Commodity boom makes way for yield trade: Macquarie experts

With the commodity price surge over and China shifting from investment to consumption, investors need to think carefully to position themselves for a rapidly changing global environment, according to the 2013 Global Market Outlook from Macquarie Private Wealth. The world’s centre of economic gravity continues to shift eastward with the rise of the Chinese consumer […]

By Staff | January 17, 2013 | Last updated on January 17, 2013

2 min read

The world’s centre of economic gravity continues to shift eastward with the rise of the Chinese consumer and the end of the commodity boom set to transform the investment landscape, say the firm’s experts in North America, Australia, India and New Zealand who contributed to the report.

Read: Canada vulnerable to global risks

Form a Canadian perspective, one of the most significant assertions comes in the form of bad news. “We believe the [commodity] boom is already over,” it said “With the commodity super-cycle over, we no longer expect to see the surprising commodity price increases of the last decade.”

For investors, however, this could be a cue to move back into stocks as historically “equity markets perform better when commodity prices are trending sideways. That’s especially true of the U.S., but [also of] resource-rich economies like Australia and Canada.”

The research also points out that while the TSX finished 2012 with 7.2% gain, it paled in comparison to the S&P 500’s 16% for the same period.

Read: Global markets in better shape than year ago

“Too much exposure to global cyclical companies was the culprit as materials and energy were the worst-performing sectors, [which] happen to have a combined weight of 44% on the TSX.”

The trend is expected to continue into 2013.

“Looking ahead to 2013, the lesson for investors is clear. It’s time to reconsider your equity exposure — both your allocation to international and local markets, and your allocation to different sectors.

While the outlook for the Canadian equity market equity remains positive, divergence between sectors will continue in 2013.

“The yield trade, which has been very popular and profitable, will continue to be a dominant theme,” says the report. “However, valuations are starting to matter more and investors will need to be more selective. We would also focus on companies that have more international than domestic exposure.”