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bnn market call

Jaime Carrasco.

Jaime Carrasco is director and associate portfolio manager at Bank of Nova Scotia. His focus is resource and utilities stocks and REITs.

Top Picks:

Cash

(* Waiting to buy - Health Care Leaders Income Funds)

Pembina Pipeline Corp. (PPL-T)

Agnico Eagle Mines Ltd. (AEM-T)

Past Picks: December 20, 2013

Agnico Eagle Mines Ltd. (AEM-T)

Then: $26.92; Now: $28.05 +4.20%; Total return: +5.29%

TransCanada Corp. (TRP-T)

Then: $47.91; Now: $52.25 +9.06%; Total return: +13.14%

Horizons BetaPro US 30-yr Bond Bear Plus ETF (HTD-T)

Then: $7.73; Now: $5.60 -27.56%; Total return: -27.56%

Total return average: +9.24%

Disclosure:

Personal

Family

Portfolio/Fund

AEM

Y

Y

Y

TRP

Y

Y

Y

HTD

N

N

N

Market outlook:

Market volatility continues to accelerate as we end 2014. A new global oil price war has been declared within OPEC, adding to the ongoing currency and geopolitical wars already taking place. While this situation will generate much needed relief for consumers, and should stimulate the global economy for a while, caution is warranted as situations like these always lead to unanticipated collateral damage.

Bank of Nova Scotia's targets for WTI have been revised down to $75 (U.S.) for 2015, $83 for 2016, and $86 for 2017. Long-term, these prices will prove very profitable for Canadian oil companies that can produce lower priced oil, and we do have a few in Canada. For now I continue to underweight this sector and will be looking to re-enter in the New Year. Unlike the long drawn-out gold correction, this decline has been quick and swift. Therefore, it should soon hit bottom and rebound to a higher price, just like in early 2009. We are being presented with a good opportunity to acquire some great dividend-paying companies, at sizable discounts to where they have been trading over the last few years. For those still holding, I suggest you rotate within your holdings to make sure you own those with long hedges, low cost of production, and low debt. As these will rebound first.

For the pipeline and utility sector, Bank of Nova Scotia has analyzed their dividend sustainability using both a sub $70 price, and a more draconian sub $60 price for WTI, and the results are good. While I remain cautious, I continue to hold my current allocation in both these sectors because they are monopolies. The high hurdle of entry to market by possible competitors, and the highly government regulated political nature of adding capacity, has made them into safe cash flow machines. Like in 2009 we are being presented with good quality bargains for investors looking for cheap dividend paying energy infrastructure companies. As I have held this sector, I plan to reallocate by bring my allocation back to what it was before the correction.

I advise that investors implement risk and volatility reduction strategies that allow them to reduce exposure as the volatility rises, such as stop loss orders. Going forward, investors must be prepared to deal with greater volatility and adapt their investment strategy.

I continue to view with great interest the energy trade deals that are taking place between Russia and many of the Asian nations. We can now add India to the list, with another major energy and strategic defence deal with Russia. I wonder if, just like with China, this deal is also in their own currency. I'm pretty sure to bet, that as more and more nations walk away from using the U.S. dollar in trade, will have some pretty profitable implications for investors. I'll be keen to see when Saudi Arabia joins the party.