IPC Private Wealth - 2015 Second Quarter Market Commentary

9 September, 2015

Weak Quarter, but Strong Six Months for the Markets

At the halfway mark of 2015, investors were absorbing news from Greece, the impact of a growing bubble in China’s equity market, slower U.S. growth, and on-going geo-political events across the globe. Aside from Japan, major equity markets ended the quarter in negative territory, with June being a particularly weak month for the main North American indices. In the U.S., the S&P 500 Index shed 1.29% while Canada’s S&P/TSX Composite Index dipped 1.63% for the quarter. Nonetheless, over the first six months, most markets have closed in the black.

While the situation in Greece (risk of a government default and bankruptcy, capital controls, and concerns over the fate of Greece within the European Union) was unprecedented, it was widely telegraphed. At the time of writing, Greece was renegotiating its debts with its creditors once again. The news from Greece, which came to a head in early July caused some negative market reaction because of the uncertainty, but the reaction has not been significant, nor do we expect it to prevail over an extended period.

The Chinese equity market, which caught investors’ attention recently, has become increasingly disconnected from China’s economic reality. China’s growth is below trend, but the Shanghai Composite Index has gained 145% in the past 12 months. The Index has since fallen from its highs but the Chinese government is active in the markets and will likely stabilize the situation in the long run. In the short-term, Asian markets are likely to be weaker and remain volatile.

Looking ahead, we continue to watch for the first rate hike by the U.S. Federal Reserve (Fed). The U.S. economy has seen a reversal of trend from the first quarter as consumers have started to increase spending. Nonetheless, the Fed is cognizant of the fragile growth globally and will likely look for more convincing long-term strength before increasing rates.

In contrast, continued weakness in the Canadian economy has led to expectations that the Bank of Canada may lower interest rates. The Canadian economy has suffered from continued weakness in the energy space as reflected by a drop of over 4% in that segment of the market over the quarter. In its latest poll of companies, the Bank of Canada noted some encouraging signs, but found that weak oil prices have continued to “significantly dampen economic perspectives”.
Though energy prices remained low, the IPC Private Wealth North American strategies were active in the sector. In general, the North American investment specialists moved towards consolidating their energy positions into larger capitalization companies. Within our Canadian dividend strategy, we’ve seen a modest shift away from energy towards insurance companies. Broadly speaking, our investment specialists have been active over the quarter, taking advantage of opportunities that have emerged from the volatility.

Moving into the third quarter, market volatility will likely increase as events continue to unfold in Greece, China and across the globe. The IPC Private Wealth portfolios are well diversified and designed to weather this volatility. At the same time, we expect some of the Program’s investment specialists to use the volatility to add to positions within their mandates.

Sincerely,

John Soutsos, CIM®, EPC, B. Econ.
Investment Advisor,
IPC Securities Corporation
Private Client
Wealth Management Services 
jsoutsos@ipcmississauga.com