I was asked to interview Sadiq Adatia, chief investment officer over at Sun Life Global Investments, yesterday for his third-quarter commentary. The video will be up on this page later in the month. Adatia is always good to speak with; it’s his job to have well-informed opinions and he has a knack for sharing them in understandable terms.
Here are four highlights from our discussion:
- Canadian stocks are fairly valued, but the economic outlook is soft. “I don’t think that, going forward, you’re going to see a lot of appreciation in stocks given the economic situation in Canada,” said Adatia. “I actually think the market is going to be in negative territory for 2013 and maybe 2014.” A residential real estate correction is possible, perhaps even likely. In addition to the hit consumer confidence will take from that, it’ll trigger a drop in employment rates because the housing sector has provided so many jobs recently.
- The U.S. stock indices are all up by double-digits this year, appropriately so. “I think it’s indicative of a better economic situation in the U.S., coming off a really tough environment over the last two years,” said Adatia. “I think you’re going to see that continue on, at least until the end of this quarter.” The fiscal cliff should give investors pause, though. Should Washington find a way to prevent the simultaneous implementation of mandatory spending reductions and cancelled tax cuts, it’ll provide the U.S. economy with the equivalent of about $600 billion in stimulus. If legislators fail, we could see a recession there. “We’re talking about a contraction of 0.5% to 1%,” he said. “We think most of it will get resolved, but there’s still some uncertainty which could shock the markets.”
- There are buying opportunities in the global stock market. “Valuations are cheap,” he said. That goes for the U.S., emerging markets and even Europe in the very short term (i.e., Q4). “I think the eurozone might actually be one of the best performing regions because of the fact that it’s been beaten up so badly. We’re finally seeing some optimism there.” Adatia predicts Spain will receive a bailout in the fourth quarter, which will give markets a lift. But watch out in 2013. “At that point, you don’t want to be overweight or bullish on that economy.”
- The world’s key central banks are making a coordinated effort to support the global economy. And so far, it’s working. “They’re really going to do whatever it takes,” he told me. “Given how intertwined global markets are now, every other country is watching what the U.S. Federal Reserve does, and the Fed is watching what the European Central Bank does. It’s all-important that they act together at the same time.” That’s why we saw major announcements by both central banks so close to one another earlier this year. “That was a great boost to investors’ confidence,” Adatia said.