National Bank of Canada Eco. & Strat. Team
National Bank of Canada
Highlights
Global equities as measured by the MSCI AC index rose a robust 5.4% in February to an all-time high. Interestingly, the gains have been broad-based at both the regional and industry level. This development is consistent with the view that a supply-induced oil-price decline is a net benefit for the global economy and corporate earnings.
The P/E of the MSCI AC, at just about 16 times forward earnings, is the highest in about a decade and back in line with its average since 1988. Though further P/E expansion is still possible at this early stage in the global economic expansion, future equity gains will depend increasingly on earnings.
S&P/TSX forward earnings have been slashed more than 16% in the last three months, the sharpest revision on record outside a recession. We think this view is pessimistic. In our view, profitability will be good even with lacklustre Canadian economic growth this year.
We are modifying our asset allocation this month by adding to our global equity exposure. Our EAFE weighting is raised by 2% due to stronger growth prospects in the Eurozone coupled with limited downside on the currency. On the other hand, our exposure to Canadian bonds is reduced.
This presentation may contain certain forward-looking statements about the 2009 Economic and Financial Outlook. Such statements are subject to risk and uncertainties. Actual results may differ materially due to a variety of factors, including legislative or regulatory developments, competition, technological change and economic conditions in Canada, North America or internationally. These and other factors should be considered carefully and readers should not rely unduly on National Bank of Canada’s forward-looking statements. This presentation may not be reproduced in whole or in part, or further distributed or published or referred to in any manner whatsoever, nor may the information, opinions or conclusions contained in it be referred to without in each case the prior express consent of National Bank.
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