The stock market strategist of the Caisse de dépôt et placement du Québec says he is “impressed” by the rebound observed on the stock market in recent weeks, but warns that volatility is bound to be felt again.
Posted at 5:00 a.m.
“In a normal cycle, after the fear of inflation comes the fear of a slowdown, and that’s the phase we haven’t seen yet. So we remain cautious in our positioning because we think that there is still volatility to come, ”said Vincent Delisle, head of liquid markets at the Caisse de dépôt.
The current stock market rebound comes, he says, in the wake of a sequence of extreme events observed over the past two years.
He claims that the threat of inflation is the main cause of the decline in the markets in the first half of the year. That’s what pushed rates higher and caused central banks to act faster and more decisively, he says.
Central banks need to raise rates a few more times to get inflation under control or closer to where they want it to be, he said.
Inflation is at 7% in Canada and 8% in the United States, while the target is 2%. So there are still rate hikes to come.
Vincent Delisle, Head of Liquid Markets at Caisse de dépôt
Vincent Delisle calculates that until recently, the odds of a severe global economic slowdown were about one in three, that is, between 25% and 35%. “The recent optimism observed on the markets, however, suggests that the market is anticipating a rosier scenario and that ultimately the rate hikes will not last as long. »
A defensive pivot
At a press conference, the CEO of the Caisse, Charles Emond, indicated that July had been the best month for nearly two years for the stock market. “The market has been rising sharply since June 30. But you have to be careful for the future, ”he said.
Vincent Delisle specifies that the Caisse has made a more defensive stock market pivot since the end of 2021 and points out that the opportunities in a bear market and during a sharp economic slowdown are more visible in cyclical sectors.
During the first months of the year, the Fund was particularly active with telecom purchases. “When it became clear to the Caisse that the central banks were going to have to raise interest rates, we wanted to reduce our exposure to certain securities and sectors that would be penalized. »
The Caisse thus sold certain securities deemed more “vulnerable” to add defensive securities. “In major market pivots like the one we’ve seen in recent months, we think we have to act and we did on some stocks,” he said.
An example of a title deemed vulnerable is that of Shopify. The Caisse gradually began to reduce its exposure to the Ottawa-based e-commerce solutions provider in April last year. The stake in Shopify has since been lowered over the months and particularly during the stock’s slide since November. The value of the equity investment in Shopify has thus increased from 700 million last summer to around 20 million this summer.
No regrets with oil
Charles Emond also said that he had no regrets that the Caisse sold a large part of its shares in oil producers before the recent surge in the price of a barrel of crude oil and securities in the energy sector.
He recalled that the decision to withdraw from oil had been taken in 2018 and that the Caisse had simply said last year that it had 1% left (3 billion dollars) to sell and that it was going to depart from it.
We sold those positions at a profit and we redeployed that money in renewable energies.
Charles Emond, Caisse CEO
He points out that even if we calculate that the Caisse could have obtained an additional 1 billion by waiting longer before selling its oil titles, the organization has lost nothing in the process. “The Caisse has gone to get 6 billion in returns over the past three years in renewables and 2 billion in natural gas, which is a transition energy source that is here for good. We redeployed elsewhere to make more money and do the right thing for the planet,” he says.
“Over the past five years, our low-carbon assets versus our high-carbon assets have doubled the return, 12% versus around 5%. »