Even though valuations are rich and growth is hard to come by, Fiera Capital believes growth will improve according to CIO François Bourdon.iStockphoto/Getty Images/iStockphoto
While some investors are positioning their portfolios for a market downturn, Fiera Capital Corp.'s François Bourdon is readying his for a longer-term rally. The global chief investment officer of Fiera, which has about $125-billion in assets under management, sees a "synchronized global expansion" in the years ahead. He's particularly bullish on Canada and emerging markets and is forecasting oil to hit $65 (U.S.) a barrel in the next 12 months, which is above consensus. The Globe and Mail spoke with Mr. Bourdon recently about his forecast, plus two stocks he wishes his firm had bought more of.
What are your investors asking about these days?
They're saying, "How can I still make money in equities? Valuations are rich. How come the markets aren't volatile? We have [U.S. President Donald] Trump causing mayhem and there's no reaction." They're also complaining about the growth outcome, which is a bit weak.
What's your outlook on the markets?
The economic cycle isn't dead. We have a few years left in this economic cycle. Even though valuations are rich and growth is hard to come by, we believe growth will improve. As a result, valuations aren't crazy. We are still comfortable with being overweight equities and we specifically like Canada and emerging markets. We think that, over the next 12 months, oil will go to $65. That's off consensus and that supports our position in Canadian equities. We also think the global economy will be stronger than current market expectations. It used to be that the U.S. was driving the show and everyone else was kind of slow. Now, the others have picked up and it's a synchronized global expansion.
What do you like about Canada?
Canada, relative to the U.S. and international markets, has been weak over the past six or seven years. Canada did well in the previous 10 years. It's payback time. As we move closer to the later stages of the economic cycle, when capacity utilization increases and there is commodity-price pressure, we believe Canada will do well. The banking system remains fairly strong. Most of our market will benefit from higher interest rates. Those factors should help support the Canadian stock market.
What sectors do you think will do well in Canada?
The insurance companies – the low-rate environment isn't very good for them. Banks will also benefit from higher rates as long as the credit cycle doesn't turn.
What commodities do you think will do well?
From a macro standpoint, commodities in general. The one we believe will do best is oil. We think [the price of crude] will increase. We also like copper. It will be a beneficiary – global growth is a big driver of copper. There also hasn't been a lot of new investment in copper mines. Lumber is another one we think makes sense.
How about gold?
Gold isn't dependent on economic growth. Generally, when you have a strong, synchronized global economy, the U.S. dollar is relatively weak. From that standpoint, gold could benefit. There is a premium associated with a crisis, deflation worries that gold generally benefits from. We don't see that occurring over the next 12 to 18 months. It will be a see-saw battle. We don't expect anything exciting in gold land.
What do you like about emerging markets?
Emerging markets are ready to live on their own. They don't need the support of the global economy as much. We think the global economy is going to do well, so emerging markets will benefit even more. Some people believe emerging markets are very dependent on the commodities cycle. Some countries still are, such as Russia and Brazil, but 70 per cent of the emerging-market index includes China, Taiwan and South Korea, and those aren't commodity-related stories. Technology is a big element of emerging markets, in our view. We also think commodity prices are going to do well, so those markets will be firing on all cylinders. The negative will be that interest rates from central banks will increase progressively, which generally has a negative impact on emerging markets. But we think growth will trump the interest-rate increases.
Speaking of Trump, what's your outlook for the U.S. market?
I knew that was coming. In terms of the U.S. economy, we think it will do fine. We think there will be growth, inflation will move back around 2 per cent in 2018, the central bank will be increasing rates. The U.S. dollar will likely be a little bit weaker compared to other currencies for the next 12 to 15 months. The U.S. stock market isn't as attractive as others. We think it will be positive in 2018, but not as positive as others. It's not expensive, but it's more difficult to see catalysts for the upside in the U.S. than it is for Canada and emerging markets.
Are there any sectors you wish you bought into?
I wish we had a lot of Amazon and Facebook. I don't have any fundamental reason [to own them]. It's difficult to assess their value. We own them in some of our funds, but it's not aggressive ownership. It would have been nice to have [more of] them.
This interview has been edited and condensed.