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Where to put new money now

Add to equity markets in Canada, Europe, the UK and Japan. Go easy on investing in US stocks.

emerging_markets

Economic weakness among emerging countries is short term. Longer term, the emerging world has a lot of growth potential.

The economic recovery continues to be propelled by monetary and fiscal stimuli, the easing of COVID-19 restrictions thanks to the rollout of vaccines and low interest rates. Recent rises in the number of cases of the delta variant, however, may result in the return of some restrictions, causing the recovery to be more rocky than projected just a few months ago.

Developed countries are likely to weather this development the best. Vaccine rollout rates in these countries have generally been high, and, even though many people still refuse to get a shot, it appears that health-care systems will not be overwhelmed as they were in previous waves of the pandemic. That’s because, while new cases of COVID-19 are high in many areas, the death rate and hospitalizations are lower than before.

We, therefore, continue to look forward to a solid recovery among developed economies. This includes Europe, the US and Canada.

Emerging economies, however, may not be so lucky. There, vaccinations rates are lagging, and there’s a risk that some economies will suffer like India did earlier in the year. This could lead to local restrictions that may hurt production capacity at a time when foreign demand is increasing, leading to inflation and higher interest rates.

Then too, China’s recovery has cooled recently, and this has implications for wider global growth. On the other hand, Chinese authorities are likely to respond with stimulus efforts to boost growth. But investors are cautious about China lately because of its moves to regulate technology and other companies.

Strategies to adopt

Despite the difficulties that emerging markets now face, contrarian investors with a long time horizon might want to take note. The MSCI Emerging Markets Index is now down 0.5 per cent year to date, while the MSCI World Index is up 17.0 per cent over the same period.

We view economic weakness among emerging countries and Chinese regulatory concerns as short term in nature. Longer term, the emerging world still has a lot of growth potential. We, therefore, continue to recommend Dynamic Asia Pacific Equity and RBC Emerging Markets Equity Funds for investors seeking above-average long-term growth and who can accept a higher level of risk.

Meanwhile, though developed countries may have an easier time than their undeveloped counterparts over the near term, stock markets in the developed world, particularly those in the US, are arguably more expensive. Continue to add to equities in these markets on a regular basis. But be prepared to add some more money if there’s a correction this fall, as many anticipate there will be.

Canadian stocks continue to be more attractively valued than their US counterparts. Continue to add to conservative, diversified Canadian equity funds such as Leith Wheeler Canadian Equity and Mawer Canadian Equity.

This is an edited version of an article that was originally published for subscribers in the September 10, 2021 issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.

Money Reporter, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846

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