“China’s economy has been growing at a slower rate in the past few years,” says Chris Kresic, co-chair, investment strategy committee, portfolio manager, fixed income for Jarislowsky Fraser, “but the fear is more that the rate could be even slower than expected and what effect this may have on the global economy.”
For North American investors, valuations have crept up in the past year and in certain sectors may have overextended themselves. Stock buybacks have been a more significant influence in this cycle but high-quality businesses remain reasonably priced and are producing very strong amounts of free cash flow. Low and stable growth and inflation are the best environments for outperformance of financial assets.
“As it stands, we do not feel that a substantial deviation from our current strategy is warranted,” says Kresic. “We continue to believe that over the long run, superior long-term performance is achieved by investing in high-quality businesses with attractive earnings prospects and reasonable valuations.”
Key leading indicators do not suggest an imminent recession even with exogenous shocks like the one we are currently experiencing, says Kresic.
“Volatility is not expected to disappear particularly with further devaluations in the Chinese yuan likely as it is still posting a greater than 15% appreciation against the yen and the euro,” he says. “This is a deflationary risk that reflects the excess supply situation that the global economy currently faces.”
To learn more about what Chris Kresic has to say about the current market volatility, click here