Franklin Templeton is underweight Canadian equities

Short term challenges in Canada include trade, oil and a shrinking manufacturing base says portfolio manager Ian Riach, who prefers European valuations

Ruth Saldanha 14 December, 2018 | 6:00PM

 

 

Ruth Saldanha: Overall 2018 has not been the best year for Canadian markets and investors especially the last quarter which has been particularly volatile. What can we expect in 2019? With us to share his perspectives on the year to come is Ian Riach, Senior Vice President and Portfolio Manager of Multi-Asset Solutions at Franklin Templeton Investments. Ian, thanks so much for joining us today.

Ian Riach: You're welcome thanks for having me.

Saldanha: Franklin Templeton is currently underweight on Canadian equities, what are the reasons for this and what are the short-term challenges you see.

Riach: We’re slightly underweight Canada because of some of the short-term challenges that you alluded to. Some of them have to do with trade, some of them have to do with the dislocation in the energy sector right now and shrinking manufacturing base. So, we just don’t see the growth in Canada that we see in other areas. So that’s why we're underweight.

Saldanha: At that same time, you are overweight on international equites, please do give us your reasons for that.

Riach: And again, it comes down to valuation growth trade-off. We do see nascent growth in Europe although we have seen a deceleration recently. But valuations relative to Canada and relative to long term averages over in the international space are very, very attractive. So that’s what's driving our overweight position.

Saldanha: Within international equities you are underweight on emerging markets though in the long term you do see emerging markets as being a positive. Can you give us your outlook on emerging markets?

Riach: So longer term we do expect growth in emerging markets to be greater than we expect in the developed world. But in the short term, we're underweight emerging markets primarily due to our view on China. China's growth has been decelerating and we need to see that reaccelerate before we would get back to our full commitment in terms of emerging markets. The reason for that is emerging markets generally are very, very tied to China as an export destination.

Saldanha: Thank you so much for joining us with your perspectives, Ian.

Riach: You're welcome. Thanks for having me.

Saldanha: From Morningstar I'm Ruth Saldanha

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Ruth Saldanha  Ruth Saldanha is Senior Editor at Morningstar.ca