North American Portfolio Strategist Martin Roberge notes that investors expected a response from Chinese authorities it was delivered with a 25bp cut to lending (4.6%) and deposit rates (1.75%), and a 50bp cut to RRRs. There is ample room for more stimulus in China with inflation running at 1.6% and pipeline pressures in deflation territory (-5.4% YoY). India has firepower as well and the RBI could cut rates in September with wholesale prices in a free-fall (-4.1% YoY). RBI governor Rajan dampened expectations saying that India is in better shape than most and that he would not commit the mistakes of other central banks in propping up markets. Unfortunately, this is the risk for the global economy, that is, EM central banks maintaining real lending rates too high for too long. The EMs account for 70% of global growth with DM policy rates at the zero bound, the onus is on EM central banks to support/stimulate world economic growth.
Martin believes an equity strategy favouring quality and yield provides an excellent risk-reward for investors. The dividend yield universe can be broken down between defensive and cyclical yielders. The former group represents pure bond proxies with usually above-average dividend yields. These companies will suit the more risk-averse investors and outperform in a volatile and challenging equity market environment. However, in a slow-rising interest rate environment and through a gradual economic expansion, cyclical yielders should fare better because of the longer duration nature of their assets. While Martin’s bias favours the latter investment proposal, his dividend-yield report provides investment ideas for both risk-averse and risk-tolerant investors.
The Canaccord Genuity research included in the Legacy Wealth Weekly is solely for Canadian residents. To subscribe to our weekly newsletter,click here.
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