Russell Investments' 2016 Global Market Outlook-Q3 update: Canada's economic growth likely modest at best as vulnerabilities persist

• Eventual unraveling of the housing market poses greatest long-term threat
• Concerns persist around elevated levels of household indebtedness
• Improving profit margins encouraging, though valuations not as compelling for domestic equity

TORONTO, July 6, 2016 /CNW/ - Rising oil prices have taken attention away from the resource sector's negative impact on the economy, redirecting it towards the still-heated housing market, according to the "Canada Market Perspective" provided in Russell Investments' 2016 Global Market Outlook - Q3 Update.

The outlook offers the latest economic insights and market forecasts from Russell Investments' global team of investment strategists, which help guide the firm's multi-asset portfolios and services.

"We continue to believe the eventual unraveling of the housing market poses the greatest longer-term risk to Canada's economy," said Shailesh Kshatriya, director, Canadian strategies at Russell Investments Canada Limited. "Most real estate market observers focus on Vancouver and Toronto, where home prices are most extreme. However, what should not be lost in the conversation is the level of house price appreciation in areas outside of those two big cities. While the Vancouver home price index has by far outpaced all major metropolitan centres, it's interesting to note that Toronto actually lags Winnipeg and is only modestly ahead of Quebec City in terms of home price appreciation."

According to the latest outlook, the greater concern is high household indebtedness and its impact on consumption going forward. As the report highlights, strength in retail sales over the first three months of the year may not be sustainable given wage growth on a year-over-year basis trending below 1%. "And while higher oil prices should lead to higher values for Canadian energy exports, it is less clear how the strengthening Canadian dollar (CAD) will impact non-resource exports over the second half of 2016," according to Kshatriya. "Suffice it to say, vulnerabilities persist—both short- and longer term—which argues for the growth trend to be modest at best going forward."

Global forecast overview

At mid-year 2016, Russell Investments' strategists see lackluster economic and equity market growth globally. The team expects upwards pressure from inflation on U.S. bond yields will be muted by deflation in other major developed markets, meaning low yields are likely to rise, but only modestly. The team also expects global market volatility to continue as the implications of Britain's vote to exit the European Union play out over the coming months. Looking to China, the strategists maintain their case for the country's economic slowdown to make a "soft landing."

"We still want to buy equity dips and sell rallies, but even post-Brexit volatility has not been significant enough yet to trigger a contrarian buy signal in our investment process," said Andrew Pease, Russell Investments' global head of investment strategy. "U.S. equities still look expensive, business cycle fundamentals in developed markets are weakening and government bonds score poorly on value."

In the U.S., both the May employment report and concerns over Brexit have contributed to the Federal Reserve's caution, according to Russell Investments' strategists. However, even with the decelerating labor market and negative corporate earnings growth, the strategists find little risk of near-term recession in the U.S.

"We expect Brexit will have only a limited impact on the U.S., and the headwind from a stronger U.S. dollar will be offset by more cautious Fed policy," said Paul Eitelman, investment strategist, North America. "We expect the December Fed meeting will be the earliest timing of a rate change, and we continue to expect 2% real GDP growth in 2016, although we cannot rule out a slower growth scenario entirely."

The report includes a segment focusing specifically on U.S. earnings, outlining the strategists' expectations for earnings growth to move from negative to zero over the next few quarters as transitory headwinds fade. Longer-term, the team forecasts low single-digit earnings growth and the continuation of expensive valuations.

For more information, please see the "2016 Global Market Outlook: Q3 Update."

About Russell Investments

Russell Investments, a global asset manager, is one of only a few firms that offers actively managed multi-asset portfolios and services which include advice, investments and implementation. Russell Investments stands with institutional investors, financial advisors and individuals working with their advisors—using the firm's core capabilities that extend across capital market insights, manager research, asset allocation, portfolio implementation and factor exposures to help each achieve their desired investment outcomes.

Russell Investments has more than C$319.9 billion in assets under management (as of 3/31/2016) and works with more than 2,500 institutional clients, independent distribution partners and individual investors globally. As a consultant to some of the largest pools of capital in the world, Russell Investments has more than US$2.2 trillion in assets under advisement (as of 12/31/2015). The firm has four decades of experience researching and selecting investment managers and meets annually with more than 2,200 managers around the world. Russell Investments also traded more than $2 trillion in 2015 through its implementation services business.

Headquartered in Seattle, Washington, Russell Investments operates globally, including through its
offices in Seattle, New York, London, Paris, Amsterdam, Milan, Dubai, Sydney, Melbourne, Auckland, Seoul, Tokyo, Shanghai, Beijing, Toronto, Chicago and Milwaukee. For more information about how Russell Investments helps to improve financial security for people, visit www.russellinvestments.com or follow @Russell_Invest.

###

Important Information

Nothing in this publication is intended to constitute legal, tax securities or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. This is a publication of Russell Investments Canada Limited and has been prepared solely for information purposes. It is made available on an "as is" basis. Russell Investments Canada Limited does not make any warranty or representation regarding the information.

Investing involves risk and principal loss is possible. Any stock commentary is for illustrative purposes only and is not a recommendation to purchase or sell any security.

Russell Investments is the operating name of a group of companies under common management, including Russell Investments Canada Limited.

Russell Investments' ownership is composed of a majority stake held by funds managed by TA Associates with minority stakes held by funds managed by Reverence Capital Partners and Russell
Investments' management.

Copyright © Russell Investments Canada Limited 2016. All rights reserved.

Frank Russell Company is the owner of the Russell trademarks contained in this material and all trademark rights related to the Russell trademarks, which the members of the Russell Investments group of companies are permitted to use under license from Frank Russell Company. The members of the Russell Investments group of companies are not affiliated in any manner with Frank Russell Company or any entity operating under the "FTSE RUSSELL" brand.

RETAIL-2016-06-30-1746 (Expires July 2018)

For real-time news updates, follow @Russell_Invest on Twitter

SOURCE Russell Investments Canada Limited

For further information: Steve Claiborne, T: 206-505-1858, [email protected]; Beja Rodeck, T: 905-885-5945; Russell Investments Canada Limited, 1 First Canadian Place, 100 King Street West, Suite 5900, Toronto, ON M5X 1E4, www.russellinvestments.com/ca