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July 31, 2017

IMF Upgrades Canada

The International Monetary Forum (IMF) has upgraded its growth forecast for Canada this year, but downgraded it slightly for 2018. Its ‘World Economic Outlook Update for July’ upgraded Canada’s growth for 2017 by 0.6 percentage points to 2.5 per cent; but revised the 2018 forecast downward by 0.1 percentage points to 1.9 per cent. Global growth is set for 3.5 per cent this year and 3.6 per cent in 2018, but the outlooks for the U.S. and UK were both downgraded amid concerns over fiscal policy and economic activity. The IMF projected U.S. growth for 2017 to be 2.1 per cent, down from 2.3 per cent; and said 2018 would see 2.1 per cent growth, down from the 2.5 per cent forecast in April as it says near-term U.S. fiscal policy looks less likely to be expansionary now than it believed would be the case in the spring. However, the 2.1 per cent growth pace is still well above the lacklustre 2016 U.S. outcome, which was 1.6 per cent.

Performance Of Economy Surprising

Perhaps the most surprising thing so far in 2017 has been the strong performance of the Canadian economy and, as a result, the Canadian dollar, says a Leon Frazer ‘Quarterly Review.’ The Canadian economy has grown at roughly twice the rate of the U.S. and has added jobs in a similarly impressive fashion over the last six months. It sees far more positives than negatives when looking at the current state of the Canadian economy. “While it’s true that elevated Canadian consumer leverage has fueled some of the growth in both the housing market and the general economy, it is not enough to create the kind of statistics we have seen so far this year. Employment is the key to keeping credit issues in check and recent job growth has been broad when measured both by industry and geography,” says the Review. Interestingly, the Canadian equity market has yet to react to the increasingly positive fundamental backdrop this year. The Canadian equity market has lagged both the U.S. and most international equity markets after a standout year in 2016. Barring some form of economic shock, longer-term interest rates should resume their upward movement from last summer, benefitting commodity prices and financial institutions.

European Confidence Falls

European investor confidence fell while confidence among North American investors surged this month, says the State Street ‘Global Investor Confidence Index’ which rose to 108.9 points in July, above the break-even point of 100 when risk appetite is neutral. The fall in European investor confidence was explained as related to a dovish tone by the European Central Bank (ECB). However, the seven-point rise from June was driven by a 10-point increase in North America, with European confidence providing a drag. The Europe index fell 4.3 points to 94.2. Ken Froot, of State Street Associates, says “With fading political headwinds and a strong tone to the Eurozone corporate earnings data, the ECB’s dovishness came as a surprise. As a result, European market participants continued to express caution.” He added lower confidence among Asian investors could have been related to the build-up of corporate debt in China and concerns about the Trump administration’s global trade policies.

Canada Can Meet Infrastructure Needs

Canada is expected to see a 61 per cent rise in GDP by 2040 and if it maintains current trends in investment, it is forecast to meet 98 per cent of the investment needed for its infrastructure to keep pace, says the G20’s Global Infrastructure Hub (GI Hub). The report, ‘Global Infrastructure Outlook,’ reveals the cost of providing infrastructure to support global economic growth and to start to close infrastructure gaps forecast to reach US$94 trillion by 2040, with a further $3.5 trillion needed to meet the UN Sustainable Development Goals (SDGs) for universal household access to drinking water and electricity by 2030, bringing the total to $97 trillion. In Canada, the sectors with the largest funding shortfalls are rail (17.3 per cent or $7.1 billion), telecommunications (8.1 per cent or $5.7 billion), and airports (7.8 per cent or $4.6 billion). The smallest funding shortfalls in Canada will be the road and water sectors, which will each meet more than 99 per cent of expected infrastructure funding needs by 2040. Globally, $3.8 trillion will need to be invested in infrastructure every year to meet demands, the equivalent of the total annual GDP of Germany, the world’s fourth largest economy, it says. The United States will have the largest gap in infrastructure spending, at $3.8 trillion, while China will have the greatest demand, at $28 trillion, representing 30 per cent of global infrastructure investment needs.

Managers Pessimistic On Credit Conditions

Credit portfolio managers are more pessimistic on credit conditions in North America over the next 12 months, says a survey from the International Association of Credit Portfolio Managers. Its ‘Credit Default Outlook’ index for North America for the next 12 months is -41.2, down from 20 in the previous quarter’s 12-month survey. A negative number indicates credit conditions are expected to worsen, while positive numbers mean conditions are expected to improve. In North America, the drop in sentiment looks ominous, but defaults are currently at a low level and North America is in a different situation than Europe. Europe is still in the quantitative-easing part of the cycle which has ended in North America. It found 53 per cent of respondents think defaults will remain at the same level in North America, while 44 per cent expect them to rise and just three per cent think defaults will decrease. Commercial real estate is one sector that worries survey respondents in North America, with almost two-thirds of respondents predicting that defaults will increase over the next 12 months due to structural changes in the retail sector.

ETF/ETP Assets Reach New Record

Assets invested in ETFs/ETPs listed globally reached a new record of US$4.168 trillion at the end of first half of 2017, says ETFGI’s June 2017 global ETF and ETP industry insights report. ETFs and ETPs listed globally gathered a record amount of US$63.57 billion in net inflows in June and a record level of US$347.7 billion in year-to-date net inflows. At this point last year, there were net inflows of just US$123.55 billion. Equity ETFs/ETPs gathered a record level of US$41.15 billion in net inflows in June, bringing year-to-date net inflows to a level of US$242.69 billion, which is much greater than the net inflows of US$15.81 billion over the same period last year. Fixed income ETFs and ETPs have gathered a record level of US$17.17 billion in net inflows in June, growing year-to-date net inflows to a record level of US$80.96 billion, which is greater than the same period last year which saw net inflows of US$67.98 billion. The global ETF/ETP industry had 6,965 ETFs/ETPs, with 13,125 listings, assets of US$4.168 trillion, from 328 providers listed on 70 exchanges in 56 countries, it says.

Green Bond Market Enjoys Growth

The green bond market continues to enjoy strong global growth among investors and issuers, says J.P. Morgan Chase & Co. Green bond issuance was $87.7 billion in 2016, up from $500 million in 2012, when the first green bond came to market. So far this year, green bond sales are approaching $50 billion. Green bonds are aimed at attracting investors who are not only looking for returns, but also protecting the environment. However, investor interest is extending into other socially prominent areas with bonds aimed at financing low income housing, educational opportunities for youth and women-owned business.

Venture Financing Declines

Venture financing in Canada declined by 14 per cent year-over-year in the first half of 2017, says a report from PricewaterhouseCoopers LLP (PwC) and CB Insights. It says venture-backed investments declined to $885 million in the first half this year from $1.03 billion in the first half last year. In addition, the number of deals declined, dropping by 25 per cent to 127 in the first six months of 2017 from 170 in the corresponding period in 2016. Financing activity was also down, the second consecutive quarterly drop. There was $400 million in venture financing in the quarter, spread across 58 deals. In the same quarter last year, there were also 58 deals, but the overall value was $600 million.

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July 24, 2017

Finance Department Looks At Unfair Tax Advantages

Finance Canada has issued a consultation paper on the use of certain tax-planning strategies involving private corporations. It asks for input from Canadians on what actions should be taken to ensure wealthy individuals can't gain access to unfair tax advantages. “These tax advantages are in place to help these businesses reinvest and grow, find new customers, buy new equipment, and hire more people,” says Bill Morneau, minister of finance. “We want to make sure those rules are used to do just that, and not to give unfair tax advantages to certain ‒ often high-income ‒ individuals.” The government is targeting several tax strategies such as the practice known as ‘income sprinkling,’ which involves the diversion of income from a high-income taxpayer to family members with lower personal tax rates. It is also looking at the retention of passive investments in personal corporations, such as those set up by certain professionals, to take advantage of the fact that corporate income tax rates are much lower than personal tax rates. The consultation paper, ‘Tax Planning Using Private Corporations,’ outlines potential solutions to address the issues and invites input from interested parties. The deadline for submission is October 2.

Monetary Policy ‘Too Stimulative’

Almost half (48 per cent) of money managers believe global monetary policy is ‘too stimulative,’ says the Bank of America Merrill Lynch’s monthly fund manager survey. This is the highest reading since April 2011 and up from a net 47 per cent in June. On global growth and profit expectations, only a net 38 per cent of investors predicted a stronger economy over the next 12 months, down from a net 39 per cent in June and a net 62 per cent in January. Additionally, only a net 41 per cent of investors predicted global profits will improve over the next year, the lowest reading since the U.S. election and down from a net 43 per cent in June. The July survey also found that a crash in global bond markets and a policy mistake by the Federal Reserve or European Central Bank are viewed as the biggest tail risks to the market. A net 80 per cent of investors believe the U.S. is the most overvalued region for equities, down from a record net 84 per cent in June. Meanwhile, a net 19 per cent and 43 per cent of managers, respectively, believe eurozone equities and emerging markets equities are undervalued, compared to a net 18 per cent and 48 per cent last month.

Mutual Funds Register Strong Growth

Mutual funds worldwide registered strong growth in 2016, says Cerulli Associates. Its ‘Global Markets 2017: How to Succeed Internationally’ report shows mutual fund assets under management increased from $60.3 trillion in 2012 to $79.3 trillion at the end of 2016. Its forecast suggests that mutual fund assets will pass $100 trillion in 2020 and reach US$106.3 trillion in 2021, with non-U.S. assets representing more than 50 per cent of the overall volume. The increased demand for mutual funds will be supported in developing markets by rising incomes, growth in the middle class, and improved financial literacy. In developed markets, access to defined contribution pension schemes and an increased focus on retirement savings will underpin the growth.

Indicators Point To Growth

Indicators of rising business investment, healthy consumer spending, a robust housing sector, and an improving labour market are all pointing to continued economic growth in Canada, says the HSBC Bank Canada Asset Management ‘July 2017 Outlook.’ However, reasons for guarded optimism remain relevant. It says its decision to continue to harvest gains in equities during the second quarter does not in any way undermine its long-term view favouring them. It remains cautiously optimistic, but also feels Canadian equity investors should temper their expectations if they are basing their growth projections on the impressive performance of previous quarters. Interest rate hikes are a vote of confidence in the growing strength of global economies. But because interest rates are at such historically low levels, even with some modest rate increases, overall monetary policy will remain supportive of economic growth. Central banks are likely to maintain real inflation-adjusted rates at particularly low levels, even in the U.S. This will be supportive of the continued economic recovery over the long run, it says.

Global VC Activity Value Increases

Global venture capital (VC) deal value increased by 55.3 per cent to $40.07 billion in the second quarter of 2017 propelled by an uptick in mega-deals around the world, says KPMG Enterprise’s ‘Venture Pulse Q2 2017.’ Globally, the United States led VC investment, accounting for $21.8 billion, followed by Asia ($12.7 billion) and Europe ($4.1 billion). The increase in funding was strongly affected by a continued resurgence in mega-deals, including Didi Chuxing’s record-breaking $5.5 billion round and Toutiao’s $1 billion Series D round. Globally, there were nine deals at or over $500 million in value during the quarter. While deal value increased, the total number of deals fell for the fifth straight quarter in the quarter. The ongoing decline has affected the earliest deal stages the most, with angel and seed-stage deal count down for the ninth straight quarter – from a high of 2,674 in the first quarter of 2015 to just 1,310 this quarter.

Royalton Luxury Resorts Offers Fitness Classes

Royalton Luxury Resorts has enhanced its ‘All-in Luxury’ concept to include Royalton Fit, a program that brings guests a variety of fitness and wellness classes taught by professional and certified instructors. The program will offer more than 500 fitness classes with nearly 120 each week at each resort in Mexico, Jamaica, Dominican Republic, and Saint Lucia. It will include programming for all fitness levels and classes such as Aqua Fit, Cross Fit, TRX, cycling, yoga, and Zumba. The ‘All-in Luxury’ concept offers guests a host of inclusions to support wellness that range from a dedicated gluten-free area in the buffet to smoothie stations and in-suite wellness features such as rain showers and custom handcrafted mattresses.

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