2015 Market Review
Volatility prevailed on many of the world’s stock markets in 2015. The falling oil price and the global economic slowdown particularly attracted investors’ attention and gave rise to considerable concern.
Other events that caused the markets to fluctuate included the spectacular advance of the Shanghai index until August and then its sharp correction, the Greek debt crisis and expectations that the US Federal Reserve would raise its key rate.
With regard to fixed-income securities, the governor of the Bank of Canada announced surprise cuts to the key rate in January and July in response to the slowing Canadian economy. Several factors led to these moves: the persistently low oil price, weaker-than-expected economic activity in China and the United States, and the weakening of non-energy commodity export growth. During the year, the Canadian dollar depreciated against the US dollar, going from $0.862 in early January 2015 to less than $0.720 in December.
In general, Canadian equities had a difficult year. Valeant attracted a great deal of attention; in the first half, it drove the market upward, advancing more than 50%, but in the second half its decline was equally pronounced as it shed about 50%.
The oil price decline that began in 2014 detracted significantly from growth in the Western provinces and on the Canadian stock market, where the energy sector accounts for about 20%.
Throughout the year, investors closely followed the signals emanating from the US Federal Reserve (Fed), as they tried to predict whether interest rates would rise in 2015. The Fed contributed to the uncertainty by changing its inflation targets as the year progressed. It finally announced a 0.25% increase in the key rate in December. Did it act too soon or too late? It is still too early to draw any conclusions, and investors are now analyzing the impacts of the hike.
As for the US stock market, after advancing for several years, it had an up-and-down year. Investors began to re-evaluate equity prices, taking into account the strong US dollar which detracts from exporters’ profitability, the low oil price and the weak growth outlook around the world. In local currencies, equities delivered modest returns globally. The S&P 500 Index advanced about 1.4%. Even so, Canadian investors who held unhedged US investments benefited greatly from the currency effect.
In Europe, the Greek debt crisis caused serious concerns in the summer. It concluded with a new bailout, but one question remained: have Greece’s economic problems been solved or will the crisis resurface?
In addition, at the start of 2015 the European Central Bank launched its quantitative easing program, which pushed the markets up.
China also attracted investors’ attention throughout the year, seeming to be divided into two phases: during the first half, its stock market rose sharply, advancing more than 40%, but in the second half it underwent a correction, falling almost 20%.
China’s central bank introduced measures to combat the country’s economic slowdown and position it for a shift from a manufacturing economy to a consumer economy. It put in place short- and long-term measures, such as lowering its key rate and relaxing its one-child policy.
In Japan, the Abe government failed to achieve the inflation target it had adopted in 2013 and gave itself another two years to do so. The Japanese stock market recorded another solid year. The Bank of Japan’s efforts at least succeeded in driving down the yen, which continues to benefit the country’s large exporters.
It was a difficult year for emerging markets, especially Brazil and Russia. Both countries are still mired in recession and must cope with many problems, including corruption. Standard & Poor’s downgraded Brazil’s credit rating to junk status, offering a lesson for would-be organizers of the Olympic Games.
The strength of the US dollar is proving to be painful for emerging countries that carry out international transactions in that currency, especially those with dollar-denominated debt, which is becoming ever more difficult to repay.
FERIQUE Funds 2015 performance
In this context, 7 of FÉRIQUE’s 11 Funds generated annual returns that exceeded their medians. The foreign equity funds especially stood out. The following Funds had the best returns for the one-year period ended December 31, 2015:
• FÉRIQUE European (23.1 %)
• FÉRIQUE World Dividend (21.0 %)
• FÉRIQUE American (18.9 %)
• FÉRIQUE Asian (15.4 %)
More details on the returns earned by the FERIQUE Funds.
Also consult our 2016 market outlook.
This review has been prepared for the general information of our clients and does not constitute an offer or solicitation to buy or sell any securities, products or services and should not be construed as specific investment advice. All opinions and estimates expressed in this document are as of the time of its publication and are subject to change. The information contained in this document has been obtained from sources believed to be reliable, but we do not represent that it is accurate or complete and it should not be relied upon as such. The content of this presentation is proprietary and should not be further distributed without prior consent of Gestion FÉRIQUE.