RBC foresees strong equities in 2004

(December 9, 2003) Economists at the Royal Bank are predicting a strong year ahead for equity markets, pointing out that while cautious Canadians sit on the sidelines, aggressive Americans are already back in the game. “Canadians are cautious by nature, but with money market returns likely to remain low over the next year, a profit […]

By Steven Lamb | December 9, 2003 | Last updated on December 9, 2003
2 min read
  • So much wealth was destroyed when equity markets collapsed, that the funds are simply not there to invest.
  • Conditions over the last three years have caused less risk-tolerant investors to reallocate funds toward other safer asset classes.
  • The current bias in favour of spending and housing markets has shifted the emphasis away from investing.

But despite fears that scandals in the U.S. would dampen Canadian enthusiasm for mutual funds, RBC predicts investors will return to them as an easy way to diversify their equity holdings.

“The expected pick-up in equity investments is likely to be concentrated on mutual funds, pension funds and other indirect channels rather than direct purchases that have been dominated for decades by institutional investors,” added Holt. “Current conditions suggest value still exists in equity markets and that there are ample funds for redeployment.”

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com

(12/09/03)

Steven Lamb

(December 9, 2003) Economists at the Royal Bank are predicting a strong year ahead for equity markets, pointing out that while cautious Canadians sit on the sidelines, aggressive Americans are already back in the game.

“Canadians are cautious by nature, but with money market returns likely to remain low over the next year, a profit expansion well underway with a strengthening economy, an expected slowing of housing markets and the likelihood of capital losses on bonds, the time seems ripe for greater risk-taking,” says Derek Holt, assistant chief economist of RBC Economics.

So far this year, the S&P TSX Composite index has gained 20%, with the Dow Jones Industrial Average and the S&P 500 posting similar gains. The NASDAQ, which suffered the steepest fall in the bear market, has turned in a gain of more than 45%.

“Call it either inertia or caution, but the investment decisions of retail investors tend to lag behind improvements in the stock market by about six months on average,” says Holt.

The RBC Economics report says Canadians have stashed away up to $80 billion in their bank accounts, money markets funds and GICs since 2000. The bank estimates $20 billion went into fixed term deposits and another $9 billion into bond income funds this year alone.

The report offers three explanations why Canadian investors are slower to return to the markets than Americans:

  • So much wealth was destroyed when equity markets collapsed, that the funds are simply not there to invest.
  • Conditions over the last three years have caused less risk-tolerant investors to reallocate funds toward other safer asset classes.
  • The current bias in favour of spending and housing markets has shifted the emphasis away from investing.

But despite fears that scandals in the U.S. would dampen Canadian enthusiasm for mutual funds, RBC predicts investors will return to them as an easy way to diversify their equity holdings.

“The expected pick-up in equity investments is likely to be concentrated on mutual funds, pension funds and other indirect channels rather than direct purchases that have been dominated for decades by institutional investors,” added Holt. “Current conditions suggest value still exists in equity markets and that there are ample funds for redeployment.”

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com

(12/09/03)

(December 9, 2003) Economists at the Royal Bank are predicting a strong year ahead for equity markets, pointing out that while cautious Canadians sit on the sidelines, aggressive Americans are already back in the game.

“Canadians are cautious by nature, but with money market returns likely to remain low over the next year, a profit expansion well underway with a strengthening economy, an expected slowing of housing markets and the likelihood of capital losses on bonds, the time seems ripe for greater risk-taking,” says Derek Holt, assistant chief economist of RBC Economics.

So far this year, the S&P TSX Composite index has gained 20%, with the Dow Jones Industrial Average and the S&P 500 posting similar gains. The NASDAQ, which suffered the steepest fall in the bear market, has turned in a gain of more than 45%.

“Call it either inertia or caution, but the investment decisions of retail investors tend to lag behind improvements in the stock market by about six months on average,” says Holt.

The RBC Economics report says Canadians have stashed away up to $80 billion in their bank accounts, money markets funds and GICs since 2000. The bank estimates $20 billion went into fixed term deposits and another $9 billion into bond income funds this year alone.

The report offers three explanations why Canadian investors are slower to return to the markets than Americans:

  • So much wealth was destroyed when equity markets collapsed, that the funds are simply not there to invest.
  • Conditions over the last three years have caused less risk-tolerant investors to reallocate funds toward other safer asset classes.
  • The current bias in favour of spending and housing markets has shifted the emphasis away from investing.

But despite fears that scandals in the U.S. would dampen Canadian enthusiasm for mutual funds, RBC predicts investors will return to them as an easy way to diversify their equity holdings.

“The expected pick-up in equity investments is likely to be concentrated on mutual funds, pension funds and other indirect channels rather than direct purchases that have been dominated for decades by institutional investors,” added Holt. “Current conditions suggest value still exists in equity markets and that there are ample funds for redeployment.”

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com

(12/09/03)