Institutional investors turning to equities, global markets in 2021

Institutional investors are focusing on equities and global markets as the economic effects of the coronavirus pandemic continue in Canada, according to a webinar hosted by Franklin Templeton Investments Corp. on Tuesday.

In the keynote address, Stephen Poloz, former governor of the Bank of Canada, said the pandemic is amplifying the economic effects of five pre-existing “tectonic forces” in Canada, namely an aging population, growing indebtedness, rising inequality, technological progress and climate change.

“These forces are coming together to produce unpredictable economic and financial outcomes. We’re entering a stage of uncertainty and COVID-19 is accelerating some responses to those forces.”

Read: Institutional investors looking to raise emerging market exposures: research

Also speaking during the webinar, Ian Riach, senior vice-president and portfolio manager at Franklin Templeton, said, as a result of the current economic climate, investors have turned to global markets while taking on more exposure to equities than fixed income. However, he noted the latter still plays an important role in portfolio diversification.

“Investors need to be much more dynamic and discerning in how [fixed income] is managed, looking outside of Canada and traditional sectors.”

Riach anticipates monetary policy to remain accommodative, as governments reiterate their commitment to provide fiscal stimulus to households and businesses to support economic recovery. “There are short-term headwinds from second-wave pandemic effects, but we’re more positive on the economic, inflation and liquidity backdrop as we progress through 2021.”

Read: U.S. markets betting on Biden, investors preparing for energy sector impacts

William Yun, executive vice-president at Franklin Templeton, also joined the discussion with a look at global factors affecting investments. With the U.S. presidential election decided, the markets breathed a sigh of relief, he said, noting investors have now turned their attention to the U.S. Senate, which will likely remain in Republican control and lead to a divided government. Currently, U.S. debt levels are at their highest since WWII.

“Gridlock is generally taken as a good thing in Washington. For the tax increases proposed by [President-elect Joe] Biden, that’s probably unlikely with the Republicans controlling the Senate.”

China’s continued growth also factors into investment considerations, said Yun. While the country will likely post a positive economic growth rate of about 2.2 per cent in 2020, it’s expected to surge to more than eight per cent in 2021, according to data from Franklin Templeton. In comparison, the U.S. economy is expected to grow 3.4 per cent next year, he said.

“Global growth will rebound as economies recover, but we don’t anticipate a sharp rise in inflation and expect it to remain below two per cent.”

Read: 91% of institutional investors say pandemic will lead to a global recession: survey