Export Development Canada (EDC) says that investors should get used to the idea of market volatility.
In Volatile Is the New Up, a report published earlier this week, EDC suggests that although economic growth is gradually returning, a certain amount of turbulence is to be expected.
While volatility in the markets is normally an indication of trouble, EDC says the current circumstances are far from normal. During the financial crisis billions of dollars were dumped into the markets as part of quantitative easing efforts; now that growth is returning, central banks in general and the US Federal Reserve in particular are now preparing to reduce some of this liquidity and bring artificially inflated assets down to more reasonable levels.
The turbulence today is simply the markets reacting to signs that the Fed is preparing to undo its quantitative easing. "Market mayhem is not about weakness; it’s the fraternal twin of renewed growth. In the current context, you can’t have one without the other." reads the report.
In Canada, growth suffered during the first half of 2015 partly because of poor results in the natural resources sector. However, the EDC says it anticipates "a greater sense of calm next year" with more stable energy prices and more even growth across industries. Overall, the EDC forecasts that Canadian exports will increase by 8% next year.
"The bottom line? Growth is back, but with a twist: markets will be more volatile, and the trick to surviving and thriving will be adept management of the volatility. Given Canada’s strong structural position – well-managed fiscal policy, solid financial institutions and a diverse export base – we are well positioned to take advantage of global opportunities," concludes the report.