cited weak developed market economies and political instability.

Another worry cited in the report was market fraud and integrity of financial reporting.

The CFA Institute recommends its Statement of Investor Rights, as a guide for how investors should expect to be treated by financial professionals.