Canadian investment managers expect equity markets to stay the course in 2004 and expect equities to outperform bonds according to a forecast from Mercer Investment Consulting.
The 13th annual Fearless Forecast, conducted in December 2003, includes predictions and views on the Canadian and global markets from 49 leading Canadian institutional investment managers. Together, these firms manage approximately $1 trillion for pension funds and other investors.
For 2004, the investment managers forecast equity returns to be in the range of 8% to 12%, with Canadian small cap and emerging markets cited as the most favourable markets. For bond and cash markets, the managers expect more modest returns ranging from 2.8% to 4.5%.
“For the Canadian equity market, the managers predict the material, energy, and financial sectors to be the top performers,” added Mr. Muldowney. said Peter Muldowney, a consultant with Mercer Investment Consulting
After a year that saw significant strengthening of the Canadian dollar versus the U.S. dollar as well as some strengthening against other currencies, the managers are generally predicting only modest appreciation for the loonie in 2004. The median forecast for the US/Canadian dollar rate at the end of 2004 is US78¢.
“Our stronger currency reduced foreign returns for a Canadian investor, particularly US investments. While the managers forecast only modest appreciation for the loonie in 2004, this does not remove the need to review currency policy,” said Muldowney.
Other key forecasts for 2004 by the Canadian investment managers were:
- An increase in the Bank of Canada rate from the current 2.75% to 3% by the end of 2004;
A slight decrease in the Canadian unemployment rate from 7.5% to 7.3%;- Real GDP growth of 3% in Canada and 3.3% globally; and
- An increase in Canadian merger and acquisition activity led by consolidation in the material, energy and financial sectors.
As to what could derail the forecasts, the managers identified the performance of the U.S. economy, along with the Canadian dollar and the stability of world currency markets, as the key issues expected to influence capital markets in 2004 for Canadian investors.
Looking further down the road, the Canadian investment managers forecast 5-year median equity returns to be in the range of 8% per annum to 10% per annum, while bond and cash markets are forecast to be in a more modest range of 3.4% per annum to 5.5% per annum.
The Fearless Forecast Survey of Canadian investment managers is part of Mercer Investment Consulting’s annual survey of global investment managers. Global survey results will be released the week of January 12.