2016 to be a “year of global adjustments” for financial markets

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With energy prices under renewed pressure and an expected U.S. interest rate increase this month, next year will be a period of adjustment following the difficulties experienced by Canadian markets in 2015, says an institutional portfolio manager.

Next year “is going to be a year of global adjustments,” Robert Spector, an institutional fixed income portfolio manager at MFS Investment Management Canada Ltd., told media during a 2016 market outlook this morning.

Among the factors affecting the markets are the end of the commodities boom and the expected rise in U.S. interest rates, a move that will likely put continuing downward pressure on the Canadian dollar.

At the same time, growth in global trade volumes remains modest while much of the world continues to grapple with high debt levels. “I would say so much for the deleveraging,” said Spector, who’s nevertheless not ruling out another interest rate cut by the Bank of Canada.

Given the likelihood of continued low rates in Canada, the challenge for investors will be to diversify their investments, according to Spector. Among the opportunities, he said, are global corporate bonds. With few issuers in Canada and the Canadian bond market heavy on governments and banks, diversifying to U.S. and other global markets is key, he noted.

Canadian equities, of course, have had a rough year. “Canadian equities are viewed negatively by most global portfolio managers,” Jeffrey Morrison, an international equity portfolio manager at MFS, told media this morning. With the energy sector likely to take longer than expected to recover, stock selection to find pockets of opportunity will be particularly important, he noted. According to Spector, the opportunities include the consumer sector in the United States as well as U.S. or global banks. In Canada, he added, utilities offer some opportunity.

But while the markets have been talking about the likelihood of particular developments, such as a U.S. interest rate increase, Spector said the Federal Reserve could still surprise people as there are reasons not to go ahead with the long-expected boost this month. “For every reason that the Fed should be raising rates, I can give you another reason why they shouldn’t,” he said.