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research report

Globe editors have posted this research report with permission of Canaccord Genuity. This should not be construed as an endorsement of the report’s recommendations. For more on The Globe’s disclaimers please read here. The following is excerpted from the report:

The world economy is poised to enter 2020 on a weak note, with 70 per cent of OECD countries posting a deceleration or contraction in Q3 GDP growth. We project further growth deceleration in the first half of the year as a global inventory-destocking cycle takes place. However, the lagged impact of global rate cuts and quantitative easings should allow for some stabilization in the second half. The U.S.-China trade agreement should also bolster business confidence and corporate spending. Any economic setback is likely to prompt governments worldwide to launch fiscal stimulus to protect growth. Overall, global GDP growth should muddle through for the bulk of 2020.

While 2019 equity returns have been driven by positive monetary-policy shifts by world central banks, 2020 returns should be more about how fast the global economy recovers. Given our view of subpar growth, we project stable bond yields and mid-single-digit returns for equity indexes. As such, our sector strategy remains geared toward late-cycle dynamics with a bias to a value cyclicals/defensive barbell. More precisely, we believe that the combination of much-undervalued resource sectors along with defensive yielders and non-yielders may provide the best reward-to-risk ratio for investors.

On resource sectors, investors appear to have abandoned these stocks just when industry free cash flows are surging, owing to capex austerity and rising commodity prices. Beyond cheap valuations, we believe high free cash flow yields and increased share-buyback activity provide solid backstops to investors. On defensive yielders, low bond yields and demographics provide cyclical and structural tailwinds. Moreover, they provide downside protection to portfolios in the event that global growth momentum fails to re-accelerate and recession risks re-emerge for 2021.

With the above considerations in mind, we have asked our fundamental research analysts in Canada to select their top picks, and we provide a technical overview for each one.

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