The Toronto stock market has declined by more than 13% since the beginning of the year, and although market conditions remain volatile, experts say the declines have created opportunities for investors.
Paul Taylor, chief investment officer at BMO Harris Private Banking, said in a conference call on Friday that Canadian equities have had a rough ride during the third quarter. The S&P/TSX composite index has dropped by 12.1% during the quarter and 13.1% year-to-date, representing a more severe decline than the S&P 500, which is down 7.7% year-to-date.
“Certainly, Canada has suffered along with other global equity markets,” Taylor said.
That’s despite relatively strong performance in the Canadian economy compared to other countries. Taylor said he was encouraged by Statistics Canada’s GDP report for the month of July, which showed growth of 0.3% – the second consecutive month of positive growth.
“It indicates that Canada is still registering positive growth,” he said. “We continue to perform relatively well.”
The market turmoil is primarily being driven by ongoing uncertainty in the global economy, and concerns about the way Canada would be impacted by another global recession, Taylor said. “We certainly are feeling the headwinds of weak growth south of the border and obviously the noise from euroland.”
While the declines have been tough for investors to stomach, they’re creating investment opportunities, Taylor said. In particular, he encourages investors to look to high quality dividend-paying stocks in the Canadian market.
Similar opportunities have emerged in European markets, according to David Hogarty, head of strategy development at Ireland-based Kleinwort Benson Investors Dublin Ltd.
“You have received some security from high-quality companies with very low levels of debt on their balance sheets who make commitments to sustainable dividend payments,” he said. “That is where we would encourage [investors] who want to continue to hold equities to invest.”
Within Europe, Hogarty noted that companies in Germany and the Scandinavian countries have performed particularly well.
Jack Ablin, chief investment officer at Harris Private Bank, said he remains cautious on U.S. equities.
“We’ve got this cash, we’re looking for an entry point,” he said.
Ablin will likely wait for U.S. stocks to decline by approximately another 10% – which would bring the S&P 500 to about 1,050 – before increasing equity holdings.
“That would be a point, regardless of what’s going on in the headlines, to probably start working our way back into the equity markets,” he said.
IE