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 Thursday 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 Bank, Dollarama and Teck Resources should drive Canadian markets over the next 12 months.
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, said Hardy, and missed Bank of Canada expectations for the year.
Last year was “characterized by optimism and people were happy about improved returns,” said 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 said, “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.
Steady as she goes
The biggest boon to Canada will be U.S. growth, said 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.
Even better, global macro pressures won’t hold markets back, predicted 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.
Nonetheless, investors need to stay the course. That’s because tepid inflation will continue to depress popular sectors such as fixed income, he said. “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, said 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.
As such, Barisheff predicted 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 suggested people allocate 10% of their portfolios to commodities so they can capture future growth.
This article originally appeared on our sister publication, Advisor.ca.