Investors should be prepared for an increasingly rocky stock market as the year progresses.
Sadiq Adatia, chief investment officer at Sun Life Global Investments, expects market volatility to increase over the next few months as fear and uncertainty over continued fiscal and financial issues in the Euro zone grow.
"Italy, Greece and Spain will likely pop up in the news again later in the year. And we're going to see other European countries asking for bailouts," he told Business in Vancouver during a recent B.C. speaking tour with clients and advisers. "The European situation is not resolving itself. As we go into the second and third quarters of 2013, we'll see some volatility in the markets."
Volatility has already hit the Canadian stock markets in recent months. After edging upward at the start of the year, the TSX fell 7.2% in mid-April before recovering 5% as of last week (May 13). Adatia suggested that volatility will continue and the Canadian market is likely to end the year in negative territory.
Canada's equity markets face foreign and domestic challenges. Adatia said publicly traded mining companies continue to struggle with relatively low commodity prices reflecting uncertain demand from emerging markets like China. But domestic housing market concerns, high consumer debt levels and persistently high unemployment are also weighing down the stock market that has 55% of its total market capitalization in financial and resource stocks.
Adatia, however, was bullish on the U.S. economy and the American markets. Strong economic fundamentals have driven much of the stock market gains on the Dow Jones Industrial Average, which has thus far risen 15% this year and continues to hit new record highs.
Greater confidence has also boosted the Nasdaq, which has risen 22% since its low last November.
Technology stocks have contributed to the overall rise of the index, with Nasdaq-listed biotech companies rising 35% so far this year and Internet-based and semiconductor-related stocks rising 30%.
"We feel the U.S. is moving in the right direction," he said. "You're seeing improvements in corporations, strong balance sheets, great cash flows and increasing dividend yields. You're seeing de-leveraging in the U.S., the housing market rebound. And while you may see mixed job reports, make no mistake, there is job creation happening. More people are going to have money and more people are going to spend in the economy."
Adatia was also confident about the growth prospects in the world's emerging markets, including China.
"We're not going to see a hard landing in China. The political leadership has changed so we're going to see a focus back on growth again," he said. "I'd be a buyer of China and the rest of the emerging markets. They are the growth engines of the world. I see more internal consumers in the emerging markets get wealthier and that should spur the global economy even more." •
