Why this Morgan Stanley investment strategist finds bonds to be attractive versus stocks

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Stu Morrow of Morgan Stanley Wealth Management Canada offers his take on the economy and markets, and his asset-mix picks

In this challenging macroeconomic environment, it remains unclear how rapid hikes in interest rates will ultimately affect the economy and consumers, and just how quickly elevated inflation levels will retreat.

Let’s begin with your Canadian macroeconomic outlook. Looking at your base-case scenario, what are your expectations for GDP, inflation, employment and the policy rate? Europe has done well this year, as well as other parts of the international markets, like Japan. For Europe, we’re market weight. We see the economy continuing to slow. We’re tactically positive on the Japanese equity market, seeing domestic companies as beneficiaries [of] the return to positive GDP growth, potentially higher inflation that should fuel return on equity expansion as well.

Near term, we see opportunities here from a valuation perspective. The equity risk premium is the premium you get for taking earnings risk, and in Canada, that’s significantly higher than it is in the U.S.What sectors do you believe will be the leaders in the current environment?We’re positive on the commodity side as well as food and agriculture – so think about the fertilizers.

 

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