The outside of a TD Bank branch is seen in New York January 17, 2012.SHANNON STAPLETON/Reuters
TD Asset Management Inc. says stocks are now fairly valued after their recent tumble. That doesn't mean it's diving back into the equity market.
Bruce Cooper, 50, chief investment officer at the $338-billion ($260-billion U.S.) investing unit of Toronto-Dominion Bank, sees value in global stocks as prices have come down in recent months amid rising uncertainty over Chinese growth.
"We're at a spot where stocks are in range of fair value," Mr. Cooper said in an interview in the Bloomberg Toronto office. "Sentiment is quite bearish, which is a contrary indicator and suggests we may be set up for a rally. We may be experiencing a tactical rally in the last week or so."
The MSCI All-Country World Index has surged 7.5 per cent in the past seven days, rebounding after a 9.9-per-cent quarterly decline in September, the worst three-month slump since 2011. The index's price-to-earnings ratio stands at 17.2 after slipping to about 16 at the end of Sept. 30, the lowest since October 2014.
Mr. Cooper, whose firm shifted further into fixed income in May from an overweight in equities since 2009, is maintaining a more neutral stance on stocks longer term.
While China's struggles in switching to a consumption- focused economy from one driven by investment and manufacturing has been the trigger for the slide in world equity markets, it's not the only cause, Mr. Cooper said. Debt is dragging on growth and making markets more volatile while investors have also become too reliant on central banks as a cure-all for what ails markets.
More Levers
"I've taken a few economics classes and I don't recall anyone saying central bankers are wizards," he said. "There's a limit to the power central banks have. We've acted in the last seven years like if central banks did the right thing we could all exit this mess."
Other levers need to be pulled, Mr. Cooper said.
"We're in a bit of a pickle and we need to pull multiple levers," he said. Aside from monetary policy, European governments need to loosen regulations on labor markets and governments should consider shifting their fiscal strategies, with an eye towards long-term infrastructure projects or to spending that promotes productivity.
The fortunes of Canada's resource-rich equity benchmark Standard & Poor's/TSX Composite Index remains tied to the price of oil and macro-economic forces beyond its borders, particularly China, the nation's second-largest trading partner after the U.S.
Oil Stocks
Suncor Energy Inc.'s all-share $4.3-billion offer for Canadian Oil Sands Ltd. suggests long-term optimism remains in the oil patch, Mr. Cooper said.
"Embedded in their thinking is we go back to $80 to $90 a barrel in the long run," Mr. Cooper said. "They're stepping in and saying here's a stock that's worth 50 percent more than yesterday."
Canadian Oil Sands surged a record 55 per cent the day Suncor disclosed the hostile bid. The company has since introduced a shareholder rights plan to discourage further offers. Canadian Oil Sands is the largest stakeholder in the Syncrude oil sands joint venture, which also includes Suncor.
U.S. oil prices, still down about 20 per cent from the most recent June high, are more likely to snap back to the $70 to $75 a barrel range, near the marginal cost of supply, Mr. Cooper said.
"We live in a low-return world," Mr. Cooper said. "It will be a rocky path to returns. We're not deeply negative either. We're certainly not buying canned beans."