Investment tips for 2014

Financial, resource and discount consumer stocks will lead equity markets in 2014, said André-Philippe Hardy at the Empire Club of Canada’s annual luncheon last week in Toronto.

Hardy, head of Canadian research at RBC Capital Markets, says the majority of the bank’s 2014 stock picks are U.S.-based, but companies such as Brookfield, Gold Corp., TD Canada Trust, Dollarama and Tech Resources should drive Canadian markets over the next 12 months.

Read: Which sectors are leading global markets?

His main message, however, is investors should still be cautious in 2014. Canada failed to exit 2013 with a bang since our economy only grew 0.9% in Q4, says Hardy, and missed Bank of Canada expectations for the year.

Read: What do top economists see for 2014?

Last year was “characterized by optimism and people were happy about improved returns,” says Hardy. In 2014, people should adopt bearish views since “Canada’s deficit [still] exceeds its capital flows.” As a result, we’ll only see moderate, positive growth.

Ian Russell, CEO of the Investment Industry Association of Canada, toes the same line. He says, “Half of industry CEOs see the state of capital markets as being…the same as last year, [and that] signals stability.” Though “Canadian investors see 2014 as the year to get back in the game,” they should also guard their portfolios.

Read:

• Investor confidence wavers
• Investors worldwide are more optimistic

Steady as she goes

The biggest boon to Canada will be U.S. growth, says Hardy. America is our largest trading partner so its economy supports our country’s export and business investment activity.

“There will be no fiscal drag in the U.S. in 2014,” he adds, so economic and market conditions will improve over last year’s. In fact, U.S. treasury bonds may offer 3.6% returns by the end of the year and the S&P 500 should continue to rally, gaining more than 2,000 points by the end of 2014.

Read: Retail sales key to U.S. growth

Even better, global macro pressures won’t hold markets back, predicts Hardy. The Eurozone and U.K. will likely stabilize and stay out of recession, even though aggressive “monetary policies are holding them back,” he adds.

Read: Equities to keep climbing in 2014

Nonetheless, investors need to stay the course. That’s because tepid inflation will continue to depress popular sectors such as fixed income, he says. “Core inflation will remain below 2% and the Bank of Canada will keep overnight rates at 1%. We won’t see rate hikes until 2015.”

The Canadian dollar will also underperform the U.S. dollar, and consumer activity will be lacklustre.

Gold tips

Gold prices dropped dramatically in 2013, says Nick Barisheff, president and CEO of Bullion Management Group.

But don’t rush to sell holdings, he cautions, since the precious metals market will expand over the next few years. China, the world’s largest gold producer, has seen rising demand for physical gold–and it’s already surpassed supply.

Read: 2013’s commodity exodus to continue

As such, Barisheff predicts global production levels and prices will improve by 2015. Mining costs will also drop.

Though “many investors want to sell off gold for equities,” he suggests people allocate 10% of their portfolios to commodities so they can capture future growth.

Read: Don’t snub Canada in 2014, for more on resources and commodities