“To live is the rarest thing in the world. Most people exist, that is all” Oscar Wilde
Good morning,
It’s hard to believe that the kids are back to school and back to some sense of routine and normalcy. WoooHooo!!!!
My daughters Presley-Mae and Dilynn were absolutely elated to be back to school. I think, based on the smiles on parents faces, they are all pretty excited to see the kids off as well. I even played in a golf tournament last week for the first time in two years; thank you RBC Real Estate team! It was a lot of fun and great to see all those familiar faces at the Home Builders Association tourney.
Normalcy and routine…..I know that everyone has been starving for structure. It helps us organize our days, our weeks and the path ahead. As we head into September and a new season, what better time than now to start to focus back on ourselves and our own wellbeing.
To share with you a story one of my best friends shared with me this summer while watching the surf. We were discussing how the uncertainty of the last few years has impacted us all, reinforcing our need to focus on awareness and self-compassion and not give into negativity around us. Here’s the story my friend Nic shared with me….
An old Cherokee is teaching his grandson about life. “A fight is going on inside me,” he said to the boy. “It is a terrible fight and it is between two wolves. One is evil – he is anger, envy, sorrow, regret, greed, arrogance, self-pity, guilt, resentment, inferiority, lies, false pride, superiority, and ego.” He continued, “The other is good – he is joy, peace, love, hope, serenity, humility, kindness, benevolence, empathy, generosity, truth, compassion, and faith. The same fight is going on inside you – and inside every other person, too.”………
The grandson thought about it for a minute and then asked his grandfather, “Which wolf will win?”
The old Cherokee simply replied, “The one you feed.”
I find this a fascinating tale, as it relates to how we have personally responded to the anxiety we have all discovered over the past few seasons. We have all recognized that our thoughts can be our own worst enemy if we let them. Think about how you may be “feeding” your negative thoughts by allowing them to rule your mind. Next time you have a negative thought, catch it and ask yourself, “What is this thought doing for me?” You will find that the answer is that all they are doing is disempowering you. You can immediately feel more empowered by focusing on something good in your life and cultivate the practice of gratitude.
We can create greater peace, confidence and a more positive outlook by learning how to manage our awareness and it’s up to you today to start making healthy choices. Not choices that are just healthy for your body, but healthy for your mind.
“A healthy outside starts from the inside.” Robert Urich
And now, to the markets
S&P futures up 0.6% in Monday morning trading, near best levels in the wake of US equities coming under pressure in the prior week (S&P suffered its biggest weekly pullback in nearly three months). European markets seeing solid gains after a mixed Asia session. Treasuries unchanged to a bit weaker with a touch of curve flattening. 10s below 1.35%. Dollar stronger on the major crosses. Gold down 0.1%. Bitcoin futures down over 2.4%. WTI crude up 0.9% after rising for a third straight week last week.
Nothing specific behind bounce attempt though it fits with longstanding resilience of the buythe-dip mantra. Several articles in the weekend press also discussed concerns about drawdown risks for stocks from a number of factors that have been in play for a while. These include Fed tapering, higher taxes to fund Democratic priorities, the complicated path for additional fiscal stimulus, dampened reopening momentum from the spread of the Delta variant, supply chain and inflation pressures on both corporate sales and profit margins, a deluge of new supply, and elevated sentiment and valuation indicators.
Summer has culminated 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. 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 making news 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% of the global market, versus just 1% 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 is 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, 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. Its central bank reduced its reserve requirement ratio a few months ago. The move suggests it is 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.
But, 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 the real estate and some 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 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. It is something worth monitoring given the country’s growing economic and market influence.
As we head into the week and planning your calendar ahead, remember to include some energy towards your own personal wellbeing, you deserve it!
“It is health that is real wealth and not pieces of gold and silver.” Mahatma Gandhi
Be well & enjoy the moments
Derek