Market and Investment Outlook 2023 Q2

A view by our Lead Portfolio Managers

Article, August 3, 2023

Prepare for a roller coaster ride in global equities

Today’s changing global economic landscape offers a mixed bag of investment opportunities and challenges for the U.S., Canada and Asia.

Amid the volatility, high-quality small-cap stocks hold the potential for long-term gains.

The June quarter’s stability in stocks masks an unpredictable economic horizon. Both the U.S. Federal Reserve and the Bank of Canada are navigating the challenge of managing inflation without causing substantial economic disturbances. Their strategies might either stabilize or mildly recess the economy, influencing U.S. and Canadian equities.

The macro environment is characterized by potential growth opportunities and challenges due to high inflation and rising interest rates. These uncertainties necessitate a focused investment approach, particularly in high-quality small-cap stocks, which continue to offer promising outcomes despite market fluctuations.

Both U.S. and Canadian small caps present attractive investment opportunities, small caps in both markets trading at significant discounts to large caps, a situation not seen in 22 years. Robust portfolio fundamentals in both our U.S. and Canadian small-cap strategies, such as strong returns and healthy balance sheets, suggest potential growth in forthcoming quarters, even amidst macroeconomic uncertainties.

For H2 2023, China’s economic prospects are influenced by policy changes, recovery patterns, and evolving U.S./China relations. Imminent policy shifts aim to stabilize the property sector and spur consumer sectors. A sustainable growth approach, supported by China’s 45% national savings rate, seems favored over rapid recovery. U.S./China relations, though tense in H1 2023, show potential improvements that might benefit investor sentiments.

Given historical trends, despite current downturns in emerging economies, H2 2023’s outlook is promising with the potential for notable returns.

Quick Takeaways

  • June quarter shows stock stability despite uncertain economic outlook.
  • U.S. Federal Reserve and Bank of Canada are tackling inflation challenges.
  • Both U.S. and Canadian small-cap stocks remain attractive investments.
  • Canadian and U.S. small caps trading at notable discounts, hinting at future outperformance.
  • China’s H2 2023 economic direction influenced by policy, recovery, and U.S. relations.
  • China favors sustainable growth backed by high savings rate.
  • U.S./China relations improvement could boost investor confidence.
  • Emerging economies in H2 2023 project promising returns despite current downturns.

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