Market Commentary January 2016

2016-01-20

Happy New Year,

Markets are off to a rocky start. Here is a quick overview of what is going on.

Issues in China

China has 3 main growth drivers:

  1. Infrastructure
  2. Exports
  3. Consumer Spending

The first two drivers overheated and are now slowing down; they were primarily fueled by bank debt which is overextended and running out. The Chinese government has been trying to stimulate consumer spending over the last several years. The stock market was intended to provide fuel for this driver, by letting retail savers invest and grow their net worth. Unfortunately this has not worked out as planned and is causing investors to panic in the short term. The silver lining is that low fuel prices may help dampen the fall, however rising middle east tensions are causing people to be nervous, evoking the bulk of the volatility.

Growth in the U.S.

On the other hand, the economy of our neighbours to the south of the border is in large part driven by:

  • Consumer Spending (66% of the economy) this component is assisted by several factors:
  • Low energy prices – translating into over $100M in consumers’ pockets.
  • Low unemployment rates.
  • Increasing house prices.
  • The service sector (13%) is also strong.
  • Smaller sectors (manufacturing, exports and business investments) are slowing but are being off set by the first 2.
  • People are earning and spending more money and corporate balance sheets are generally healthy. The extent of the spillover from China is not fully warranted.

Conclusions

In summary, with a long-term view, buying quality companies on the dips in addition to using quality managers with the same high conviction process, our philosophy – although prudent – is less concerned with short-term distortion.

If your pilot lands every time there’s turbulence, you’ll never get to your destination.


Source: What’s Going On in China? By Brad McMillan, Commonwealth Financial Network

This article was prepared solely by Nader Hamid who is a registered representative of HollisWealth® (a division of Industrial Alliance Securities Inc., a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada). The views and opinions, including any recommendations, expressed in this article are those of Nader Hamid alone and not those of HollisWealth®. Total Wealth Management Group is a personal trade name of Nader Hamid.