Skip to main content

The Globe and Mail

‘Big, scary world,' leads bulls to Canadian equities

John Lennon sang, "Nobody loves you when you're down and out." Mr. Lennon was no Canadian investment manager.

Canada's senior investment professionals are singing a downright cheery tune about the Canadian stock market – despite a third-quarter pummelling that knocked 12.6 per cent off the S&P/TSX composite index. In fact, domestic equities are their favourite asset class heading into the fourth quarter, according to a new survey from Russell Investments Canada Ltd.

Stocks yes, bonds no

Story continues below advertisement

The quarterly survey, conducted from Aug. 30 to Sept. 9, found that 57 per cent of investment managers have bullish outlooks on the Canadian stock market for the next 12 months, versus just 20 per cent who are bearish. (The rest expressed neutral opinions.)

That net-bullish position of 37 per cent ranks Canadian equities well ahead of the survey's outlooks for U.S. equities (17 per cent net bullish), emerging-market equities (23 per cent) and European equities (a net bearish view of minus-10 per cent). It also indicates that investment executives much prefer equities over other major asset classes, such as cash, real estate and Canadian bonds – all of which have net-bearish outlooks.

Greg Nott, chief investment officer at Russell Investments Canada, said the bullish view on Canadian stocks has increased since the second quarter, which he boils down to two factors: cheaper valuations, and the increasingly volatile foreign alternatives.

"In the third quarter, we've seen a meaningful correction in Canadian equities. Valuations are now much more attractive," he said. "Managers feel safer closer to home. It's a big, scary world out there."

Mr. Nott said bonds have been out of favour among managers all year – which "hasn't proven to be the best position to have," as flight-to-safety buying has continued to push already high bond prices even higher. But that now looks overdone – especially given that a strong majority of investment managers also believe there we aren't headed for another recession.

"I think [bonds] got priced for a very negative economic outlook," he said. "They're expensive now, and the outlook is for improvement."

Energy – and caution

Story continues below advertisement

The managers' relatively upbeat economic outlook is also evident in their preferences among sectors within the Canadian equity market: They are most bullish on energy stocks. However, Mr. Nott cautions that the survey was completed before the 10-per-cent slide in oil prices in mid-September.

Mr. Nott added that defensive sectors such as consumer staples, telecommunications and utilities all saw a rise in bullish sentiment from the second-quarter survey – evidence that despite their confident outlook for Canadian stocks overall, investment managers are adding a note of caution to their equity mix.

Report an error Editorial code of conduct Licensing Options
As of December 20, 2017, we have temporarily removed commenting from our articles. We hope to have this resolved by the end of January 2018. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to If you want to write a letter to the editor, please forward to