Third Quarter 2015 Review
Canadian equities suffered a loss of 7.9% over the quarter. This was largely due to concerns about the global economy. Of particular importance to Canada were concerns over the Chinese economy and how that would affect demand for Canadian commodities. This led to a sharp decline in commodity prices, which meant large declines in the energy and materials sectors, where Canada’s economy is highly concentrated.
World markets were down 2.6% at the end of the quarter. China played a large role in the erratic behaviour of global markets. The Chinese stock market fell dramatically (22.7%), this was followed by a devaluation of the yuan by China’s central bank. The MSCI EAFE Index fell 3.5% over the quarter, while the S&P 500 Index gained 0.5%. A fall in commodity prices, a widening of credit spreads, and a drop in trading volume caused a multi-year high in market volatility. The MSCI Emerging Markets Index fell 11.8%. Returns are all in Canadian dollars.
The Bank of Canada lowered its overnight rate from 0.75% to 0.50% in early July, in response to Canada’s diminished growth prospects. Interest rate volatility increased throughout the quarter as the Federal Reserve’s possible rate hike approached. The Federal Reserve left its key lending rate unchanged at its September meeting. The FTSE TMX Canada Universe Bond Index posted a 0.15% gain during the quarter. Corporate bonds underperformed as spreads in the corporate sector reached their highest levels in three years.