Looking back at 2012

With the New Year just beginning; it’s a good time to look back at what shaped the markets in 2012.

BMO economists say the year was defined by the ongoing problems in Europe, continued low interest rates in Canada, and a tenuous recovery in the U.S. which was continuously threatened by the fiscal cliff crisis.

But the New Year brings light at the end of the tunnel.  Although Doug Porter, deputy chief economist of BMO Capital Markets, only expects the Canadian economy to grow by 1.8% this year, he says there have been great strides made over the past twelve months.

In Europe; policymakers buckled down on austerity measures (tax increases/spending cuts) and government officials like Mario Draghi, President of European Central Bank, are committed to protecting the Euro.

The housing market in the U.S. finally started climbing back; while bond rates remain steady.

Most importantly, there were no negative surprises in 2012 and the forecasts were right on the money, says Porter.  Not only did interest rates remain low, but the Canadian dollar was also stable and the country posted an expected growth rate of 2%.

Though Porter concedes it is tough to ignore the likelihood of continued weak economic growth into 2013, the bank is confident.  It predicted the U.S. would reach a fiscal agreement; and believes the U.S. will come out on top as one of the strongest G7 countries of 2013, which will help improve markets.

The main roadblocks for Canada going forward will continue to be: penny-pinching consumers; wary business owners held back by commodities and spending; sluggish income growth across the country; destitute job markets; and little improvement of government debt.

Also, both Canada and the U.S. will have to watch out for the over-regulation of financials which will impact the markets, as well as a potential overhaul in the U.S. corporate tax system, says Brian Belski, chief investment strategist of BMO Capital Markets.

Globally, BMO expects the landscape to improve over the long-term.  Paul Taylor, chief investment officer of Fundamental Equities for BMO Asset Management, expects the Eurozone will muddle though its problems by “continuing to develop a common bank supervisor (and) a framework for pan-Europe fiscal coordination.”  He also feels investor’s portfolios will be most affected by “how sustainable the U.S. fiscal agreement will be.”

Belski agrees the U.S. will set the tone for stocks and markets.  Though company balance sheets are the strongest they’ve been since the 1950s, he warns investors to be mindful of buying into exposed and volatile emerging markets.

Porter expects the dollar to remain at parity and that interest rates “will hold for the third year in a row, which is the longest standstill since the 1950s.”

Bottom line, although growth rates are expected to improve in the latter half of 2013; we as investors should continue to choose companies that pay dividends when making our RRSP contributions this year.  

May 2013 be prosperous for all of us, have a great weekend.

Tracey

 

Source:  original article by Katie Keir, published on Advisor.ca 12/20/2012