Download NBF Economic Research, IMF - Portfolio Management Association

Economic Outlook
&Capital Markets
Investment Counsel
Association of Canada
Montreal
June 19th, 2008
Clément Gignac
VP Chief Economist& Strategist
Topics
1. U.S. recession in the offing: How long and deep?
2. Emerging countries: How long will the
decoupling with the U.S. last?
3. Canada: Our reasons to remain “cautiously
optimistic”
4. Capital markets: Where are we heading?
Disclaimer
Parts of this presentation contain material that may not
be suitable for some viewers. National Bank of Canada
leaves it to the discretion of its clients whether or not to
accept the implications of this scenario.
Part 1:
The world has changed!
A U.S. housing bubble pop and
a halt to securitization activity!
4
Price of a single-family home as a ratio of median family
income
Ratio
4.1
4.0
3.9
3.8
3.7
3.6
3.5
3.4
3.3
3.2
3.1
3.0
2.9
2.8
Average
1980-2000
2.7
2.6
80
82
84
86
88
90
92
NBF Economic Research, Federal Reserve
94
96
98
00
02
04
06
U.S. mortgage securitization activity suspended
From 4% of GDP…
160 Quarterly change in value outstanding ($ billion)
140
120
100
80
60
40
20
0
-20
-40
-60
…to -2.0% !
-80
90
91
92
93
94
95
96
97
98
99
00
01
NBF Economy & Strategy (data via Federal Reserve)
02
03
04
05
06
07
A recipe for bubble creation by
John Kenneth Galbraith (1972)
Ingredients needed:
1- Wall Street Financial Innovation (like CDOs now)
2- Easy access to credit (ex subprime mortgages)
3- Lack of disclosure by participants (off balance sheet items)
7
U.S.: Precautionary increase in loan-loss provisions…
As % of average assets, U.S. FDIC-insured institutions
1.40%
Provisions for loan losses
Net charge-offs
1.20%
1.00%
0.80%
0.60%
0.40%
0.20%
0.00%
88
Source: FDIC
90
92
94
96
98
00
02
04
06
08
Credit crunch:
Implications on banks and monetary policy
Risk aversion is back = ABCP are back on banks balance sheets
1250
U.S.
120
$ billions
1200
Canada
$ billions
110
1150
1100
100
1050
1000
90
950
80
900
850
70
800
750
60
700
650
50
600
40
550
2001
2002
2003
2004
NBF Economy & Strategy
2005
2006
2007
1999
2000
2001
2002
2003
2004
2005
2006
2007
Now playing at a Wall Street theatre:
“The Survivor”
55
Citigroup share price
Dividend cut
predicted
50
45
Dividend cut
confirmed
40
35
30
25
20
Meredith Whitney,
Oppenheimer analyst
15
Jun-07
Sep-07
Dec-07
Mar-08
May-08
The Fed to the rescue:
Sequence of non-traditional actions
• Dec 12, introduces the Term Auction Facility (TAF) and arranges currency
swaps with ECB and Swiss National Bank, BoE and BoC.
• Dec 21, announces that TAF will continue for as long as needed.
• March 7, again increases the size of TAF and initiates term repos with
primary dealers.
• March 11, upgrade its Term Securities Lending Facility, up to $200 billion
of Treasury securities for 28 days against agency debt (Fannie Mae and
• Freddie Mac) or AAA MBS. Increases currency swap with ECB and SNB.
• March 16, cuts the discount rate by 25 bps after a Sunday meeting.
Create a lending facility to US primary dealers for the first time since the
Great depression on a backdrop of Bear Stearns rescue by JP Morgan
… and do not exclude additional bold moves from the Fed
US: CRE concentration larger than ever
One third of institutions with CRE loans more than 3 times equity
40
%
33.4%
FDIC-insured
institutions with
commercial real estate
loans to total equity
greater than:
35
30
25
300%
400%
500%
600%
20
15
10
5
0
84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
2008: As at March 31
Source: FDIC
Monetary Policy: Broken transmission mechanism?
Spread Mortgage rate and government
bonds
Fed funds et Mortgage rates
7.0
%
Mortgage rate
300
6.5
Basis points
280
6.0
260
5.5
240
5.0
220
4.5
200
4.0
3.5
180
3.0
160
2.5
Fed funds
2.0
06M01 06M04 06M07 06M10 07M01 07M04 07M07 07M10 08M01 08M04
140
120
1999
2000
2001
2002
2003
2004
2005
2006
2007
US Economic Outlook:
Choosing between 4 scenarios?
• Sub par GDP growth (1966, 1986 or 1995 episodes)
• Recession (7 times over the last 50 years)
• Stagflation (a 1973-75 commodities like the 70’s)
• Depression (US in the 30’s and Japan in the 90’s)
PS: As usual, we are trying to stay middle of the Road!!!
U.S. BUSINESS CYCLE
The real question is no longer whether or not
the U.S. will go through a recession,
but rather how long and deep it will be
16
U.S.: Consumers feel miserable
Financial obligations and spending
on energy as a % of disposable income
Michigan sentiment survey and
real wage bill*
7 % (y/y)
6
Wage bill
(left)
index 120 25.5 %
115
25.0
5
110
4
3
105 24.5
100
2
95
1
90
0
85
-1
80
-2
75
-3
70
-4
65
-5
-6
Michigan Sentiment
(right)
60
55
-7
50
-8
45
78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
* Deflated with CPI inflation
24.0
23.5
23.0
22.5
22.0
21.5
21.0
78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
U.S. households: Time to rebuild the savings rate?
Rate of saving
Home equity withdrawal as % of disposable income
13 %
12
6.5
11
5.5
10
5.0
9
4.5
8
4.0
7
3.5
6
%
6.0
3.0
5
2.5
4
2.0
3
2
1.5
1
1.0
0
0.5
-1
0.0
76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06
NBF Economic Research
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
US: 1% increase in unemployment rate usually heralds a
recession
Change over 12 months
5
%
4
3
2
1
0
-1
-2
-3
-4
1950
Global Insight
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
U.S.: Recessions could have different amplitude and duration
Duration of GDP contraction
Rise in unemployment rate
1960-61
1960-61
1969-70
1969-70
1973-75
1973-75
1980
1980
1981-82
1981-82
1990-91
1990-91
Mean:
9 months
2001
0
2
4
6
8
10
12
Duration in Months
14
Mean:
2.6 pp
2001
16
18
NBF Economy & Strategy (data from Datastream)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Percentage points
3.5
4.0
4.5
Any message of hope?
US: Unprecedented amount of rate cuts in a short period of time
5.6 %
5.2
4.8
4.4
4.0
3.6
3.2
2.8
2-year Treasuries
2.4
2.0
1.6
Fed funds
1.2
0.8
2002
2003
2004
NBF Economic Research, Datastream
2005
2006
2007
US: Fiscal tool remains a viable option
Budget balance a share of GDP
3
% of GDP
2
1
0
-1
NBF
Forecast
-2
-3
-4
-5
-6
-7
1965
1970
1975
1980
1985
1990
1995
2000
2005
NBF Economic Research, CBO
23
US: Positive contribution to growth from external sector
Net exports
0.0
% of GDP
-0.5
-1.0
-1.5
-2.0
-2.5
real
-3.0
-3.5
-4.0
-4.5
-5.0
-5.5
Nominal
-6.0
-6.5
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
NBF Economic Research, BEA
24
U.S. Economy: Bottom line
The ongoing rates cuts, falling dollar and
upcoming fiscal stimulus should prevent a
deep and prolonged US recession…
… at least for now as we believe oil price will
return to $80 over the next 12 months
Risk factor: Geopolitics in Middle East and higher oil prices
OIL Price: Nominal and real
130
$
120
110
100
90
Réel ($ de 2006)
80
70
60
50
40
30
20
10
Nominal
0
1970 1975 1980 1985 1990 1995 2000 2005
*
U.S. Risk factor: Protectionism on the rise?
Part II: International
The world has changed!
The U.S. is no longer the powerhouse
of the global economy
World economy: An ebbing of U.S. hegemony
24
% of global GDP
23
BRIC
22
21
20
19
U.S.
18
17
16
15
14
13
12
11
10
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
NBF Economic Research, IMF (World Economic Outlook, April 2008)
BRIC and Middle East account for half of global growth
%, share of global GDP growth
30
Over half of the 3.7% increase in world GDP
in 2008 to come from emerging markets !
27
Advanced economies
25
Emerging markets
20
15
11
8
10
5
5
3
6
3
4
0
US
ro
Eu
n
pa
a
J
i na
h
C
Ind
ia
l
dd
i
M
a
eE
st
ia
ss
u
R
NBF Economic Research, IMF (World Economic Outlook, April 2008)
il
az
Br
China: Industrializing very fast
Percentage of population living in cities: China versus U.S.
80
% of total population
U.S. urbanization
since 1840
70
60
Forecast for 2011
50
2004
40
2000
Every year more than 25 million
Chinese people move to cities
1990
30
1978
20
10
1840
1860
1880
1900
1920
1940
1960
1960
NBF Economic Research, Census Bureau, China Statistical Yearbook
1980
Commodities: A new paradigm or history likely to repeat itself
550
500
450
400
350
300
250
200
150
100
1965
1970
1975
1980
1985
1990
1995
2000
2005
Emerging countries theme
Any risk factors?
China: Will authorities be too complacent on growth?
Elasticity ratio of energy consumption*:
China vs. G7 economies
1.4 Ratio (3-yr moving average)
1.3
China
CPI inflation: Emerging Asia vs.
G7 economies
18
% (y/y)
16
1.2
1.1
14
1.0
0.9
12
G7 economies
0.8
10
8
0.7
Emerging
Asia
0.6
0.5
0.4
6
0.3
4
0.2
0.1
2
0
0.0
G7
78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
-0.1
88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
* Defined as the ratio of the growth rates in energy consumption and real GDP
Risk factor: Food prices
% world population living in urban area
CRB foodstuff
440 index
400
55 %
50
360
45
320
280
40
240
35
200
30
160
25
120
20
80
72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2008
Leading indicators: Synchronized decline in momentum!!!
18
16
14
12
10
BRICs
8
6
4
2
World
0
-2
OECD
-4
-6
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
World GDP: Back to trend growth rate in 2008?
Real world GDP growth
6.5 %
5.5
Average
1970 – 2006
4.5
3.5
2.5
1.5
0.5
70
72
74
76
78
80
NBF economic research, IMF
82
84
86
88 90
92
94
96
98
00
02
04
06
08
Canadian Economy
Why are we much more upbeat about
prospects in Canada than in the USA?
Real estate: Canada not at risk according to the IMF
Increase in home prices over the period 1997-2007 not accounted by fundamentals
35 House price gap (%)
30
25
20
15
10
5
0
-5
International Monetary Fund (April 2008)
Austria
Canada
Germany
Finland
US
Japan
Italy
Sweden
Spain
Belgium
Denmark
Norway
France
Australia
UK
Netherlands
Ireland
-10
Canada: Strongest public finances in the G-7
Net government debt
120
% of GDP
99
100
86
80
58
60
40
41
44
46
U.K.
France
U.S.
26
20
0
Canada
NBF Economic Research, Finance Canada
Germ.
Japan
Italy
Net exporter of resources = Surging terms of trade
Ratio of export to import prices
112
108
104
100
96
92
88
84
80
76
74
76
78
80
82
NBF Economic Research
84
86
88
90
92
94
96
98
00
02
04
06
External sector: Canadian surplus, U.S. deficit
Current-account balance
3 % of GDP
Foreign-held debt
48 % of GDP
44
2
40
1
36
0
32
-1
28
-2
24
20
-3
16
-4
12
-5
8
-6
4
-7
0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06
NBF Economic Research, Finance Canada
CAD closely ties to commodities
CAD vs. CRB futures index
600
CRB ijndec
USD/CAD 1.15
1.10
560
CAD/USD
(right)
520
480
1.05
1.00
440
0.95
400
0.90
360
0.85
320
0.80
280
CRB futures
(left)
240
0.75
0.70
200
0.65
160
0.60
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
NBF Economy & Strategy (data from Datastream)
Warning: Economics 101
Canada has great fundamentals but
our economy will not be immune from
a U.S. recession
Canada-U.S.: Business cycles in-synch
Real GDP growth: Canada vs. the U.S.
9
% (y/y)
8
7
6
5
4
3
2
1
0
-1
-2
-3
-4
66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06
NBF Economic Research
GDP growth: Temporary soft-patch to be expected in 2008
Real GDP, 2008 forecast
4.0 %
3.5
3.5
3.1
3.0
2.9
2.6
2.5
1.8
2.0
1.8
1.7
1.5
Canadian
average: 1.5%
1.5
1.0
1.0
0.5
0.5
0.0
ALB
MAN
SASK
NBF Economic Research
BC
NS
PEI
NB
NFLD
QUE
ONT
Bottom line: BOC rate cuts not over yet in Canada
6.8
%
6.4
6.0
5.6
5.2
4.8
4.4
4.0
3.6
BoC overnight rate
3.2
2.8
Fed funds rate
2.4
2.0
1.6
1.2
0.8
1997
1998
1999
2000
2001
NBF Economic Research, Datastream
2002
2003
2004
2005
2006
2007
Forecasts
Indicators
2008
2009
GDP
U.S.
Canada
1.4%
1.1%
1.6%
1.9%
Inflation
U.S.
Canada
3.5%
2.2%
1.9%
1.4%
Current
Jun. 2009
Policy rate
U.S.
Canada
2.00%
3.00%
2.00%
3.00%
10-year
yield
U.S.
Canada
4.19%
3.84%
4.25%
4.02%
CAD
1.016
0.92
S&PTSX
14,863
12,800
Capital markets:
Volatility will remain for some time
49
Capital markets: Volatility is back in stocks and bonds!
CBOE VIX and MOVE* indexes, 40-week moving averages
140
Index
Index
35
MOVE* index (L)
130
30
120
110
25
100
20
90
80
15
VIX index (R)
70
* Merrill Lynch trademark product
60
Apr-88
Feb-91
Jan-94
10
Nov-96
Source: NBF Economic Research, Datastream
Oct-99
Aug-02
Jul-05
May-08
S&P 500: Volatility is back
% of trading days on which the S&P 500 has moved more than 1%
80%
First quarter 2008
70%
60%
50%
40%
30%
20%
10%
0%
Q1- Q1- Q1- Q1- Q1- Q1- Q1- Q1- Q1- Q1- Q1- Q1- Q1- Q1- Q1- Q1- Q1- Q1- Q1- Q151 54 57 60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08
NBF Economy & Strategy (data via Datastream)
Performance of equities in five U.S. recessions
S&P 500 Composite and U.S. real GDP growth
-49%
% q/q annualized
From pre-recession
peak to trough
-36%
-48%
-19%
-20%
S&P 500 (R)
-27%
20
16
12
500
In recession periods,
the S&P 500 pulls
back an average 36%
from peak to trough
8
4
0
-4
-8
U.S. recessions in gray
U.S. real GDP
growth (L)
-12
68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06
NBF Economic Research, Datastream
2000
1500
1000
250
150
100
50
Sector rotation: Any place to hide during recessions?
S&P 500 Composite recession impact
Index
S&P 500 Comp.
Energy
Materials
Industrials
Cons. Disc.
Cons. Staples
Health Care
Financials
Banks
IT
Telecom
Utilties
-6m before
recession
-3m before
recession
-4.25
-2.14
5.94
-0.15
-0.93
6.31
3.89
2.60
2.52
-11.65
-8.21
-4.25
-1.02
0.77
1.58
0.35
-0.36
1.25
1.13
1.93
2.89
-5.14
-2.18
0.00
1970-2001 Recessions average
-1m before
Start
+3m after
recession
recession to
recession
market
trough
trough
-2.48
-22.38
18.62
0.86
-17.96
13.49
-0.30
-24.61
20.98
-1.76
-25.93
19.13
-3.28
-24.99
22.30
0.65
-16.64
19.79
0.03
-16.77
19.64
-2.87
-27.36
28.60
-2.23
-25.93
23.59
-5.86
-27.05
22.12
-6.67
-12.27
9.89
-0.68
-15.43
10.42
+6m after
recession
trough
+9m after
recession
trough
30.18
22.50
35.74
33.25
40.95
31.90
30.27
40.39
34.50
39.04
11.03
13.29
36.19
34.37
46.21
40.53
47.47
36.87
34.26
51.07
47.45
37.27
7.70
15.22
S&P/TSX Composite U.S. recession impact
Index
S&P/TSX Comp.
Energy
Materials
Industrials
Cons. Disc.
Cons. Staples
Health Care
Financials
Banks
IT
Telecom
Utilties
-6m before
recession
start
-3m before
recession
start
-2.98
6.17
6.20
-3.93
-13.10
3.24
5.75
1.06
0.28
-14.03
-6.19
0.71
-0.33
0.77
2.96
-5.26
-3.36
-2.69
4.18
2.26
2.96
-6.20
-2.96
1.46
1970-2001 Recessions average
-1m before
Start
+3m after
recession
recession to
recession
start
market
start trough
trough
-0.76
1.17
3.50
-0.67
-1.37
2.92
3.14
0.15
-0.81
-12.14
-0.46
1.55
-23.31
-17.93
-23.49
-25.60
-18.20
-4.70
-12.00
-17.26
-15.06
-22.61
-11.88
-11.63
16.03
6.56
9.44
19.28
19.66
11.33
19.45
19.34
19.03
24.92
11.66
11.96
+6m after
recession
start trough
27.73
15.25
29.09
34.79
29.12
28.21
32.92
31.83
31.68
24.47
10.51
15.61
+9m after
recession
start trough
31.37
24.24
36.48
30.67
37.88
33.82
39.16
40.70
40.38
17.79
14.94
14.77
Capital markets currently on the edge!!!
Downside and upside risks about the same?
55
Equities valuation looks cheap … at first glance!!!
Equities do not look overvalued on a forward basis…
… and on a trailing basis
S&P 500 12-month forward P/E
S&P 500 & S&P/TSX 12-month trailing P/E
PE ratio
25
24
23
22
21
20
19
18
17
16
15
14
13
12
11
10
9
30
Shaded area = recessions
Ratio
Shaded areas= U.S. recessions
28
S&P/TSX
26
24
22
20
16.0x
18
16
15.9x
S&P 500
14
12
12-year low !
10
8
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
NBF Economic Research, Datastream,I/B/E/S
6
1960
1965
1970
1975
NBF Economic Research, Datastream,I/B/E/S
1980
1985
1990
1995
2000
2005
… but be aware that inflation is a headwind for PE expansion
Trailing PEs on S&P500 and
headline CPI inflation
PE
30
Tech bubble
28
24
22
20
18
30 EPS
Projection
28
Given the limited
scope for PE
expansion in the
current
environment…
26
Bottom-up consensus of equity analysts
26
24
22
…equities will be
vulnerable to
earnings
downgrades
20
Current
16
18
14
16
12
14
10
Consensus sees EPS
surging 78% between
now and Q4 2009 !
12
8
6
10
4
8
0
1
2
3
4
5
6
7
8
9
10 11 12 13 14 15
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
CPI inflation
NBF Economy & Strategy (data via Datastream and S&P)
US recessions = More downward earnings revisions???
%
Current year consensus earnings revisions,
from start to end of a given year
10
5
0
-5
-10
YTD:
-10.0%
-15
-20
-25
-29.3%
-25.1%
-24.2%
Shaded for recessions
-30
80
85
90
95
00
05
Any message of hope?
Stocks typically bottom 2/3 of the way through a recession
0
100
Mar-01 to Nov-01
200
204
Jul-90 to Mar-91
300
400
243
Jul-81 to Nov-82
407
86
488
182
Nov-73 to Mar-75
336
Dec-69 to Nov-70
485
176
Apr-60 to Feb-61
335
207
0
600
245
102
Jan-80 to Jul-80
500
100
306
200
300
Days
400
Number of days from start of the recession to market trough
NBF Economy & Strategy (data from Datastream)
500
600
Total recession length
Credit crunch: The worst behind us?
Investment grade spreads
260
1100
High-yield spreads
1000
240
900
220
200
800
180
700
160
140
600
120
500
100
80
400
60
40
300
20
200
0
1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
360
CMBS spread
200
320
180
280
160
240
140
200
120
160
100
120
80
80
60
40
40
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
RMBS spread
20
88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
Our « cautious » view on
oil price and S&P/TSX
S&P/TSX: Still heavily exposed to resources
S&P/TSX and S&P 500 sector weights
S&P/TSX Resources
weight: 51%
32%
40%
AN
N
I
F
US
AL
CI
S
0%
2%
5%
2%
4%
11%
11%
17%
0%
4%
5%
4%
3%
4%
10%
9%
11%
15%
5%
15%
20%
15%
25%
19%
30%
Canada
26%
35%
.
S
LS
ET
GY
IES
CH
RE
ES
AL
RV
A
T
I
L
R
E
R
A
I
I
E
T
R
P
E
C
R
S
SC
TIL
O
H
TA
ST
EN
TE
M
F
DI
U
T
S
U
A
.
O
L
IN
D
M
S.
EA
NS
EC
IN
N
L
H
O
C
CO
TE
NBF Economic Research,Datastream
S&P/TSX: Longest sequence of excess return in 45 years
S&P/TSX return minus S&P 500 return in CAD
Longest winning
streak in 45 years
30%
20%
10%
0%
-10%
2008 to
date
-20%
-30%
-40%
60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
to
date
NBF Economic Research, Datastream
Stock markets : How much longer can the S&P/TSX
outperform the S&P 500 ?
S&P/TSX and S&P 500 5-year rolling return differential (in C$)
%
150
100
50
0
-50
-100
-150
-200
74
75
77
78
80
82
83
85
87
88
90
92
Source: NBF Economic Research, Datastream
93
95
96
98
00
01
03
05
06
08
Commodity prices tend to slide when growth slows for 2 years
Deviation of global growth from long-term trend (3.8%) vs. Reuters/Jefferies CRB
6
Percentage points
Index
Shaded areas show two or
more consecutive years of
below-trend global growth
500
?
Reuters/Jeffe
ries CRB
4
400
300
2
200
0
World GDP growth minus 3.8%
-2
100
70
72
74
76
78
80
82
84
86
88
90
92
94
NBF Economy & Strategy (data via Datastream, IMF)
NBF Economy & Strategy forecast for 2009: 3.5%
96
98
00
02
04
06
08
Slower GDP growth = weaker oil demand = lower oil price
Real world GDP growth and global oil consumption
8 % y/y
7
World GDP
6
5
4
3
2
1
0
-1
Oil consumption
-2
-3
-4
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
EIA
Indonesia, Malaysia,
Bengladesh, Sri
Lanka… the list is
getting longer
How long
can China
and India
continue to
maintain
their
subsisdies?
OPEC Surplus Crude Oil Production Capacity
6
Forecast
5
4
Million
barrels 3
per day
2
1
0
1997
1999
2001
2003
2005
2007
Note: Shaded area represents 1997-2007 average (2.5 million b arrels per day)
Short-Term Energy Outlook, June 2008
2009
Investment strategy
Preference for
• Low debt companies
•Large capitalisations
•Dividend paying
•U.S. equities over S&P/TSX
Some sectors we currently favour
Consumer staples, Utilities, Health care
Summary – Economic Outlook 2008-09
• International :
– Continued expansion, but at a cooler pace;
– U.S.: A consumer led recession highly probable;
– Fed and Capitol Hill will continue the rescue’s operation
• Canada :
– Excellent fundamentals to cushion a U.S. slowdown;
– Quebec and Ontario to face stiff headwinds;
– BOC: On the sidelines for some time;
• Capital market:
– Volatility likely to stay for some time;
– U.S. equities: Downsize risk less significant than a year ago
– S&P/TSX: Vulnerable to investors’ sentiment shift on commodities;
Thank you for your attention