Time to play defence, says economist

By Susan Yellin | November 07 2018 09:30AM

Photo: Freepik

The chief economist at Laurentian Bank Securities has a suggestion of what advisors should recommend for their clients given the recent stock market corrections.

“It’s time to play defence,” Sebastien Lavoie told the annual meeting of the Independent Financial Brokers of Canada (IFB) in Toronto.

Lavoie said most investors cannot manage 75 per cent of their portfolios in equities any longer, noting that Laurentian Securities has a strategic allocation of 50-50 in bonds and equities.

Geopolitical tension

As well, Laurentian used to be overweight in emerging markets, but no longer “because we don’t want to take the risk related to China any more given all the geopolitical tension [with the United States].”

He noted that Bank of Canada Governor Stephen Poloz said earlier in the week that the recent market volatility and a stronger U.S. dollar – boosted by a booming economy – are not signs of trouble but rather signals of a return to normal economic times.

But Lavoie said what’s normal for the Bank of Canada does not necessarily mean great stock opportunities for investors who do not like volatility.

U.S. economy still strong

He said the U.S. economy is still strong, fuelled by high corporate earnings, “but maybe it went a bit overboard.”

Lavoie said China will be the one country that can turn around the markets. It is already building a new “silk road” in the countries around it, rather than relying on U.S. trade, he said.

Still, he said the tension between the U.S. and China is spilling over into Canada, putting downward pressure on Canadian commodities like oil and aluminium.