With the U.S. economy roaring at a faster pace than China and global politics increasingly hard to fathom, there’s a feeling the best bet in town is to stick with U.S. stocks regardless of relative valuations.
After another forecast-busting U.S. retail and industrial readings for last month, the Atlanta Federal Reserve’s real-time economic growth estimate hit an annualized 5.4%, more than a point higher than China’s equivalent.
And all against a murkier international backdrop.
The Gaza crisis throws yet another geopolitical imponderable into an already crowded and confusing picture globally.
Already, the 18-month Russia/Ukraine war smolders amid sweeping sanctions, energy and food disruptions, and supply chain re-sets. China’s alliance with Moscow, tit-for-tat investment curbs with Washington and its claim to Taiwan all provide a polarized and unpredictable menu for cross-border savers.
The list of risks to your money in some of the world’s biggest economies has spiraled amid a withering array of gloomy scenarios, many not contemplated for over 30 years.
And so it’s fast becoming a world where relative valuations may matter less than a purring home economy, steady income and deep and liquid markets – relatively free from opaque political sideswipes, international sanctions or unmanageable exchange rate risk.
Mirroring so-called deglobalization trends of reshoring, secure energy and a host of repatriated industrial capacities from chip making to autos, ‘home bias’ in investing may be back too.
And for the United States, that’s an awful lot of money to be tempted back home to what’s already the biggest and most easily traded markets for stocks in the world – with both cash and long-term bond holdings now yielding more than 5% to boot.
Based on International Monetary Fund data on comparative international investment positions through the early part of this year, U.S. portfolio investment overseas – equity, fund shares and debt securities – stood at more than $14.5 trillion.
While that’s still more than a trillion dollars higher than pre-pandemic levels in 2019, it’s retreated by almost $2 trillion from the peaks of 2021, just before the Russian invasion of Ukraine in March of last year.
A more granular look at U.S. long-term investors’ purchases of overseas equities by ICI shows funds have been sellers of global equities since May 2022 on a rolling six-month basis.
While the scale of those sales has lessened since February this year, a reluctance to return outright seems clear as geopolitics deteriorates, the U.S. economy dodges recession and re-accelerates, and a buoyant dollar both feeds and feeds off U.S. investors temptation to stay home.
But it’s not just that scared U.S. money is going home.
SHRINKING UNIVERSE
For Swiss asset manager Julius Baer’s chief investment officer Yves Bonzon, the pool of investable markets outside the U.S. is simply getting smaller due to seismic and structural shifts in global relations.
“The investment universe for western capital has shrunk with the Ukraine invasion and return of cross-border political risk in a multipolar world,” said Bonzon. “The only option to deploy capital in size is the United States.”
“If you reduce your playground to democracies, money will flow to the U.S. – not the UK, or Switzerland or Germany – and you can see the outperformance of U.S. assets is evidence of this,” he added. “Short U.S. assets or short the dollar is not a good trade in this scenario.”
What’s more, Bonzon reckons inflation is likely to settle as close to 3% as to 2% once the world’s central banks are finished their severe tightening cycle, meaning the secular bull market in bonds is over even if more attractive income allows them to be a good portfolio hedge again.
That overview is a world where investors should favor real assets over nominal claims and focus on ‘store of value’ equity markets, he thinks. And the latter means Wall St big caps and the S&P 500 continue to be the strategic market of choice – underscored by their proven ‘cash returning’ properties and aggregate insulation from higher interest rates this year.
If other overseas asset managers or sovereign wealth funds were to think likewise, then the some $25 trillion of foreign holdings of U.S. portfolio assets – some $10 trillion higher than U.S. asset holdings overseas – may only get bigger.
But there are questions and problems as always.
The upshot could be an ever wider U.S. deficit on its net international investment position – potentially lifting the dollar as that inflates, but leaving it vulnerable to the yawning gap and foreign investor sentiment down the road.
And while international politics looks fractious right now, the next 12 months will once again test the resilience of the U.S. democratic system and may challenge attractiveness of U.S. assets in the process.
Even the haven of home seems far from straightforward.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
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