Second Quarter 2016 Commentary

July 21, 2016

Anxiety in the aftermath of the Brexit vote proved unwarranted as most equity markets have bounced back or surpassed pre-Brexit levels. Despite the uncertainty about the future of Europe, the MSCI World Index finished the three-month period with a nearly 1.5% total return gain when expressed in Canadian dollars. The S&P/TSX Composite Index also finished with a gain of about 5.1%, making it one of the top-performing developed markets year-to-date.

U.K. politicians on both sides of the Brexit debate have been absconding from the main stage since the vote. A mere 20 days after, the country has a new Prime Minister, leaving Theresa May with the task of deciding when and how to negotiate an exit from the EU. A quick cabinet shuffle and commitment from the Bank of England to support the economy has lent support to the British pound.

A decision by the Permanent Court of Arbitration against China’s claim to a vast portion of the South China Sea has China’s state-owned media and political rhetoric in uproar. The long-running dispute between China and its neighbours threatens to sour regional relationships as China has threatened to set up an air defense zone around the disputed region. China-U.S. relationships may also be strained as the U.S. is a strong supporter of keeping the region designated as international waters.

The speed with which markets turned downward and recovered following the Brexit vote is a reminder of how sudden market sell-offs can reverse themselves fairly quickly. Rather than joining the retreat, experienced investors can use such episodes as opportunities to buy high-quality businesses at discounted prices and to diversify portfolios that may have become concentrated over time.

We remain constructive on markets given more optimistic corporate earnings, positive U.S. economic dynamics, and a steady stream of support from global monetary and fiscal policymakers. However, the overall magnitude of upside potential is an open question given current valuations. We advocate holding a moderate cash level with an eye on deploying on a meaningful pullback in select quality, undervalued investments.

As always, should you have any questions about your investment portfolio, the markets or wealth management issues in general, my team and I are here to help. Please call my office at 416-246-0888 or email me at


Valerio Cattelan, BSc, MBA, CIM®
Portfolio Manager
Director, Private Client Group

* Market Statistics and returns sourced from Market Snapshot completed by Private Client Research, HollisWealth.  This article was prepared solely by Valerio Cattelan who is a registered representative of HollisWealth® (a division of iA Securities Inc., a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada).  The views and opinions, including any recommendations, expressed in this article are those of Valerio Cattelan only and not those of HollisWealth.

Cattelan Private Wealth Counsel.