Now is not the time for an investor to “be a hero” by chasing short-term returns in the equity market, according to a leading global advisor.
Trade disputes – particularly the one between US and China – cast a shadow over the global economy, which has experienced a notable slowdown.
Francis Sabourin, director of Francis Sabourin Wealth Management, Richardson GMP, told WP that while the fundamentals are good long term, there are “pot holes” in the short term.
“The tariff wars could seriously impact the American economy, the Chinese economy and the global economy. We just upgrade quality and stick to it – that’s how we play.”
Naturally, the volatility represents opportunity as well as pitfalls, although timing the market is notoriously tough. Quality companies, Sabourin said, will seize opportunities to expand and grow by using the uncertainty in the market.
“They will take advantage of it – maybe they could buy their competitors at a cheaper price or get market share at a cheaper price.
“Volatility always brings uncertainty but opportunity also. We have said to clients in the past few days, we are here to upgrade their portfolios but we don’t want to be over-conservative.”
A renowned global advisor based in Montreal, Sabourin sees the bigger picture and recognised these trade tariffs will be a mere blimp on financial history. However, for now, he said it’s a case of checking developments and tweets on a day-to-day basis as he eyes moves on the 5-10% short-term element of clients’ portfolios.
He said: “Sometimes there are things we want to buy but we say just wait, let’s see if we can get it cheaper. And sometimes, when there is market dislocation, we can jump in and get a deal.”
The tariff negotiations are clearly painful for some sectors. It could cause a company to relocate, leave factories or change manufacturing – suddenly, after a period of growth, the good times are over.
Sabourin added: “If you look in the US, for the companies that manufacturer and trade in the US, this could be an advantage to the ones that are importing their equipment or manufactured goods and have to pay taxes on them. There will be winners and losers but, in the meanwhile, you had better stay on the sidewalk with great quality companies.”
Keeping cash on the sidelines is prudent in order to take advantage of a potential truce in the trade war, which could in turn kick-start the global economy and allow investors to take advantage of a bond market that is pricing for a slowdown or even for an interest rate cut by the Fed.
Sabourin added: “If the economy is getting back on track, maybe the interest rate will go up, so you need to have some cash on the side. But be careful about investing too much in bonds that are too long term in maturity because they will decrease in value. Short-term cash is never a bad situation, especially these days.
“The market is going up more than down day after day but it’s tough to time the market. The fundamentals are there – it isn’t cheap but this [volatility] brings uncertainty and we need to get rid of this as much as we can to keep the economy moving forward, and increasing the number of companies investing and hiring and giving people pay rises.
“These are the things that keep the economy spinning and growing but these are the type of situations that are slowing.”
With the US elections on the horizon, Sabourin feels there must be a solution before then because he believes it’s currently a no-win situation for everyone. He said, like many have, that it’s to time talk, leave the egos at the door and focus on the economy.
“But everyone is fighting for their own turf and that could be disastrous if they don’t want to find compromise.”
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