2020 Global Market Outlook - Q2 Update

Russell Investments strategist sees 2020 technical recession Global team expects solid upswing in second half if the COVID-19 virus threat clears

Toronto, March 26, 2020 — Russell Investments Canada Limited has released its 2020 Global Market Outlook – Q2 Update, offering economic insights and market forecasts from the firm’s global team of investment strategists.

The strategists expect the COVID-19 pandemic will push the global economy into recession in the first half of 2020, but they forecast a robust rebound if the virus is brought under control in the second quarter. While the duration of the COVID-19 pandemic is unpredictable, the strategists believe policy stimulus, pent-up demand and a lack of major imbalances argue for a solid upswing when the virus threat clears.

The “Canada Outlook” segment of the report covers the twin shocks of the COVID-19 outbreak and the collapse in the price of oil, which have complicated what was already a lackluster outlook for the Canadian economy.

“Canadian equities have all but priced in a highly probable technical recession,” said Shailesh Kshatriya, director, investment strategies at Russell Investments Canada Limited.

However, Kshatriya added that the response from policy makers and the Bank of Canada should help the economy recover, particularly as government initiatives target the ailing energy sector and indebted households.

“While the impairment to growth due to the coronavirus and the collapse in the price of oil will be meaningful, there is a clear sense of urgency, not just from Canadian, but global fiscal and monetary authorities, to present a strong coordinated response as was done in the 2007-08 financial crisis,” Kshatriya said.

In the report, Kshatriya also offers insights on the following asset classes :

  • Canadian equity: The dual shock from the virus and the collapse in the price of oil hit the domestic bourse particularly hard, with Canadian equities underperforming global equities by roughly 500 basis points from the start of the market rout on February 20, 2020 through mid-March. “While we are acutely aware of the potential for further downside risks, we also realize that none of us can perfectly time the markets. Our process is designed to lean in and out, not swing for the fences. Our process has us leaning in,” Kshatriya said.

  • Bond yields: Concerns around negative yields in North America have been percolating with rapidly declining bond yields and central banks rushing towards the zero-lower bound. “While the anxiety is understandable, we place very low odds on that outcome,” he said.  “A negative policy rate stresses the financial sector and can hinder the pace at which the economy eventually recovers.”

  • Canadian dollar: Given the uncertainty around the Canadian economy, Kshatriya said it is not a surprise that the CAD/USD exchange rate has not only dipped below the low end of our fair-value range but also below the -10% purchasing power parity (PPP) levels as of March 17, 2020. “A move to -20% would imply an exchange rate of roughly 0.64,” he said. “While not our expectation it does serve as a guide to the potential.”

For more details on the outlook, the team’s full report is available here.

About Russell Investments Canada Limited

Russell Investments Canada Limited is a wholly owned subsidiary of Russell Investments Group, Ltd. Established in 1985, Russell Investments Canada Limited has its head office in Toronto.

About Russell Investments

Russell Investments is a leading global investment firm providing tailored solutions and services to institutions and individuals through financial intermediaries. Russell Investments is dedicated to improving people’s financial security, leveraging an 83-year client-centric heritage rooted in investment innovation. The firm is the fourth-largest adviser in the world with C$398.6 billion in assets under management (as of 12/31/2019) and US$2.4 trillion in assets under advisement (as of 6/30/2019) for clients in 32 countries. Headquartered in Seattle, Washington, Russell Investments operates through 21 additional offices in major financial centers such as New York, London, Tokyo and Shanghai.

Steve Claiborne, 206-505-1858, newsroom@russelllinvestments.com