Q) When did you know this was no ordinary stock market correction?
A) The most observable factor in 2008 was the massive spike in volatility worldwide. For Canadian equity investors there were also fewer places to hide in equities or corporate debt.
Q) How did your clients react? With panic?
A) Most of my clients were relatively calm during the correction, choosing to filter out much of the doom and gloom noise in the market. This was mainly because portfolios tended to be more conservative, with increased exposure to government bonds.
Q) What was the best move/trade you made during that initial sell-off?
A) When oil prices hit $147 in June 2008, I informed clients that fundamentals did not warrant further gains, and exposure to resources sharply reduced. We also used the resulting correction in the Canadian dollar and strong gains in the US Treasury market to capitalize gains in US$ pay bonds.
Q) What is your view of the market now?
A) I believe that despite the impressive gains made since March of this year, equities lack conviction and remain vulnerable to a near-term pullback through September and October. The outlook is still generally positive into year-end though, assuming corporate earnings expectations don’t get carried away. My real concern is over the potential for another setback in the economy in 2010.
Q) How are you playing it now?
A) Because of the risks in 2010, I’m paying even closer attention to equity exposure during this rally. An autumn pull back will be used to deploy cash, but portfolios will be kept flexible to shift back more heavily into bonds should warning signs emerge into next year. There is also a greater focus on currencies this half. Assuming the Loonie breaks out to the upside and re-tests parity against the greenback, I’ll be looking again for opportunities in US$-denominated securities.