Q1 2019 Market Outlook Video
Watch this video featuring Alex Bellefleur, Chief Economist and Strategist on the Mackenzie Multi-Asset Strategies Team as he provideshis outlook on Q1 2019.
ALEX BELLEFLEUR: The significant volatility experienced in the fourth quarter of 2018 is one of the most important events to have taken place in the markets recently. Much of this volatility owes to the market concerns surrounding the durability and the sustainability of the U.S. economic expansion in the face of a Federal Reserve which has raised interest rates four times last year.
We've seen, for example, several interest-rate-sensitive sectors of the U.S. economy slow down considerably recently. For example, the housing market. That combined with a Chinese economy which has been slowing down as well as European economies which have been unable to move to a faster more durable pace of growth has created concerns for markets, and it has proven to be fairly disappointing in the fourth quarter of 2018.
Our team currently likes to have tactical exposure to some emerging market currencies which underperformed in 2018. This is the case of the Turkish lira, the Mexican peso and the Brazilian real. Some of the underperformance of these currencies in 2018 was driven by a Federal Reserve which was perceived to be fairly aggressive in its normalization of interest rates. This has changed somewhat in the last few weeks, with Fed chair Jerome Powell striking a more accommodative tone and stating that the Federal Reserve will be patient with future interest rate hikes going forward.
Another driver of the underperformance of these currencies in 2018 was the significant internal issues that these economies were experiencing, such as high inflation or current account deficits. These issues appear to have receded somewhat in the past few weeks. For these reasons, we like to have tactical exposure to these currencies in our Multi-Strategy Absolute Return Fund as well as in our Symmetry portfolios.
We think China remains a risk for markets. The ongoing attempts by Chinese policymakers to deleverage and de-risk the financial sector in China have led to fairly negative results for economic growth. Meanwhile, the Chinese leadership attempted to stimulate, add(?) the margins, to counterbalance these effects, but it had very limited results for economic growth.
We think that a further growth slowdown in China at this point would not necessarily represent a massive surprise to markets, but we're watching very closely the financial sector in China because a shock coming from the financial sector would be potentially a much larger event for markets, and we're watching very closely for that.