Market Commentary
The Global Economy: Third Quarter 2011
November 14, 2011 | Posted by: Francine Tracey
The Global Economy:
Summary and Conclusions and Advice for the Wary:
Global markets remain uncertain with North American markets showing indications that those economies will remain in the black (albeit slightly) throughout 2012. Stock markets continue in high volatility. Global pressure on pension plans means that individuals will need to have firm private pension plan options, or solid investment strategies to ensure comfortable retirement. For British Columbians, these strategies should definitely include real estate investments (refer to further qualification of this advice in the sections that follow regarding the Canadian Economy and Real Estate projections).
Pertenant Details regarding the Global Economy:
Despite global uncertainty 80% of S&P500 companies have reported quarterly earnings, with three-quarters of them beating profit estimates while 56% have exceeded revenue forecasts. This is good news for the US who has been struggling to get out of their financial mess for almost 3 years now.
The current situation in Europe has been at the heart of the Global Economy’s pain this year. This week, the Globe and Mail quotes Steven Harper: “I think what the Europeans have put together is certainly on the right track….however there is a view, which I share, that the euro zone countries are relatively rich in world terms…. and have the means to deal with their own problems.” Mr. Harper noted that the IMF”s funds and those of Chinas and Brazil (and also Canada’s) should be reserved for crises that will effect the developing world.
Of Major concern: The state of government pensions (source Allianz Pension Stability Index and Allianz Global Investors Report November 2011):
- The negative impact of the financial crisis on accumulated funds and national economies has tested the resolve of many governments. Increased levels of sovereign debt following the financial crisis have exacerbated the need for reform in many countries.
- According to a new study that charts the relative sustainability of national pension systems in 44 countries around the world, Greece is under the most pressure to reform. India, China and Thailand show the greatest need for pension reform, though for different reasons.
- The results of this study show Greece to be in the greatest need for reform. Not only does Greece have the worst ranking within Europe, it yields the highest score of all the countries considered in this study. At the heart of Greece’s deteriorating ranking are acute sovereign debt, a relatively serious aging problem and a still generous pension system, despite pension reforms initiated as a condition of IMF and ECB financing initiatives.
- Australia, in contrast, is ranked as the best prepared followed by Sweden, Denmark, New Zealand and the Netherlands.
- Canada scored a ranking under 4 (where a rank of 10 is the worst and 1 is the best), including private and public pension systems. Canada’s pension system is a three tiered mix of public and private pension schemes and its ranking included voluntary individual retirement savings plans (Registered Pension Plans).
- One of the main forces driving pension reform today is the aging population. The old-age dependency ratio, which compares the number of people aged 65 or older (retired population) to the number of people aged 15 to 64 (working population), gives a clear indication of a country’s aging demographics. This ratio is already quite high in ‘older’ Europe, which has seen a steady trend towards lower birth rates and increasing life expectancies. To put this into perspective, the old-age dependency ratio is 28% in western Europe, about 10% in today’s younger regions (i.e., Asia and Latin America), and even less in Africa. Younger regions, however, will not remain unscathed from the effects of changing demographics and can expect to see rapid change – particularly in Asia and Latin America. Aging demographics are set to explode between now and 2050, by which time the old-age dependency ratio will have almost tripled in Asia and Latin America, more than doubled in Eastern Europe, and increased by some 80% in North America and Western Europe.
- Canada’s ability to remain high on the pension index will depend largely on immigration. Our existing population has a low birth rate and is clearly aging. The resultant immigration policies recently set by the Canadian government have largely been driven by the desire to keep the pension plan afloat.
The Stock Market (source the Globe and Mail Investor):
Markets are and have remained volatile throughout 2011 and economists caution that volatility may continue throughout 2012. As the result of this volatility we have seen Canadian Banks cancel their discounting on prime based lending, and in particular on variable rate mortgages.
Stock market volatility and uncertainty moving forward has been fuelling the hunger and will continue to arouse the global investor’s appetite for Vancouver real estate. Vancouver real estate investments are considered a “safe haven” with solid returns for global investors wary of stock market trends.
12 month Stock Market Trend: (Canadian and US Market data combined S&P TSX Composite Index)
