By Liam Lahey
Canada’s financial advisors consider a major downturn in China to be a greater threat to the Canadian economy than the current debt crisis unfolding in the Eurozone, according to the Sun Life Advisor Sentiment Index released by Sun Life Global Investments.
“Even though the Eurozone is a massive problem that will last for many years, the direct impact on Canada is quite small … whereas with Chin, advisors can see that link a lot more from the commodities side,” says Sadiq S. Adatia, chief investment officer, Sun Life Global Investments in Toronto.
Among the survey’s findings:
- More than half consider a major downturn in China to be among the three greatest threats (57 per cent).
- Forty-three per cent of advisors say the same about a breakup of the Eurozone.
- Thirty-nine per cent of advisors say a sovereign debt crisis is among the top three risks to Canada.
Advisors optimistic about the U.S.
Also noteworthy, Canuck advisors believe the U.S. is the place to invest with 78 per cent of expressing optimism about U.S. markets (including the Dow Jones Industrial Average and the S&P 500 Index) compared to 60 per cent of advisors who say they are optimistic about Canada’s S&P/TSX Composite.
“When you consider the markets as a whole it’s easy to be quite negative given what’s going on in the Eurozone,” Adatia says. “But it’s good to see advisors are more favourable towards the U.S. and that’s a good thing because when you look at what’s happening there, there are good signs that suggest their economy has turned the corner. I’m not saying there’s strong growth or that we’re running into a bull market by any means.”
Dylan Reece, a senior advisor and portfolio manager at Nicola Wealth Management in Vancouver and a member of Advocis, the Financial Advisors Association of Canada, says his firm agrees stateside is the place to invest.
“We’re focusing more on the U.S. in equities primarily because of the industries we can get access to that aren’t really available in Canada such as technology and healthcare,” he says. “We are more concerned about commodities because of Europe, China, and therefore we’re underweight in that area.”
Outlook for global markets
However, whereas seven in 10 advisors expressed a bullish view of the global trading market for the year ahead in the Sun Life survey, Nicola Wealth Management is not among them.
“We’re still very cautious and have been for over 10 years and therefore we only have 20 per cent to 30 per cent of our clients’ portfolios in stocks at all,” he says. “The balance is in cash-flowing mortgages, high-yield bonds, alternative strategies, private equities and commercial real estate. We’re conservatively, defensively positioned right now because of what we’re seeing around the world.
“We’re in year 12 of a 15- or 20-year secular bear market.”
On the subject of whether China or the Eurozone is the greater worry for Canadian investors and the economy, Reece says he’s more concerned with what’s transpiring in Europe than in the Far East given China has significantly more levers to pull to stimulate their economy than the Europeans do.
“We view Europe a much bigger concern than the slowdown in China in the short to medium term. China exports a majority of its goods and services to Europe and the U.S. What happens in Europe first can greatly affect China,” he explains. “If we see a major credit crisis continue to unfold in Europe … that’s a bigger concern to the global economy and credit.
“This is a Lehman moment potentially developing in the Eurozone. That’ll have a much bigger impact on the global economy and Canada.”
The Sun Life Advisor Sentiment Index also highlights weak consumer spending (36 per cent), the price of oil (35 per cent) and inflation (22 per cent) as potential threats to our economy.
Canada’s residential real estate market to suffer?
“When we did this survey in early May, the Bank of Canada had just come out and said rates will be moving up at some point and that housing is a concern,” Sun Life’s Adatia says. “I’ve been fortunate to have an extra month into it to see how quickly the Eurozone has deteriorated further and how the Bank of Canada and (the federal government) are curbing the real estate market with the new mortgage rules. Those are big concerns.”
Nicola Wealth’s Reece also highlights the state of Canadian real estate as being a point of concern when considering a slowdown in China.
“The Chinese buyer has a significant influence especially in B.C. and in Toronto. We have been very concerned about residential real estate prices,” he tells Yahoo! Canada Finance. “As China continues to slowdown and their real estate market gets weaker we would expect further declines in prices.
“We’re investing significantly more in physical, income-producing real estate both in Canada and the U.S. We deem that to be a more stable asset.”
The Sun Life survey also finds:
- Advisors believe almost half (48 per cent) of their clients are more risk adverse since 2008.
- Thirty-seven per cent believe their clients are pessimistic about the current market conditions.
- Fear of losing capital (62 per cent) is the No. 1 concern advisors hear from their clients followed by fear that their investment performance won’t be enough to achieve their lifestyle goals (61 per cent).
- The money invested won’t be enough for retirement (60 per cent) and fear that if markets crash, clients won’t have enough time to make up any losses before retirement (59 per cent) are also concerns advisors hear.