Darren Sissons, vice-president and partner of Campbell, Lee & Ross
Focus: Global equities and technologies

MARKET OUTLOOK

We’re now in a tricky part of the economic cycle. Global growth and corporate earnings are slowing, corporate and government debt levels are rising and political interference is at record levels — that is, the U.S. (the “Tariff Man”) and everybody interfering in global trade; the fallout of forced labour in Japan and South Korea, which is important for tech stocks and possibly intra-regional Asian trade; and the never-ending Brexit saga. To counter these market headwinds, the Federal Reserve is widely expected to lower interest rates on July 31st by 25 basis points, with possibly a second interest rate cut in September or October. Lower interest rates will stimulate equity markets and support a modest grind higher through the next 18 months. Additionally and also a not insignificant driver of higher equity markets is President Trump’s desire for a second term. He will need a strong economy and/or a strong stock market in order to win. Investors should therefore expect a trade deal with China and other government stimulus through the next 18 months. Thereafter, risks of a sustained correction or recession mount.

One obvious fact market analysts, market pundits and the broader investment community seem to have missed (or are ignoring) is that, had President Trump not effected a trade war with China (and Canada and Mexico, the Eurozone and Japan) global interest rates would now be above current levels, as the U.S. economy at near full employment, given a rising global demand backdrop, would be running the risk of overheating.

Looking across markets, the Eurozone is in recession as are parts of Asia. These regions currently offer Canadian investors attractive investment opportunities. Currencies are also on sale, particularly the euro. Equally so, portions of the tech sector will benefit from the lower interest rate outlook and should perform well near term. However, given the poor underlying macro fundamentals of many economies and the need of many central banks to lower rates, I would now be wary of adding high-beta and high-valuation growth stocks.

TOP PICKS

EQUINOR ASA (EQNR.N)

This company has a dividend yield of 5 per cent. It’s inexpensively priced relative to historical metrics. The balance sheet has strengthened significantly since 2017. The monster Johan Sverdrup field on the Norwegian Continental Shelf goes into production in late 2019 and has a refined breakeven below US$20 per barrel.

INFOSYS (INFY.N)

The company has a progressive dividend currently yielding 4 per cent, which has grown by an annual average of 12.4 per cent in Canadian dollars for 10 years. A buyback targeted at 3 per cent of shares outstanding. Infosys is a leading IT services vendor to U.S. corporates (60 per cent of revenues) and should benefit from the relatively strong U.S. economy.

THAI BEVERAGE PCL (THBEV SGX)

The December 2017 Sabeco acquisition (Vietnam’s largest beer company) is beginning to drive higher Thai Beverage’s profitability. The company is a high-growth pan-South East Asian beverage conglomerate that has grown net profit in Canadian dollars by an average of 9 per cent annually over the last 10 years. Thailand is an underappreciated gem as it runs a 10-per-cent current account surplus: 5 per cent tourism and 5 per cent goods and services (exports). Thai Beverage ordinary shares can be purchased in the U.S. under the symbol TBVPF.

PAST PICKS: JULY 31, 2018

AIR LIQUIDE (AIQUY.PK)

• Then: $25.52
• Now: $27.52
• Return: 8%
• Total return: 10%

SCOTIABANK (BNS.TO)

• Then: $77.09
• Now: $70.56
• Return: -8%
• Total return: -4%

FRESENIUS SE & CO (FSNUY.PK)

Sold Fresenius on Dec. 19, 2018 at €42.71.

• Then: $19.29
• Now: $12.50
• Return: -35%
• Total return: -34%

Total return average: -9%

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