It’s hard to see a silver lining from any “America first” NAFTA agreement, according a portfolio manager, as negotiators continue to lock horns behind closed doors.
Kathrin Forrest, AVP portfolio management at Sun Life Global Investments (SLGI), warned that a negative outcome would change the competitive landscape for Canada, even if there is limited impact from the likes of increased tariffs.
US trade representative Robert Lighthizer said yesterday he wants a deal within two weeks of Monday’s scheduled meeting with Canadian and Mexican representatives, insisting that failure to do so will mean an agreement won’t be reached until 2019 because of the upcoming US mid-terms.
Forrest believes the longer negotiations go on the more Canadian growth will be stunted and the more likely investors are to look overseas for market opportunities.
She said: “It creates a lot of uncertainty for Canada and Mexico, the two smaller partners in the agreement, and that may defer capital spending for companies and hold back growth and productivity and so forth.
“It’s hard to see that as anything positive for the Canadian economy as long as this uncertainty continues. If and when there is an agreement on NAFTA, it’s difficult to also see that as a win for Canada.
“If we see the initial starting point as putting ‘America first’ – it’s very difficult to see the silver lining. And once we see an agreement, I’m not necessarily sure we will see it as favourable to Canada.”
Forrest cites this ongoing backdrop as reason for SLGI maintaining its modest bias to equity markets outside of Canada and to higher-quality bonds.
She said that when looking at regional preferences for equities, she focuses on a broad base of factors, including economic fundamentals, valuations, sentiment and policies.
“When we look across this, it’s very difficult to make a strong case for Canada, outside of valuations perhaps,” she said. “And I’m not sure that’s the one area we want to pin our shingle on; that’s certainly not how we invest. I think there are better opportunities outside of Canada if you look at the equity market.”
Forrest said exposure to emerging markets fits into SLGI’s acquisition of Excel Funds last year, while the US, boosted by corporate tax cuts, and Europe also offer stronger performance potential.
She said: “There is a long-term growth story that we see in the emerging markets but we also see strong fundamentals in the US, maybe more challenged on the valuations side, and then a less mature economic cycle in Europe, although recent data has been a little soft, but we do see attractive opportunities there.”
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