Trouble spots in Canada's economy: Fidelity's David Wolf
A money manager at one of the world’s biggest investment firms says Canada is currently riskier than other parts of the world, and as a result his company’s funds are underweighting Canadian investments.
The Canadian economy is much riskier than many investors recognize, particularly with respect to excessive reliance on consumer spending, housing prices and household debt, David Wolf, portfolio manager in the global asset allocation group at Fidelity Investments and former advisor to the governor of the Bank of Canada, said in an interview with BNN Bloomberg on Monday.
“Those areas are starting to wobble,” he said, citing retail sales declining in inflation-adjusted terms by the largest amount since 2009 as well as a spike in consumer delinquencies and bankruptcies.
“There’s not much left to sustain us in the economy” considering weak business investment and export figures, Wolf said.
He sees particular risk in some of the country’s biggest sectors, such as financials. “Canadian banks really make their living off a healthy Canadian consumer,” he said.
Despite his warnings, he is not predicting a severe drop-off for the economy.
“I’m not saying we’re going to have a big recession, or that the consumer is going to have a big pullback,” he said. “But there is risk there that doesn’t exist in other markets, and that’s why we’re looking [elsewhere].”
He said while the timing is uncertain, the Canadian economy will eventually be hurt by its dependence on consumer spending, debt and rising real estate values.
“No one can predict exactly when you’re going to see the payback,” he said. “As fund managers we want to be prudent, we want to be diversified, we don’t want to take risks where we don’t have to, and that’s why we’re looking abroad.”
In a recent report, Wolf and his colleague David Tulk, a fellow portfolio manager at Fidelity, detailed the benefits for Canadian investors of “going abroad” in their fixed-income portfolios and equity holdings.
“Weaker global growth is likely to have a disproportionate toll on Canada’s small, open, commodity-producing economy,” they wrote.