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First Quarter 2013

April 15, 2013 • Print This Article

We believe that the environment for equities will continue to be moderately positive over the mid-term. Uncertainty could lead investors into large cap companies. Second tier stocks and junior companies (especially resource related juniors) could have a very difficult time raising capital. Dividends will continue to be critical as investors seek income in an environment of negative real returns in the bond market. Companies that have the ability to raise dividends should be rewarded. Those forced to cut dividends could be punished severely. Canadian banks, telco's and pipelines should be a focus for the Canadian portfolio in this environment provided that interest rates do not rise quickly.

The Canadian equity market is heavily weighted in resources. This can be a boon when global economies and demand for commodities are growing. In a period of weaker growth, resource stocks can be a drag on Canadian equity market performance. The US market is far more diverse and should outperform the Canadian market during a period of weak international growth.

Looking forward, over the next few months, we see growth continuing to climb the wall of worry. Quantitative easing and low interest rate policies should continue south of the border. The relative tight policies of the Government of Canada, although creating a platform for long term stability and flexibility, should act as a headwind to Canadian GDP growth.

The housing market recovery continued in the United States. The trend of improving prices, sales and new building appears to be entrenched. As housing prices rise owners see their net worth increase allowing them to access credit. This "wealth effect" has a positive impact on large ticket item spending, automobiles, appliances, furniture, home renovations etc. which spurs manufacturing, hiring, leading to a loop of increased house purchasing, rising house prices, etc.

The perceived stability of Canada and the strength of the Canadian financial system made Canada a safe haven and attracted international investment during the recent global recession. This elevated the value of the Canadian dollar relative to our trading partners. The high dollar made Canadian manufacturing less competitive as a result. It should be remembered that the US is still our largest market for exports. A growing US economy should, over the long term, be positive for Canada.

To conclude, we remain bullish on the US and Canadian markets and we maintain our preference for well capitalized quality equities over fixed income.

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The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Mackie Research Capital Corporation ("MRCC"). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor MRCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRCC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member-Canadian Investor Protection Fund / member-fonds canadien de protection des ├ępargnants.

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