From today's Market Call. GLTA
Volatility continues to rule capital markets in 2022 due to the aftereffects of the pandemic, including supply and demand imbalances, labour shortages, supply chain disruptions exacerbated by Russia’s attack on Ukraine and renewed lockdowns in China. These factors have caused inflation rates to remain much higher for longer than anticipated, inciting central banks to raise interest rates more aggressively to suppress demand. There is no doubt that rising rates and high inflation will slow down the economy, some parts more than others (i.e. real estate and consumer discretionary spending). Canada and the U.S. should be able to engineer a “soft landing” as they are coming from a strong place with low unemployment, high personal savings, still low-interest rates and strong currencies.
We believe that the rate of inflation will ease as the economy slows down. Central banks will end the tightening cycle sooner than markets anticipate as supply and demand for goods come more into balance and supply chains normalize.Nevertheless, we are staying well diversified in recession-resistant businesses, including telecommunications and pipelines, and also those benefitting from strong thematic tailwinds. These include renewable power (Boralex, Northland Power), aging demographics (CareRx, Savaria, Park Lawn, Siena Senior Living), the digitization of everything (CGI, TECSYS, MDF Commerce), and Infrastructure spending (Brookfield Infrastructure, WSP Global). We have also been adding high-quality companies “thrown out with the bathwater” in the sectors such as consumer discretionary and industrials for which prices have significantly corrected, such as Canadian Tire, Pet Value, Cargojet, Richelieu Hardware, and CCL.