The big question on
everyone’s mind nowadays is the impending market correction. Will it happen?
When will it happen? How big will it be? Based on some of the discussions we
have had with IA’s/clients, the market seems to be in agreement that there is
going to be a 10%+ pullback. However, AlphaNorth Asset Management’s Chief
Investment Officer Steven Palmeris not convinced of this, he believes a correction
that big is not likely to happen in the near term. He mentioned that “There
have been a few corrections in the market in the past couple of years but, in
all cases, the market has snapped back quickly catching most investors off
guard. At the moment, valuations remain cheap, and there is no significant
shift in sentiment” (meaning that the current bull market isn’t showing any
signs of slowing down). “The market may drift for the next few weeks, as there
is often some seasonal weakness in the summer before the market really takes
off. At the moment, all signs point to strong growth in 2015.”
Steve recently met
up with top ranked TD strategist (and our favorite analyst) John Aitkens for a
quick chat. Aitkens has a similar outlook. He commented that “the
correction in the market will be with regards to time and not price. This
has been the case with the U.S. largely flat on a year to date basis. There
will be a summer low in the May-July timeframe, after which equity markets
should perform well into year end.” Aitkens pointed to other periods where
global growth was accelerating, 2004 and 2010 – he believes that the current
situation will unfold in a similar manner.
We have been saying
this for quite some time now. With current market valuations and investor
sentiment, there isn’t likely to be a better time to buy than now. Market seems
to be waiting for a correction that will not happen. Smallcaps are a steal at
the moment and the summer sales won’t last very long.
Another reason for
high blood pressure on Bay Street is China’s slowing economic growth rate. But
here at AlphaNorth, we’re less worried. Steve doesn’t believe that the slowing
rates are quite the cause for concern that most people do, and this is partly
due to the results of the recent elections in India. He explained that “the new
BJP party, under the leadership of Narendra Modi, is the first majority-elected
government in India in 30 years and is expected to take a more business-centric
approach to politics in the country, providing some hope for increased economic
growth.” Steve recently sat down to discuss this with Vikas Ranjan of SmallCapPower.com, a leading smallcap
investment portal.
Here’s what Vikas
had to say about the situation in India: “The BJP’s manifesto and its emphasis
on infrastructure, urbanization and eradicating red-tape – all for the purpose
of creating more jobs and increasing the inflow of investment to the Indian
Economy – will most likely result in a burgeoning Indian middle class, which
will boost demand coming out of the country. Modi’s highly successful 12 year
rule as the chief minister of the most industrialized state in India, Gujarat,
where Modi’s leadership and policies fostered rapid economic development,
created strong infrastructure and encouraged export-led growth are proof of his
ability to perform on a national level.” Steve postulated that it is possible
that India will pick up the slack from slowing Chinese growth in the coming
years. Mr. Ranjan agrees, he explained that “India is a country of 1.2 billion
and is the world’s third largest economy in Purchasing Power Parity (PPP)
terms. It is perhaps 10-15 years behind on the economic growth curve compared
to where China currently is. If the newly elected leadership unleashes India’s
economic potential based on the next set of economic reforms and reignites economic
growth, there is potential for strong demand for commodities, especially base
metals for infrastructure development, which will bode well for Canadian
equities markets.”
We always try to
finish off our meetings by going around the table to discuss what has been
happening lately, and what we believe is going to be happening soon:
Steve: “I believe junior resources will start
to perform better in the upcoming months which will have a beneficial impact on
overall market sentiment of Canadian small caps. Precious metals including
gold are set to take off soon as well. Biotech and Tech are also
well-positioned for growth at the moment. The chart below indicates to us that
these sectors have bottomed and there is a lot of room on the upside. The top
100 biotech stocks have been extremely oversold and have started to recover
now.”
Tina: “The movement in the energy space has
been a positive sign of recovery as the sector is usually a leading indicator
of where the overall market is going. Sentiment pointed towards a possible
correction in the space however this has not occurred, nor do we believe it
will. Energy names on our watch list fell briefly on the back of news that
natural gas inventories were worse than consensus forecasts, but they have
slowly started to trend back upwards.”
Joey: “There has been weakness in the energy sector
of late, but I expect this to be short lived. Some of my recent trades are
slightly out of the money, but I anticipate them coming around shortly.”
All the above
factors have led us to our decision not to employ sector-biases in our funds.
Steve believes that once the takeoff begins, all areas will begin to see
growth. This is why we choose to diversify our funds and avoid having “all our
eggs in one basket.”
For further information please
contact Tanya Ali (tanya@alphanorthasset.com)
http://www.alphanorthasset.com/index.php?section=home
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of a third-party contributor and the opinions contained therein do not
necessarily reflect those of Smallcappower. Smallcappower does not endorse
any investment advice provided by these third-party contributors. Please
consult your investment advisor before making any investment
decisions.
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