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Closing the Aussie advice gap – Investment Executive

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Poloz optimistic about economic recovery

The former Bank of Canada governor says growth, not taxes, will pay for pandemic spending

Tipster trio shares OSC whistleblower payout

Expert analysis helped regulator uncover covert violations

CRA, RQ should be held liable for auditor mistakes, CFIB says

The CFIB has submitted an affidavit in support of a Quebec business owner’s petition to have his case heard by Supreme Court

  • By: IE Staff
  • November 17, 2020
    November 17, 2020
  • 11:44

Financial system requires resilience to climate change, BoC governor says

Canada’s top central banker made a plea for quicker action

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Takeaways from our 2021 investment outlook: Legacy of the lockdowns – Investors' Corner BNP Paribas

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Here we summarise the big picture for investors at the end of 2020. This constitutes the starting point for our 2021 investment outlook.

  • Since the 2008 global financial crisis, the global economy has been mired in anaemic growth and weak demand, tempered by consistently rising asset prices.
  • In 2020 the global economy faced a crisis of unprecedented magnitude (see Exhibit 1 below) after the pandemic lockdowns. After a contraction of 4.4% in 2020 the IMF forecasts global growth of 5.4% in 2021. Overall, this would leave 2021 GDP some 6.5% lower than in the pre-COVID-19 projections of January 2020. The adverse impact on low-income households is particularly acute, imperilling the significant progress made in reducing extreme poverty over the last 30 years. Countering inequality is a key challenge to be met in 2021 and beyond.

Exhibit 1: Largest decline since WWII – graph shows change in world gross domestic product (inflation-adjusted, in %)

Source: BNP Paribas Asset Management, as of 26/11/2020

  • Under the best-case scenario, one or more vaccines for COVID-19 become widely available by the second half of 2021. Otherwise, the disease remains a longer-term threat requiring us to ‘live with’ the virus – repeated lockdowns will not be a sustainable long-term strategy.
  • In 2020, advanced economies loosened the monetary and fiscal reins most spectacularly. Debt-to-GDP ratios soared, rising for many countries by more than they did in the years after the Global Financial Crisis (GFC). Major central banks have largely financed the increase in budget deficits, monetising an expanding national debt, much as Japan has done.
  • One way to understand the weakness in aggregate economic demand is to study real interest rates (the ‘price’ of money in the economy). In 2006, the real yield of the 10-year inflation-protected US Treasury bond was between 2% and 3%. Since 2010, its yield has mostly been below 1%, including a spell in negative territory both in 2012 and again in 2020. Negative real yields are now common to the G3 economies (see Exhibit 2 below) and beyond. In 60% of the global economy — including 97% of advanced economies — central banks have pushed policy interest rates to below 1%. In one-fifth of the world, policy rates are negative.

Exhibit 2: Real yields are now negative for G3 sovereign debt – graph shows changes in real yields for US, Japanese and eurozone government debt between 1997 and 16/11/2020.

Source: BNP Paribas Asset Management, as of 26/11/2020

  • In 2020, these meagre interest rates, along with cheap, low-risk liquidity from central banks, led asset prices higher. Risk premia for risky assets shrank. Companies whose revenues have plummeted — cruise lines, airlines, cinemas — were able to borrow money in 2020 to survive. Investors had few higher-yield options. Will central banks continue to supply such liquidity in 2021?
  • And how is all this debt to be paid for? The appropriate historical parallel is perhaps the post-World War II period, when central banks capped bond yields at levels well below the trend GDP growth rate to gradually reduce the national debt as a proportion of GDP.
  • Alternatively, instead of financial repression and inflation (as post WW2), the extraordinarily low real interest rates we have seen over the past decade could help achieve fiscal sustainability. It would, however, be imprudent to count on it. No policymaker should expect real interest rates to remain persistently below the growth rate of real GDP. Indeed, forecast imbalances in planned global savings and investment could drive real interest rates higher (ageing societies save a lot, but old societies do not).
  • Another risk is that improved real trend growth does not come to the rescue. Lower global growth after the pandemic accompanied by inadequate fiscal stimulus would leave marginal sections of the economy vulnerable to collapse. Such an outcome would test the paradigm of modest growth, low inflation and supportive central bank policy that has supported asset prices since 2008.

Today we face three interconnected crises – health, economic and climate. The instability provoked by the pandemic presents a window of opportunity to pivot in a new direction. Long-term environmental viability, equality and inclusive growth are essential pre-conditions to a sustainable economy. By taking a holistic, systemic, long-term view, we are less likely to be surprised by crises and better able to manage them.

For in-depth insights into what’s next for the global economy and markets, read our 2021 investment outlook, ‘Legacy of the lockdowns’


Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. The views expressed in this podcast do not in any way constitute investment advice.

The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.

Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).

Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

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Fossil Free Lakehead pleased with university investment decision – CBC.ca

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A decision by the Board of Governors at Lakehead University to divest itself of fossil fuel investments is being hailed as a victory for one student group on its Thunder Bay, Ont., campus.

On Thursday, the board committed to not holding any investments involving fossil fuel extraction by 2023. 

“Our decision to divest from fossil fuel companies reflects Lakehead’s goal of becoming a leader in sustainability as reflected throughout our current Strategic Plan and Sustainability Action Plan,” said Board of Governors Chair Angela Maltese in a statement.  

Just over two per cent of the university’s investments are in fossil fuel organizations.

About 40 members of Fossil Free Lakehead have been working to convince the school since 2013, that it should no longer hold the investments.

Lakehead is the sixth university in the country, the group said, to divest itself of fossil fuel revenues.

“I think many people believe that burning and extracting is the only way forward, because that’s what we’re used to,” said Shaidya Aidid, a member of Fossil Free Lakehead.

“I think that progress doesn’t happen because we want to stay in our comfort zone,” she said, noting she got involved in the group, believing that Lakehead needed to lead the way when it came to promoting alternative fuels.

“A lot of the groups of students and members who are involved with our movement all believe in that message, that fossil fuels will not be fuelling our future.”

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What’s your investment risk tolerance during a pandemic? – GuelphToday

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When it comes to protecting your mental and physical health during a pandemic, it’s important to play it safe. 

Can you say the same about your financial health?

The market fallout caused by the COVID-19 pandemic was swift and concerning to investors.  At the start of the pandemic, U.S. markets experienced the fastest 30 per cent stock decline ever. Many investors who thought their portfolios were safe started to worry as investments dropped in value. While remaining cautiously optimistic that 2021 will bring a stable and sustained recovery, market volatility is always present. This can create a need for investors to asses their risk tolerance with their advisor on a regular basis.  

“Warren Buffet once said that when the tide goes out we see who’s wearing shorts,” said Darren Devine, President of Devine and Associates Financial Services Inc. “What that means is that investors’ emotions come to the surface. Investors feel great when the markets are on the rise. When the markets go down as they did during COVID, we can see what their actual risk tolerance is.”  

Devine says the sudden and rapid recovery helped ease investors’ fears when the markets dropped in March. Investors often push beyond what their true risk tolerance is during periods of solid economic growth. Unfortunately, that tolerance can quickly vanish if portfolios loose a large percent of their value.  

“In a V-shaped recovery, if you’re back to par, it’s a good time to review your investments,” suggests Devine. “See how your investments performed and whether they stayed in line with the amount of risk you can withstand”.

While not everyone’s investments are connected to the market, those that do were down a significant amount of capital. Seeing a portfolio valued at $200,000 quickly drop to $140,000 is upsetting to any investor. Devine says determining your risk tolerance comes down to your age and timeframe for contributing to your investment portfolio.

“An investment strategy that’s good for a younger person may not be good for an older person,” said Devine. “For a 25-year-old who may have a high-risk investment portfolio, this isn’t a time to panic. You’re likely buying units at a discount as a result of the downturn in the market. On the other hand, if you’re 62, retiring at age 65, now may be the time to ask questions. If a market correction occurs, does a high risk portfolio make sense at this stage of your life?” 

No matter how your investments faired during COVID, Devine says it’s important to find out your true risk tolerance. This helps you prepare for any future market unpredictability.

“Not always do we get the benefit of a sharp recovery so quickly,” he said. “Being back to a period of positive growth in six months is rare. There’s no script here, no playbook. It’s not a static equation. Next time it drops it may take five years to come back. Take the time now to assess your risk and adjust your portfolio accordingly.” 

To get an assessment of your investments, contact Devine & Associates Financial Services Inc. at 519-780-1730.
 

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