Ottawa Investment Advisor John Bruce

August 2015 Client Letter

August 27, 2015

Global capital market volatility increased during the summer of 2015 as investor concerns related to slower economic growth, particularly in China, gradually increased.

Economic indicators had shown an improving outlook in the U.S. and Europe early in the second quarter, leading to softer demand for global bonds. Prices for U.S. Treasury and Eurozone bond prices initially declined, but later rebounded as investors shifted their focus from equities to the perceived safety of government bonds as Greece’s debt crisis dragged the euro lower.

Many global equity markets, meanwhile, ended the second quarter with modest losses, as early gains were offset by broad declines through the month of June. The MSCI World Index was down 1.2% when measured in Canadian dollars, U.S. equities as measured by the S&P 500 Index registered a slight decline of about 0.3% (-1.4% in Canadian dollar terms), and European equity markets also dipped. The Canadian S&P/TSX Composite Index also finished the quarter lower, with a loss of 1.6%.

In China, the Shanghai Composite Index hit a seven-year peak in early June before beginning a sharp decline. Although it still finished the second quarter with a gain of 14.1% in local currency terms, the Chinese index continued to lose ground into the third quarter as investors showed increasing concern about slowing growth in the world’s second-largest economy. The country’s surprise devaluation of the yuan and weaker trade data in August contributed to a further sell-off across global markets, particularly in countries whose economic fortunes are closely linked to China’s growth.

In retrospect, although the Greek debt crisis and Chinese stock market sell-off dominated headlines in recent months, the actual impact of these events on global growth has been limited. Greece accounts for only about 2% of the Eurozone economy, while its lenders, including the European Central Bank and International Monetary Fund, have significant financial resources. China’s economy continues to grow, and the fact that investment in mainland Chinese equities remains largely inaccessible to foreign investors should help to contain the impact.

It is also important to view these events through a longer-term lens. Equity markets rarely move forward without periods of volatility. The S&P 500 Index in the U.S. has gained more than 200% since March 2009, and has been trading above its pre-crisis highs for more than two years. There have been several market declines and recoveries over the past six years, but the trend has been broadly upward, based on modest global economic growth, fundamental improvement in business conditions, and the gradual willingness of investors to re-enter the market.

Looking ahead, it seems that more volatility is likely. Rather than retreating from the markets at this time, I believe the best strategy is to maintain a long-term view, investing with care in a well-diversified portfolio that suits your tolerance for risk.

If you have any questions about your portfolio results or your overall financial plan, please do not hesitate to contact my office.


John S. Bruce
Senior Investment Advisor

This letter was taken from CI Investments. The information in this letter is derived from various sources, including CI Investments, Signature Global Asset Management, Cambridge Global Asset Management, Globe and Mail, National Post, Bank of Montreal Economics, and Trading Economics. Index information was provided by TD Newcrest and PC Bond. This material is provided for general information and is subject to change without notice


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