Financial advisers are more optimistic about stock markets in the United States than in Canada and more concerned about a major downturn in China than in the euro zone, according to a survey released Tuesday by Sun Life Financial.
The Toronto-based insurer and wealth management company found 78 per cent of nearly 500 advisers surveyed were optimistic about U.S. markets – such as the Dow Jones industrial average and the S&P 500 index – while only 60 per cent were optimistic about the performance of Canada’s S&P/TSX composite index.
The survey suggests advisers see more opportunity in the United States, where it appears a slow recovery is in the works, while Canada’s economy seems more stagnant, said Sadiq Adatia, chief investment officer at Sun Life Global Investments.
“Canada and the U.S. are actually going in two different directions,” he said.
“(The U.S.) is one of the better economies out there, even though it’s not overly strong by any means, but it is showing signs of optimism,” he said.
The U.S economy appears to have turned the corner, with recent data suggesting the housing market is emerging from the doldrums, a decline in the unemployment rate and more confidence in the economy, as well as signs consumers are reducing their debt loads.
Meanwhile, Canada’s economy has been resilient since the recession, with a strong financial system, “but now we’re starting to see some signs of deterioration a little bit, we’re seeing high real estate values that are concerning, we’re seeing high debt levels,” Mr. Adatia said.
The advisers also reported their clients are more averse to risk amid the volatility that has followed the recent financial crisis.
The respondents said they believed almost half of their clients are more risk averse since the crisis hit in 2008, and 37 per cent believe their clients are pessimistic about current market conditions.
Mr. Adatia believes 2008 was something of a watershed year, with investors turning their backs from stock markets more permanently than they have in the past.
“I think there’s a lot of investors who got hurt in 2008 and are not coming back,” he said.
One reason is that baby boomers can’t afford to take another loss as they approach retirement, he added, while others are making more conservative investments because such financial shocks seem to be happening more frequently than they have in the past.
“When you look at something like the euro zone, or debt levels in the U.S., or Canadian debt levels, those are not things you can just change overnight, they’re going to take a few years to rebuild and change, so I can see that most investors out there are going to be more risk averse for the next couple years,” Mr. Adatia said.
He believes that results of the poll, taken between April 23 and May 4, would be even more pessimistic if it was taken today. The TSX has tumbled in recent weeks, along with commodity prices, as fears about a breakup of the euro zone come into sharper focus and more indebted European countries ask for financial help. There’s also mounting evidence of slowdowns in Canada, the U.S. and China.
The poll found that advisers view a major downturn in the pace of Chinese expansion as the greatest threat to the Canadian economy – with 57 per cent saying a significant slowdown in the world’s second largest economy could pose a threat to Canada in the next year.
Meanwhile, 43 per cent said the same about a breakup of the euro zone and 39 per cent said a sovereign debt crisis is among the top three risks to Canada.
“Canada is a commodity-driven market so ... if the global economy slows down, then obviously you’re going to feel an impact on commodity prices around the world,” he said.
“China’s a big demand for commodity prices, so if China’s going to slowdown or have a hard landing by any means, that’s going to impact commodity prices, which will in turn will impact the Canadian economy and the Canadian market.”
Meanwhile, Canada doesn’t do a lot of exporting to the euro zone, so a slowdown there would have a less direct impact on the Canadian economy, he added.
The advisers polled also worried about weak consumer spending, the price of oil and inflation as potential risks to domestic economic performance.
Adatia said consumer debt is one of the top domestic concerns, as savings rates are low and Canadians continue to pile on debt amid low interest rates – at the same time as the housing market “grows more overheated."
A majority of advisers, 71 per cent, believed that Canada’s overnight interest rate will be higher than the current 1 per cent next June, and 69 per cent believe inflation will rise 1 per cent or 2 per cent over the next 12 months.
The survey of a selection of 475 Canadian financial advisers was conducted by Ipsos Reid on behalf of Sun Life Financial.