Market and Investment Outlook 2023 Q3

A view by our Lead Portfolio Managers

October 25, 2023

As the year marches into its final quarter, the economic landscapes of Canada, the U.S., and China narrate tales of cautious optimism juxtaposed against latent uncertainties. The summer’s robust fiscal health, underscored by manageable inflation, stellar job markets, and buoyant corporate earnings, now contends with historical patterns suggesting that a recession may cloak itself beneath the veneer of optimism.

In Canada and the U.S., the impact of significant rate hikes is projected to permeate the respective economies with a delayed effect, revealing its full manifestation possibly by late 2023 or 2024. The specter of a hard landing looms, as additional rate hikes might exacerbate the “higher for longer” scenario, casting shadows on the premature declarations of a soft economic landing.

In contrast, China’s economic pathway leans towards measured and sustainable growth, even amidst present challenges. As governmental restrictions potentially subside and the economy steers through the current turmoil, a rebound seems plausible, signposting a future where capital finds its way back into the Chinese market.

A disciplined investment strategy, spotlighting reasonably valued high-quality stocks, surfaces as a beacon through these economic convolutions. Amidst this, our Canadian small-cap strategy and model portfolio for China project a promising picture, leveraging intrinsic value discounts and potential capital returns respectively, pointing towards prospective growth and resilience in the face of uncertainties.

Quick Takeaways

  • Prevailing economic optimism may conceal underlying recessions in the U.S. and Canada.
  • The full impact of 2022’s rate hikes in both the U.S. and Canada is yet to unfurl.
  • Assertions of a soft economic landing in the U.S. and Canada warrant skepticism.
  • Investment in high-quality stocks emerges as a prudent strategy amidst U.S. and Canadian market volatility.
  • With over a 20% intrinsic value discount in key holdings, Canadian small caps exude potential.
  • China’s sustainable growth approach, and potential for capital influx, promise future stability and prosperity.

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