Were the rate cuts a reality check?

Why Fiera Capital's Candice Bangsund is still favouring stocks in her asset allocation

Ruth Saldanha 11 March, 2020 | 1:29AM
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This article is part of our Women in Investing special report.

Ruth Saldanha: COVID-19or the coronavirus has caused significant volatility in equity markets recently. In response, central banks have reduced their interest rates. But is this only a short term solution? Or is it the beginning of a longer slowdown? To discuss her point of view, Candice Bangsund, Vice President and Portfolio Manager of Global Asset Allocation at Fiera Capital is here today.

Candice, thank you so much for being here today.

Candice Bangsund: Thanks for having me.

Saldanha: Up until now, the Bank of Canada has been a holdout in terms of cutting rates, but recently they did too. Where do you think interest rates are going to go from here?

Bangsund: Yeah, so not surprisingly, the Bank of Canada followed suit after the Federal Reserve, reduced rates by 50 basis points in an interim emergency meeting. You know, our view has always been that central banks would pledge to support the economy and largely stem some of the damage from the coronavirus during this volatile time in the economy, and of course, in the financial markets as well. Now from here, I think we're going to see a lot more in the way of stimulus from both central banks and from governments, as well in the way of fiscal stimulus. The outcome of the G7 Chief's gathering last week was largely one of pledges for support. And while there wasn't a lot of tangible evidence in that actual meeting as to what measures would be – would come to fruition, I think what the Federal Reserve was doing and its emergency rate cut was setting the stage and taking the lead in this stimulus push to help to cushion the blow from the coronavirus on the global economy. So, not surprisingly, the Bank of Canada followed suit and I think we'll see some more stimulus from other developed and emerging central banks going forward again, in the effort to stem some of that damage that the virus is indeed causing across the global economy.

Saldanha: Despite all of these announcements to try and calm the water somewhat, it has been quite volatile over the past couple of weeks. How are you playing the market? Have you made any changes to your asset allocation mix?

Bangsund: Yeah, well, despite the fragile market sentiment and the heightened volatility in general, we've actually maintained our preference for stocks versus bonds in the asset allocation decision. And we've largely resisted that temptation to sell into the weakness and to panic. Because long-term our base case does remain that the outbreak is inevitably contained and then the global economy revitalizes itself, particularly being that we're getting all of this stimulus now into an already buoyant and ample liquidity backdrop. So we think that could actually act to accentuate the global economic recovery once the virus is contained. And of course, that is a big if at this point. We are going to be monitoring the evolution of the outbreak particularly outside of China and in the developed world, whether it be in Europe or the U.S., but also monitoring the very proactive and simulative approach from both central banks and governments, because this, we believe will help to reinvigorate the global economy and lend support to risky assets in general.

Saldanha: Before this recent dip the markets did appear overvalued. How are you reading valuations right now?

Bangsund: Yeah, so you could argue that the markets were due for a pullback due to lofty valuation levels, though at the same time, our view has been that in the environment of low interest rates and stimulative monetary policy, above-average valuations are actually warranted in this environment and should increase what investors are willing to pay for equities. Now even more so now that rates are moving a little bit lower. So while yes, valuations have reverted back to maybe more average long term average levels, we're not yet at the point. On the other hand, we're ready to add either so like I said, we're maintaining our preference or overweight allocation, very modest overweight, allocation to equities and are in wait and see mode to see the evolution of how the stimulus feeds into the economy and of course, the evolution of the outbreak.

Saldanha: Apart from the virus itself, what are some of the other risks that you're keeping an eye on?

Bangsund: So, I would say outside of the coronavirus outbreak, risks to the global outlook into markets, the political backdrop remains uncertain and a key risk to our base case scenario.

Saldanha: Thank you so much for joining us today, Candice.

Bangsund: Thanks for having me.

Saldanha: For Morningstar, I'm Ruth Saldanha.

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Ruth Saldanha

Ruth Saldanha  is Senior Editor at Morningstar.ca. Follow her on Twitter @KarishmaRuth.

 
 
 

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