In our blog post this week, we discuss the one equity market that has struggled relative to others this year: the emerging markets, with a particular focus on China. We’ve also included the latest video from RBC Global Asset Management’s Chief Economist, Eric Lascelles, Virus and vaccine progress, downgraded forecasts and peaking inflation.

We’re keeping you up-to-date with the latest economic news our weekly blogs, but we also look forward to sharing the news live! Please join us for the next event in the Elinesky Schuett Speaker Series, Thinking about what comes next, in conversation with Jim Allworth. Event details and your RSVP link are below.

Have you been enjoying the At home with RBC series? We’ve included another video from the series this week, Dinner party floral design, a perfect resource for those who love to host parties with a bit of floral flair.

As always, we end our weekly blog with a few good news stories from in and around our community. This week, we’re also honoured to share a link to the Guelph Mercury Tribune Readers’ Choice Awards. Thank you to everyone who nominated our team in three different categories!

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Your economic update

Summer has come to an end with a noteworthy, but expected, development: an acknowledgement from the Federal Reserve, the U.S. central bank, that it is nearing a decision to withdraw some of its stimulus given its confidence in the economic outlook. The Fed Chairman, Jerome Powell, was careful to reassure investors that any interest rate hikes are still a ways off. Global equity markets responded favourably, with many reaching new highs, but one asset class remains mired in a bit of a slump, relatively speaking: the emerging markets. We discuss this in more detail below.

Canadians tend to focus on North American markets given greater familiarity with, and exposure to, stocks north and south of the border, but the importance of the emerging markets has grown meaningfully over the years. It now accounts for more than 10 percent of the global market, versus just one percent nearly thirty years ago. Much of this has been driven by China, which is now the third largest equity market. And while Canadians may not have direct exposure to China or the broader emerging markets, it’s important to be mindful of the developments in these areas given the global nature of the capital markets and the interconnectedness of policy and finance.

The Chinese equity market is treading water year-to-date as it has barely eked out any gains. It is largely responsible for the struggles of the broader emerging equity markets. There have been two factors at play: a slowing of its domestic economy in recent months, and regulatory restrictions undertaken predominantly in the real estate sector and a variety of “new” technology industries, among others.

Global investors understandably worry from time to time about the Chinese economy. After all, it is the world’s second largest economy, the biggest consumer of many commodities, and the world has depended on it for growth when other regions have struggled. And while its growth has been slowing through much of the first half of this year, the country has sufficient means, fiscal and monetary, with which it can redirect its near-term economic trajectory.

It may have already begun to do so. China’s central bank reduced its reserve requirement ratio a few months ago, suggesting that it’s willing to let banks lend more to businesses and consumers in an effort to stimulate growth. As China’s monetary and fiscal policies ebb and flow, so too will its equity market.

Nevertheless, investors should be mindful of the longer-term objectives of the Chinese government. It is focused on addressing wealth equality and building towards “common prosperity”, a term it recently coined to describe its longer-term ambitions. More specifically, the government is taking aim at issues such as mobility, income, public services, and social security to reduce the imbalances it believes exist and foster a stable and sustainable future. This helps to explain why the government has targeted real estate and various online industries with recent regulatory actions. For the former, it wants to ensure debt levels are manageable and housing prices are affordable. For the latter, it wants to ensure that wealth is not overly concentrated in a few sectors or companies, but rather distributed as evenly as possible.

It’s possible that the Chinese economy and equity market may improve towards the end of the year should policy become more inflationary. That will add an additional tailwind to global equities that have already performed well this year, largely on the back of the developed markets. Nevertheless, China’s approach to regulation may not be temporary, but longer lasting in nature, suggesting there is some risk that profitability and valuations of some pockets of its equity market may be vulnerable for some time to come. This is something worth monitoring given the country’s growing economic and market influence.

Virus and vaccine progress, downgraded forecasts and peaking inflation In this video, RBC Global Asset Management's Chief Economist, Eric Lascelles, explores how countries are approaching vaccine policies as infection numbers fluctuate across the globe. He also reviews indicators of strong but slowing economic growth. Finally, he notes that the Fed is likely to taper stimulus delivery amidst high household savings and easing inflation. Watch the video online: Virus and vaccine progress, downgraded forecasts and peaking inflation

 

RSVP today! Thinking about what comes next, in conversation with Jim Allworth

We hope that you can join us on September 8 for the next online event in the Elinesky Schuett Speaker Series: Thinking about what comes next, in conversation with Jim Allworth. Jim will speak on the outlook for the global and Canadian economies and financial markets.

Visit our website for more information and to RSVP: Thinking about what comes next, in conversation with Jim Allworth

 

At home with RBC We are excited to share a specially curated series featuring experts from arts and culture, food and wine, lifestyle and sports, and more, entertaining you from the comfort of your own home. Watch online each week for a new video in the At home with RBC series. Dinner party floral design Jeff Leatham, world-renowned florist and artistic director of The Four Seasons Hotel, Paris/LA/Philadelphia, shares his pointers on flower arrangements for decorating your home. Watch the video online: Dinner party floral design

 

Holiday hours: Labour Day, Monday, September 6

Our office is closed on Labour Day, Monday, September 6. We will be back answering your calls and emails on Tuesday, September 7.

Have a wonderful long weekend!

Community Corner Each week, we like to share a few good news stories from in and around the community. We hope that they brighten your day! U of G student to swim Lake Erie for mental health awareness Goods Exchange Weekend begins Friday Shakespeare summer Riverfest Elora’s ‘Wish You Were Here’ festival a success Mural brings colour to downtown Guelph 100 Women Who Care Rural Wellington donates over $10,000 to local charity

 

Thank you!

As a final note in this week’s blog post, we would like to take the opportunity to thank everyone who put our name forward for the Guelph Mercury Tribune Readers’ Choice Awards.

We are honoured to be nominated in three categories:

• Business that Gives to Community
• Investment Company
• Financial Planning Services

Thank you for your trust in us and for recognizing our ongoing commitment to you and our community.

As always, we are available to connect with you personally. Please don’t hesitate to contact us at 519-822-2024 or elineskyschuett@rbc.com.