Darren Sissons, vice president and partner at Campbell, Lee & Ross
FOCUS: Global equities & technology stocks
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MARKET OUTLOOK

The dog days of summer are embracing the markets, causing the annual modest to downward trend. A few isolated pockets have bucked the downward trend including highly valued technology sector names, such as Alibaba, Amazon, Google and Tencent. The Canadian dollar has been a yo-yo this year vis-à-vis the U.S. dollar, and has strengthened largely on the back of better employment numbers and higher interest rates.

Meanwhile, the U.S. dollar, which is generally seen as a proxy for the strength of the U.S. economy, is experiencing a crisis of confidence as investors negatively weigh the merits of a Trump administration and lofty market valuations versus a low U.S. employment rate and an improving U.S. economy. The Eurozone has been the global bright spot as the economy is strengthening, and Mario Draghi, the president of the European Central Bank, is now advocating higher interest rates for Europe. 

Looking forward, it appears central bankers of the major economies are now positioning to end the “lower-for-longer” interest rate environment. This change in policy direction will generally be good for retiring boomers and financials. On the negative side, higher interest rates mean those hungry for yield will increasingly have options beyond equities and real estate, so we may see higher fund flows into preferred shares, convertibles and eventually bonds, all at the expense of safe, low-growth dividend stocks. 

Emerging markets should perform positively looking forward, as better U.S. and European economies improve the prospects for the leading export-oriented emerging market nations. Higher interest rates will hurt those emerging market nations with current account deficits and high sovereign and/or corporate indebtedness, while the more fiscally prudent will be well-positioned to outperform. 

TOP PICKS

ALGONQUIN POWER (AQN.TO)

• Currently yields 4.6 per cent.
• Algonquin is a rare breed of utility as it is a growth company. In a rising interest rate environment, a utility capable of growing its dividend should outperform.
• The U.S. expansion has been well-executed and continues to offer further potential.
• Last purchase at $13.29.

GENERAL ELECTRIC (GE.N)

• Currently yields 3.7 per cent.
• The stock is currently on sale largely because its industrial businesses have underperformed. The market is unfairly giving the company little if any credit for the recent Baker Hughes acquisition (oil & gas) and for the Alstom acquisition (power). Additionally, the success of the divestiture program attracted investors. Now that the financial and non-core asset disposals have ended, investors have departed, causing the stock to fall.
• Strong balance sheet.
• A well-diversified company in terms of products and geography that will benefit from the improving global economy.
• Attractive valuation.
• Last purchase at US$25.29.

CK INFRASTRUCTURE HOLDINGS (1038.HK)

• A $30 billion, Hong Kong-based global infrastructure company with operations in Australia, Canada, Hong Kong, mainland China, the Netherlands, New Zealand, Portugal and the United Kingdom.
• Investments include regulated and non-regulated tolling assets, including electricity and gas distribution, parking, rail, Husky Energy here in Canada, and toll highways.
• A progressive dividend, currently yielding 3.2 per cent, has grown by an average of 7.7% per annum over the last 15 years.
• Strong balance sheet.
• Leveraged to higher inflation.
• In July 2017, it acquired Ista, a German smart-metering company, for $6.5 billion. 
• Last purchase at HK$68.50.

PAST PICKS: JULY 7, 2017

INFOSYS (INFY.N)

• Then: $17.67
• Now: $15.49
• Return: -12.33%
• Total return: -10.08%

NESTLE (NESN.VTX)

• Then: CHF 76.60
• Now: CHF 80.85
• Return: 5.54%
• Total return: 8.75%

SNC-LAVALIN (SNC.TO)

• Then: $54.62
• Now: $52.77
• Return: -3.38%
• Total return: -1.46%

TOTAL RETURN AVERAGE: -0.93%