In this issue:
Twelve Month Sectoral Results for 2015
Investment Strategy – Global Charts

Increased volatility has certainly been the theme for the opening weeks of 2016. The Canadian equity market officially entered Bear market territory when the it fell more than 20% from its previous high in the summer of 2014. Our Canadian dollar has been under extreme pressure with the collapse in world oil prices. However, all of our portfolios have significant global diversification, usually including foreign currency positions, which counter-act the fall in the loonie.


Chinese stock markets made headlines as stock exchange closures were triggered when those markets lost more than 7% within a day. It is important to note that although free-falling stock market headlines made for great news bytes in January, the Shenzhen stock exchange, even after two market closures due to those market corrections of 7% within a single day, was still up over 20% for the previous 12 month period. Most of us would be thrilled to have our stock portfolio up over 20% in a one year period. What is troubling is that the Shenzhen stock exchange was up over 125% within that same one-year period, and that investors were treating those markets like a casino. The velocity of the appreciation of the Chinese market was just not sustainable and those stocks are returning to more normalized levels. The hyper volatility that we have witnessed in the Chinese stock markets has led to no shortage of negative press and predictions on the outlook for the Chinese economy, which, although it has been a major driver of growth for the global economy in the last decade, is clearly seeing its growth rate slow as it transitions from an export-driven economy to a more domestic consumer-based economy. And, it is important to note that although the Chinese GDP growth rate has slowed significantly on a percentage basis to 6.9% in 2015 over 2014, versus, for instance, 29% for 2007 over 2006, the actual GDP growth rate on a dollar value basis hasn’t slowed much at all: Chinese GDP grew by US$ 796 Billion in 2007 and should grow in the range of US$ 715 Billion in 2015. The actual growth demand for new products and services in the Chinese economy is pretty much at the same level that had markets so excited just 10 years ago. As a point of reference, current Chinese GDP growth creates the equivalent of a new, entire Canadian economy every 2.5 years!

Until recently, investors have enjoyed a three year period of higher than normal equity market returns, coupled with lower than normal volatility. A very enjoyable combination! However as we return to the norm, we feel investors should be prepared for a period of somewhat higher volatility and more modest returns.