It’s that time of year again, when economists and stock market prognosticators peer into their crystal balls and tell us what to expect over the coming 12 months. Naturally, smart investors will pay careful attention to these forecasts and adjust their portfolios accordingly so as to profit from the experts’ wisdom and years of experience.
In reality, Canadians who based their 1997 investment strategies on last year’s economic forecasts are probably counting their losses as 1998 arrives. Some of the predictions came close to the mark, but many others proved wildly inaccurate.
Economic growth: Forecasters, on average, were expecting Canada’s economy to expand by 3.1 per cent in 1997 after inflation. Two Ottawa-based think-tanks, the Conference Board of Canada and Informetrica Ltd., were at the pessimistic end of the spectrum, anticipating growth of 2.7 per cent and 2.6 per cent respectively. Happily, the
picture turned out to be much brighter, with the economy on track to deliver growth of 3.8 per cent by year’s end. (Could it be that things just look bleaker from the nation’s capital?) On the other hand, the Conference Board thought unemployment would drop to 8.4 per cent. As of last month, it was still at nine per cent.
The dollar: The consensus on Bay Street a year ago was that 1997 would be a banner year for the Canadian dollar. Economist David Rosenberg of Nesbitt Burns predicted that the loonie would rise from 73 cents (U.S.) to 78 cents. Others were even more bullish, confidently predicting an 80-cent buck. Alas, the dollar struggled through most of the year to stay above 72 cents, then dropped sharply as financial problems swept across Asia, undercutting demand for Canada’s resources. The result has been a sudden increase in borrowing costs, with further hikes possible early in the New Year.
Foreign markets: Far from anticipating the Asian mess, many analysts figured Japan and its neighbors were due for an upturn in
Some of last year’s forecasts came close to the mark, but others proved wildly inaccurate
Stocks: Conventional wisdom a year ago was that the global economy would pick up speed in 1997, leading to higher inflation and rising prices for commodities such as base metals. Based on that analysis, market seers forecast that the Toronto Stock Exchange—
1997. “We’re breaking out of the slow-growth straitjacket and entering an era of relatively high growth,” economist Richard Werner of Jardine Fleming Securities in Tokyo said a year ago. Speaking six months before the July 1 handover of Hong Kong to China, Miron Mushkat of Lehman Brothers said the territory’s economic outlook was “moderately positive.” Oops.
which is heavily weighted towards resources—would outperform U.S. equities. Instead, commodity prices have fallen, dragging down the stocks of many of Canada’s resource giants—including Alcan Aluminum, Falconbridge and Noranda, each of which was on the recommended list of major brokerages such as CIBC Wood Gundy Securities. At the close of trading last
week, the TSE 300 index was up 10.3 per cent for the year, roughly half the 20.3-percent gain shown by New York’s Dow Jones industrial average.
Mutual funds: Early last January, The Globe and Mail published a list of “proven, resilient funds for 1997” as recommended by four of Canada’s best-known mutual fund analysts. Peter Brewster, editor of the Canadian Mutual Fund Adviser, was convinced that the big gains were going to come in resources, so his top picks were the AGF Canadian Resources Fund (down 8.3 per cent as of Nov. 30) and the Altamira Equity Fund (up a paltry 3.1 per cent). Another favorite—chosen by both Peter Loach of Midland Walwyn and Stephen Kangas of Nesbitt Burns—was the BPI Canadian Small Companies Fund, which was down 16 per cent at the end of last month. In fact, of the seven funds selected by the pundits, six have either lost money or underperformed their respective benchmarks, in most cases by a wide margin.
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