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Canada Pension Plan Investment Board President and Chief Executive Officer Mark Machin in Ottawa on Nov. 1, 2016.

Adrian Wyld/The Canadian Press

The head of the Canada Pension Plan Investment Board suggests Canadians need to plan for a slow economic recovery coming out of COVID-19, with global economic output not returning to prepandemic levels until the end of 2022.

“It’s going to take some time for us to get through this, and it’s going to take even more time to get to a full recovery economically – there’s a lot of time and effort to go,” chief executive Mark Machin said in an interview with The Globe and Mail Tuesday upon the release of a CPPIB economic outlook.

As investment manager for the Canada Pension Plan, the primary retirement-security program for working Canadians, CPPIB has become one of the world’s biggest investors in just over two decades. As of Sept. 30, the board reported net assets $456.7-billion across a range of investments from publicly traded stocks and bonds to real estate, infrastructure, private companies and money placed with sophisticated hedge funds.

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Mr. Machin stops short of suggesting that current equity prices show that other investors are more optimistic than CPPIB, but he does describe stocks in the developed world as having “very full” valuations

“From these levels, we’re expecting quite depressed returns for global equities [and] global fixed income for the next five years,” he said. But stock valuations are “not irrational, given we expect interest rates to be close to zero for quite a sustained period and a synchronized global upswing in economic output and demand.”

That said, stocks “are fully priced, so that if there are disappointments – things that happen in the vaccine rollout, the logistical delays, if there’s a shift in the virus that causes it to be more protracted than expected – then that’s where I think you’ll see potential for a sell-off.”

Mr. Machin is a medical doctor by training, and he says “the most pleasantly surprising thing” about the pandemic is the speed at which drug makers developed effective vaccines. “That’s really powerful for future infections and pandemics – it’s really revolutionary,” he said.

The experience will also help in the future, because Mr. Machin believes there is a strong chance of another pandemic. “It is the flip side of the fact that we have a massive population in the world of seven billion people and we’re traveling around all over the place and these bugs will evolve and figure out ways of infecting us and infecting animals,” he said. “So, we’re gonna have to be constantly vigilant, and hopefully next time we’ll be a lot better prepared for it, particularly in Western health systems.”

CPPIB’s outlook also suggests the world is entering a period of “deglobalization.” The momentum for international trade was already fading before the pandemic, as the U.S. and other countries became more hostile to the concept. “It would be wonderful if the West would re-engage in global trade, but there’s been bipartisan concern about whether global trade is a good thing,” Mr. Machin said.

Instead, we may be entering a period in which trade is more regional than global. “Asia is taking initiative to try and create big regional trade deals as the best alternative,” he said. “If the dispute settlement system, the World Trade Organization, is disabled … if we can’t get global trade going, it’s really a shame for the world. In my view, big regional trade deals are the best alternative.”

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CPPIB has been opening investment offices around the world for some time, with a San Francisco location debuting as its ninth in 2019. That year, CPPIB considered opening a Shanghai office as soon as 2020, but that’s not imminent, Mr. Machin said.

“We’ve been very happy with the global footprint we’ve got, and we’re very happy we opened in San Francisco,” Mr. Machin said. “That lens into disruption and innovation [in nearby Silicon Valley] has been really powerful and helpful for us in this period, because we’re in this huge surge in digitization.”

But, he added, “there’s no plans for opening any other office at the moment. We’ll see in the future.”

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