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Good, bad factors in global market investment


International markets offer Canadian investors a myriad of opportunities.

However, political and economic factors can have a big impact on investor sentiment and how those markets perform, and investors should consider investment options best suited to specific markets.

“Investing in global markets is an excellent way to provide return opportunities over the long term and complement Canadian investments,” said Rajiv Silgardo, co-CEO of BMO Global Asset Management.

“Additionally, given the wide spectrum of economic, social and political factors that affect global markets, and how those markets react to changing conditions, investors should consider both active and passive investments through mutual funds and ETFs depending on their views on specific markets.”

During a recent panel discussion on global investments, BMO investment specialists shared their thoughts on the prospects for some of the world’s foreign markets.

The outlook for North America for the rest of the year is reasonably good. North America is driven by the U.S. economy, which is expected to pick up in the second half of the year due to stronger business, consumer and government spending, and job creation.

This will result in modest growth or flat returns in bonds, as the Federal Reserve modestly increases interest rates and modest growth in equities.

“It’s a pretty decent backdrop for the economy and capital markets but it certainly will be a struggle on the equity front to deliver better than single-digit returns,” said Paul Taylor, BMO chief investment officer in Toronto.

The outlook for Europe is anything but rosy.

“There’s very little to get excited about, particularly in continental Europe,” said Tony Cousins, CEO of Pyrford International in London. “The good news is that the recessions, in terms of negative growth, have more or less come to an end. But we haven’t seen positive growth return to continental European economies and there’s not a lot of ground to expect a strong rebound in growth.

There’s very little in the way of new fiscal or monetary stimulus.”

The Euro has gone up 12 per cent against the U.S. dollar over the last two years, making exporting more challenging.

Many European nations are experiencing high unemployment and are saddled with high debt, the worst being Greece, which is approaching debt of 190 per cent of gross domestic product, but also Italy, Portugal, Ireland and Spain.

Tension between Russia and Ukraine is a major concern for investors that is affecting markets.

“It’s a pretty downbeat assessment of the prospect for equities,” Cousins said. “Europe is in no way finished, however.

It’s still possible to find very high quality, well-managed companies that are world leaders in intellectual property-based industries. Some good stock picking can still find some excellent opportunities.”

On a more positive note, Serge Pepin of LGM Investments in London is relatively optimistic about emerging markets, such as India, Brazil, Thailand and Turkey.

There are numerous vulnerabilities in these regions in terms of social tension and slowdowns in economic growth, as well as economic concerns in China, but investors seem to be putting these behind them and actively investing in these regions.

Recent data out of the U.S. shows that investment flows in mutual funds and exchange traded funds (ETFs) of emerging market securities, both stocks and bonds, have been net positive for the past couple of months.

“Two months don’t necessarily make a trend, but after 10 straight months of net selling it definitely is encouraging to see,” Pepin said.

Investors currently are seeing bargains in emerging markets, which have underperformed developed markets over the past 18 months, creating great value.

“We see tremendous opportunities in sectors such as consumer, health care, telecommunications and information technology,” Pepin said. “Since individual emerging markets have different factors at play; it’s more difficult to consider them as one big homogenous block, and investors may want to consider actively-managed market funds rather than a passive option.”

The big winner in Asia has been India, where a new centre-right government recently won a majority for the first time in more than 30 years.

“Market players have clearly been quite enthusiastic about this,” said Amit Prakash, manager of BMO Asset Management in Asia. “The Indian equity markets are one of the best performing in the region, going up 15 per cent this year, and the Indian rupee, which was one of the weakest last year, is up over five per cent, providing a very attractive return to international investors.”

Investors serious about global markets should seek the advice of a global investing specialist.

“A global asset manager who offers a comprehensive range of solutions powered by global insights and expertise can help identify opportunities in various types of market cycles,” Silgardo said.

Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.

 
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