International Outlook

Global stocks outpaced the TSX last year, a trend we believe can continue. In our view the U.S. is poised for stronger growth on the back of a healthy labour market and rising business investment, while other advanced economies continue to demonstrate persistent improvement in key economic indicators and earnings-growth prospects.
Asset Class Returns chart

Source: Morningstar Direct, 12/31/2017. Canadian stocks represented by the S&P TSX Composite. International stocks represented by an equal mix of the S&P 500 and the MSCI EAFE Index. All returns are in local currency and assume dividend reinvestment.





U.S. growth picks up – The U.S. economy has added traction heading into 2018, including posting back-to-back quarters above 3% GDP growth for the first time in three years. We believe the unemployment rate – already at a 17-year low – will fall below 4%, with little slack in the labour market spurring wage growth and consumer spending. Newly minted tax reform should also add a modest boost to growth, providing an incremental lift to disposable income and corporate profits. We think U.S. growth will move up to the 2.5%- 3.0% range this year.

Global equities maintain their lead – Slower domestic economic growth and the lack of a breakout in oil prices will, in our view, restrain TSX earnings growth. Persistent signals of rebounding output in Europe and Japan (which are earlier in their economic cycles) bode well for sustained earnings growth, which, combined with discounted valuations, offer a compelling outlook for global allocations.

Policy uncertainties likely to drive volatility – Aggressive monetary stimulus from influential global central banks is in the early stages of winding down. Along with U.S. tax reform moving from expectation to reality, we expect key policy tailwinds will be less prominent this year. Additionally, China’s economy may be sensitive to policy decisions seeking to balance growth with real estate risks, and geopolitical uncertainties related to OPEC, Brexit and North Korea remain. We don’t expect these risks to derail global markets, but instead are likely to stoke periodic volatility, presenting opportunities to buy on dips.


Action for Investors - We recommend an increased international equity allocation, as overseas developed-market large-cap equities remain attractive, while better growth in the U.S. would support an allocation to U.S. small- and mid-cap equities.

Important Information:

Equity investments carry risk, including the loss of principal. There are special risks inherent in international investing, including currency, withholding taxes and high levels of taxation, political, social and economic risks. The prices of small cap and mid cap stocks are generally more volatile than large company stocks.

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