Top money sources report: Stock markets to yield modest returns in 2014, say economists

U.S. housing starts, China's continuing demand for natural resources bode well for B.C.
Moderator Andrew Sweeney, CIBC World Markets chief economist Avery Shenfeld, author John Mauldin, Leith Wheeler CEO Jim Gilliland: discussing the 2014 economic landscape at the CFA Society of Vancouver's 36th annual economic forecast dinner

Of the myriad adjectives that can be used each January to describe the year ahead, neither "moderate" nor "reasonable" tops a list of most positive sentiments.

Yet that was the message from Jim Gilliland, president and chief executive officer of Vancouver's Leith Wheeler Investment Counsel, about the 2014 economic landscape.

In an interview with Business in Vancouver – prior to his appearance on panel at the CFA Society of Vancouver's annual economic forecast dinner – Gilliland offered his forecast for the Toronto Stock Exchange this year.

"Returns for the Canadian stock market will probably be in line with the U.S., so we are expecting returns between 6% and 8% in the overall stock market. In the bond markets, we are expecting returns between 2% and 3%, which, combined with the stock market, gives you balanced returns in the 5% to 6% range. That's not as good as we saw last year, but it's reasonable."

Buoying those expected returns, in part, is tepid growth in the U.S economy, Gilliland said.

According to Leith Wheeler projections, about one million new housing starts and 17 million car sales are anticipated in the U.S. in 2014. Overall, U.S. GDP is expected to grow between 2% and 3%. Gilliland added that new housing is good news for B.C.'s economy because most of the province's lumber exports are still shipped south of the border.

Growth in China, an important market for copper and other B.C. metals, also has a major impact on the province's economy. The International Monetary Fund predicts that China's economy will grow 7.7% in 2014, much higher than its projections for Canada and the U.S., but down from its previous 10% growth rate.

Avery Shenfeld, chief economist at CIBC World Markets and another CFA Vancouver panel member, told BIV that despite the slow down, China's economy is still strong and will need B.C.'s natural resources.

"Last year China grew at 7.7%. That doesn't sound as good as 10%, but the Chinese economy was also a lot smaller five years ago. So in terms of the actual quantity of growth and the amount of raw materials necessary, today's 7% to 8% is yesterday's 10% in terms of magnitude," said Shenfeld.

"I don't believe the China growth opportunity is by any means near completion. There are still hundreds of millions of people living in China with relatively poor standards of living. To bring China up to the standards of, say, South Korea in the next 30 years would involve a lot of economic growth."•

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