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 – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.
The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.
The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.
The personal and household goods subsector fell 2.5 per cent to $12.1 billion.
In volume terms, overall wholesale sales rose 0.5 per cent in July.
Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.
This report by The Canadian Press was first published Sept. 13, 2024.
VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.
Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.
Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”
The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.
Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.
“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”
Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.
Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.
Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.
B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.
The election is expected to be called on Sept. 21, with the vote set for Oct. 19.
“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”
Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.
Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.
The premier said that now is not the time to reduce supports and services for people.
Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.
Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.
This report by The Canadian Press was first published Sept. 10, 2024.
Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.
NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.
But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.
He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.
Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.
Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.
Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.
This report by The Canadian Press was first published Sept. 10, 2024.
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