Nearly 80% of Canadian investment advisors expect the Canadian stock market to rally in the first quarter of 2013, says the Q1 Advisor Sentiment Survey conducted by Horizons ETFs.
The survey asked them about their outlook on 16 distinct asset classes, and advisors responded whether they were bullish, bearish or neutral on anticipated returns for the next quarter. In total, they were bullish on 13 of the 16 asset sectors.
The vast majority of respondents are bullish on stocks, with sentiment on the S&P/TSX 60 Index having increased from 68% to 77%.
The same percentage are optimistic about the S&P 500, even after the U.S. benchmark Index had negative returns last quarter. The forecast for the NASDAQ 100 improved by 12%, with the number of positive advisors rising from 62% to 74%.
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“A market rally has historically spurred more optimism, but advisors are being bullish in spite of mediocre returns last quarter,” says Howard Atkinson, CEO of Horizons ETFs.
He adds, “This survey was completed before the fiscal cliff deal announcement on January 1, 2012, so even with the uncertainty surrounding deal, advisors saw some fundamental positive developments in North America which they believe will contribute to higher stock prices.”
And it isn’t just North American stocks that are appealing to financial professionals; the biggest uptick in bullish sentiment was seen on the MSCI Emerging Markets Index, which increased more than 30% from last sentiment survey.
This was expected since the emerging market index delivered a 5.24% return last quarter.
“If advisors are less concerned about risk in the equity market, it would make sense that they would opt for emerging market stocks, as they historically have generated higher returns than domestic stocks during periods of lower stock market volatility,” says Atkinson.
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Canadian advisors were slightly less bullish on precious metals. Both gold and silver bullion were big bets in the Q4 survey, but optimism dropped from 69% to 60%.
In tandem with results, gold bullion delivered -5.46% return last quarter, while silver bullion declined by 12.15%. Gold stocks are expected to do worse, with advisor sentiment decreasing by 17% after the S&P/TSX Global Gold Stock Index lost -13.25% last quarter.
Atkinson says, “Many gold bulls would likely still be long the asset class, anticipating inflationary forces coming into play when the U.S. renegotiates the debt ceiling later in the quarter.” Sentiment about base metal stocks and natural gas stayed positive after both sectors posted strong returns in Q4 2012.
“Both copper and base metals tend to do well with an expected increase in both economic and stock market growth in the emerging markets,” says Atkinson. “If advisors are bullish on emerging markets, they also tend to be bullish on the base metals that are central to their industrial production.”
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- Gold miners look to promising 2013He adds that there haven’t been any major market developments in energy asset classes. He predicts advisors would have likely “assigned a neutral sentiment to energy if they had expected to stand pat; the majority remain moderately bullish on oil and gas.”
Half of advisors now have a neutral outlook on the Canadian dollar, which lost 0.94% against the U.S. currency last quarter. Almost two thirds (65%) also have neutral outlooks for the Loonie versus the Australian dollar.
“The outlook for currencies would seem to reconcile with a lot of industry forecasts which expect the Canadian dollar to remain around parity for the foreseeable future, which means there would be little movement one way or the other,” says Atkinson.