Investors should stay in high-quality investments as one strategy to deal with ongoing global economic uncertainty.
Ed Devlin, executive vice-president and head of Canadian portfolio management for Pacific International Management Company LLC (PIMCO), said in an interview that the average investor should stay with utilities, high-dividend paying stocks and other safe investments because the global economy is going through a significant structural change, what his firm defines as a “new normal.”
“Obviously there are going to be certain sectors with growth, those in emerging markets, for example, which you can sometimes tap with multinational companies. That might be somewhere you want to be. We definitely like emerging markets, but you have to be selective in terms of where you are going. There are winners and losers.”
Since the start of the financial crisis, Devlin’s firm has suggested structural changes are happening in the global economy that will likely lead to lower potential for investment returns, at least for the next three to five years.
How long the transition takes will partially depend on the ability of national governments to make effective decisions. The Greek financial crisis was a key example of this as the European bailout package for Greece was delayed because of the political considerations for German chancellor Angela Merkel.
“Angela Merkel’s need to get re-elected prevented them from acting earlier, and that delay, in our estimation, really made the crisis get worse than it had to be," he said. “So, politics will be a key thing to watch because politics do trump other considerations when the state starts to get involved in the capital markets. State capitalism is really what we’re looking at now rather than laissez-faire markets we’ve had in the past.”
More of Devlin’s insights are in this week’s print edition of Business in Vancouver newspaper.