BY FAZAAD BACCHUS
2016 was a not an altogether bad year for investors. Most people made money in their investments even though the year was filled with uncertainties. Those who were invested in US markets saw an overall decline in their investments while those who were in the Canadian market saw a market improvement over 2015. Of course, I am referring to those investors who are in the equity markets and not fixed income. The US election fever and hype didn’t really help the situation too much as many players took on a wait and see position.
What can we expect this year? Well certainly I will not make the mistakes that I see popping up so often where investment gurus make predictions only to have to swallow them afterwards. No one can predict the market, it is dependent on too many uncontrollable factors and variables. However, one has to take a calculated risk. Again, remember that you can lose your money when you are in the market, so it’s important to heed counsel.
2017: The US has a new president, which alone is a significant factor in all markets as the US is such a major player. In the last three months since Trump won the election, markets have risen to an unexpected high like it hasn’t seen before, making the last quarter of last year a very profitable one. If this trend continues, then the US equity market is likely to have a great year. He talks of strengthening the US economy, especially against China by bringing back jobs onto US soil; that will also have a major impact on gross domestic production.
On the other hand, Canada’s markets function mainly with the flow of industry and energy. Last year was a good year for Canadian investors mainly because the price of oil increased. With the recent talk and agreement with OPEC to cut output it is expected that oil could very well get to a price point of $70 a barrel by the end of 2017. This signals money in the bank for investors in the Canadian market, however a developing story to watch for would be if the US produces more of their oil, creating less demand thereby causing prices to fall.
As long as the US dollar is significantly higher than the looney, production and exports will continue. This adds to the bottom line of Canadian companies, as net profits have a tendency to soar during this period. As this profitability continues, it is reflected in increased share price and mutual fund values. However, this is another delicate balance to watch out for. If exports go up and the Canadian dollar falls simultaneously then it’s not a good position to be in.
With this amount of uncertainty, it would probably not be the right time to jump into international equity. Most international equity funds didn’t quite perform very well last year and there are no indicators yet that they will. I believe that the US and Canadian markets have the potential to have a very good return this year, so it is important to find a balanced fund that has a relatively low risk and includes them both. If you cannot find one, drop me a line and I can send you some information specific to you. Stay calm and let your money grow.