Darren Sissons, vice-president and partner, Campbell, Lee & Ross
FOCUS: Global Equities & Technology Stocks
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MARKET OUTLOOK
During my last BNN appearance I noted the markets were highly politicized. Little has changed since then. The Trump administration continues to ricochet from one disaster to the next while delivering minimal new legislation, North Korea has successfully raised tensions in Asia, Brexit negotiations are bumping along, the success of the far right in the recent German election and a potential Catalonian independence from Spain are keeping tensions raised. Here at home, the Trudeau government continued the trend through their SMB and fringe benefits tax reform agenda, which has not gone well to date. 

Touching briefly on the Canadian dollar, the CAD was significantly over valued vis-à-vis the U.S. dollar post the second Canadian rate rise as unwarranted domestic optimism out-weighed fundamentals and basic market realities. Sanity has now prevailed as a broad acceptance of the rising U.S. interest rate agenda has lowered the CAD – USD cross rate to more realistic levels. 

Turning to international markets, the Eurozone is performing well and aside from the relatively expensive Euro currency the region offers a number of excellent investment options. Developed Asia is a mixed basket with northern Asia and Korea in particular looking attractive. The U.S. looks quite expensive vis-à-vis the Canadian market. Emerging markets will be tricky in 2018 and beyond as rising U.S. interest rates will negatively impact emerging market U.S. dominated debt and will likely drag on emerging market currencies.  

Investors should be mindful of tax loss selling as we enter Q4 as the selling pressure can temporarily provide attractive entry points. 

TOP PICKS

HSBC (HSBC.N)
1) a well-managed company, an attractive global footprint and a 6.1 per cent dividend yield. 2) Will benefit from rising interest rates as Net Interest Margin (a critical driver of bank profitability) will need to rise by 70 per cent to reach pre crisis levels. 3) Asia will be a major growth engine looking forward and key drivers of that growth include its Asian insurance business, its Hong Kong headquartered banking business that serves the pan-Asian region and its newly granted Mainland China credit card business. 

INFOSYS (INFY.K)
Shares of Infosys and other leading IT outsourcing companies were punished by the Trump Administration’s Buy America anti-foreigner agenda. Against this backdrop the company fundamentals in Canadian dollars are: 1) Revenue, Net Income and the Dividend have grown at a 15-year cumulative average growth rate of 20.1 per cent, 17.7 per cent and 25.7 per cent, respectively. 2) The company is expanding its U.S. footprint and hiring U.S. employees, which will diminish the negative impacts of the Trump Administration Buy-America agenda. 3) A strong balance sheet as cash reserves exceed all liabilities. 4) A US$2 billion share buyback program commences on November 1, 2017. 

KONE (KNEBV.HE)
1) A leading global elevator company with market share leadership in the high growth China and Indian markets along with substantial European and Americas market share. 2) An attractive growing dividend currently yielding 3.4 per cent. 3) The company’s business model is defensive as 50 per cent of revenue comes from new sales while 50 per cent is derived from regulatory required maintenance and upgrades. 4) Very strong balance sheet as cash reserves exceed all liabilities by a considerable margin.

Kone can be purchased in the U.S. under the symbol: KNYJF.PK.
 

TOTAL AVERAGE RETURN: 26.34%
 

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