Risk appetites to rise, says Laurentian strategist

Laurentian Bank has presented the 2013 forecasts of its vice-president and strategist, Sylvain Ratelle.

The tips are drawn from its report called Investment Strategy, jointly prepared with the bank’s Securities’ Economic Research Department.

More stock, fewer bonds

This year should continue to put distance between the financial collapse of 2008-2009 and investors, even if political uncertainty endures.

The global economic environment is also gradually making way for more sustainable growth of real GDP. South of the border, the modest upswing of economic conditions will especially prove to be vital for other industrialized and emerging nations.

The improvement of public finances in Washington awaits completion, but the American private sector has started to see some light. And on the other side of the Atlantic, the bank is anticipating a little less volatility despite the persistent recession in the Eurozone.

Laurentian is also expecting the principal central banks to be more proactive this year, which would serve to reinstate global appetites for risk.

“In view of the overall economic and financial picture, we are recommending a rebalancing of portfolios,” says Ratelle. “We’re favouring overweighting of the stock portion and, in parallel, underweighting of the bond component.”

Read: Big players betting against junk bonds

This kind of positioning will avoid the adoption of an overly conservative investment strategy, but will also benefit from the positive momentum of stocks without exposing clients to too much risk.

Read: Risk aversion creates retirement risks

What’s in store for Canada?

With Canada being a net exporter of natural resources, the Canadian dollar will closely follow that of the raw material indices.

Further, the dollar appears to be overweighted. It recently started on a slightly downward trend, so Ratelle says, “We recommend taking advantage of the loonie’s current level in order to diversify a majority portion of share assets—approximately two-thirds—toward American and international markets.”

The Canadian bond market is likely to lose some of its luster later in 2013 and 2014, though, as investors will be less inclined to take risks in light of improving economic conditions, particularly in Europe.

We’ll likely see a much less vigorous influx of international capital. And “consequently, [you should] reduce the weighting of the bond market in [clients’] portfolios, as well as the duration of the bond portfolio,” says Ratelle.

This will diminish the impact of expected interest rate increases on the value of bonds.

Read:

Rate increase not likely before 2014: Desjardins

Don’t fear higher interest rates (2010)

Slow but steady U.S.

The American stock market saw some the highest returns in 2012.

In fact, the S&P 100 index has recovered almost all of the losses it incurred over 2007-2009. According to the consensus among analysts, the anticipated growth of profits for the next two years should be positive.

As Ratelle points out, the time is right for overweighting in American and other foreign securities.

Elsewhere on the globe, the Eurozone is still fragile, although this should subside during 2013 if the economy gets back on track.

Read: Time to buy in Europe

In emerging markets, growth is expected to increase despite deceleration in 2012. The improvement of economic conditions in the U.S. will progressively benefit the external sector of emerging economies.

Moreover, an improvement in Chinese exports has already been observed. However, the relative performance of emerging markets should not be as spectacular as during previous periods of market recovery.

Read:

Look beyond the Canadian border: AGF

Emerging market inflows soar

U.S. investor appetite returning