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Welcome to Advisor to Go, brought to you by CIBC Global Asset Management, a podcast bringing advisors the latest financial insights and developments from our subject-matter experts themselves.
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Eric Morin, global head of research, CIBC Global Asset Management
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Where do we see the most compelling investment opportunities in today’s environment? We think stocks will continue to outperform. And we keep our tactical recommendation of a slight overweight equities versus fixed income. That recommendation is for all major regions. And we do expect also a leadership rotation.
Overall, this view is underpinned by several points.
First, we do think that global growth will accelerate. It will move back above 3%, which is close to potential. We do think that oil prices will decline from current levels. We think that oil prices will decline by $20 to $30, and will descend to US$70 for Brent in 12 months. So we think oil prices will decline.
We also still think that central banks will provide limited hikes. So, yes, the direction of travel is higher policy rates. But we think that the amount of hikes that will be delivered won’t be enough to materially hurt risk assets.
We are also in an environment where we think that the global investment tailwinds remain strong and inelastic. That is related to the AI theme, defence theme, and we think that the global tech cycle is well and alive. This is something that should provide support to risk assets via several channels.
For the U.S., the investment tailwind is compatible with productivity remaining higher than usual. And historically, this is something that has been associated with outperformance of the S&P 500.
For emerging market, that’s also positive because the global tech cycle is positive for Asia, but also for Latin America, for example, and all of the countries that are providing inputs into the tech supply chain.
Investment tailwind is another bucket that will support, we believe, risk assets. And, also, we do see limited downside on government bond yields, and that increases the relative attractiveness of equities versus bonds over a tactical horizon, relative to a strategic asset allocation.
We do see that there will be a broadening, a leadership rotation. And, also, I want to point out that we do believe that global growth will become a little bit more synchronized. That will support equity markets outside the U.S. That’s why we keep our tactical overweight equities versus bonds.
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Has the oil shock played out as we have expected since May? Or has our growth outlook changed? Yes, the growth outlook has changed. In fact, the oil outlook has changed. We do see the terminal value for Brent at US$70 in 12 months. Previously, we had assumed US$90.
There’s two reasons why we have revised down.
The first reason is because of the fact that energy producers have been rerouting their oil shipping outside the Strait of Hormuz at a pace that has surprised us to the upside. This is something that will bring downside pressure on oil prices. So this is a positive development.
And the other one is that Chinese demand has been much more flexible to cushion the shock. And we think that, looking ahead, Chinese demand should remain able to cushion any escalation in the Strait of Hormuz.
What we’re saying there is that oil prices should remain less reactive to escalation in the Strait of Hormuz compared to our previous expectations. That’s why we have revised down our oil price outlook to US$70.
This is something that should bring tailwinds to energy importers, such as Europe and Japan. That revision to the oil price is something that should be constructive for the global economy. But also, an outlook that is compatible with less pressure by central banks to hike in reaction of this energy-driven inflation shock.
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Do we still expect central banks to look through higher energy-driven inflation? The answer is yes because the current shock is not like in 2022.
2022, if you recall, it was the time where Russia started to invade Ukraine. This took place in a context that is different than what we have today. Today, we have a negative supply shock, which is higher energy prices, but we don’t have the same demand shocks that we had back then.
So, if you recall in 2022, the global economy was still in a reopening mode, post-Covid. There were a lot of pent-up demands that had to be unleashed. And also massive stimulus was put in place during the pandemic. So there were a lot of cash waiting to be spent. What we had at the time was large demand shocks that were highly inflationary.
Now we don’t have this situation. We have a supply shock that, yes, is inflationary, but we think that this will be seen by central banks as mostly a one-off event.
That said, one thing that has changed is that the Fed has a new head, [Kevin] Warsh, and he’s a little bit more hawkish than what pundits have expected. And also he is not a believer of forward guidance. And so, as a result, we may have a Fed policy stance that is a little bit more reactive or less tolerant to higher inflation. And that’s why we have revised up our Fed outlook.
A few months ago, we still expected a cut by the Fed. Now we do expect a hike of 25 basis points. This is because of Kevin Warsh leading the Fed, but also it’s because of stronger underlying growth in the U.S.
Of course, the risk remains that the Fed may be willing to hike a little bit more in reaction to sticky inflation. This is a risk that has increased in importance, and as a result, we believe that the probability that the Fed may hike by 75 basis points has increased.
This is not our baseline because we do believe that U.S. growth in the first half of 2027 will slow. Growth is boosted materially from AI investment. We do think that this impulse will remain elevated, but will slow. And we do believe that U.S. growth will decelerate in the first half of 2027.
And also, we do believe that trend inflation in the U.S. should remain well-behaved due to labour markets that have rebalanced in the U.S, and ongoing disinflationary forces from higher vacancy rates, which should translate into slightly lower rent inflation. And also, keep in mind that on a year-over-year basis in 2027, there will be a negative base effect that will bring downside pressure on headline inflation coming from lower oil prices.
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What do we think are the biggest macro themes investors are underestimating right now?
First is potentially the magnitude of investment tailwinds that the global economy will be facing over the medium term. We have not only tech tailwinds, but we have also everything else that is needed in the tech ecosystem. There’s a shortage of data centres. There will be soon a shortage of grids. The grid network has to be updated in the U.S. and in several economies.
There’s also strong demand to beef up military spending in several countries because we are in a new world order. Those investment tailwinds should bring ongoing upside pressure on global growth, and also on the prices of materials.
In a year or two, there could be renewed upside pressure on certain commodities, including the key inputs that are used to build chips. We may be in a situation where over the medium term, there will be renewed upside pressure on material prices, and then investors will have to hedge that risk by looking at markets that can cushion inflation risks.
And one of these markets is Canada due to its reliance or exposure to the material sectors. So, historically if you plot, for example, gross profit of the TSX with the ISM Price Paid Index, you have a good fit. And that’s because the Canadian equity market is a good hedge against upside pressure on material inflation.
One of the sectors that could have more volatility is the tech sector, especially the semiconductor supply chain, which depends on a lot of key materials. For example, there is cost-push pressure for key inputs in the production of chips. There’s upside pressure on helium prices. There’s a factory in Qatar that was hit by a drone from Iran. Helium is a key critical input in the production of chips. We have also upside pressure coming from a component that is called ABF substrate, which is a key input in high-end chips. Apparently, there will be a growing shortage of that sophisticated glue in 2027, so this is another segment where we will see cost-push pressure in the semiconductor supply chain.
And there is also tungsten, which is facing important upside pressure. Tungsten prices have increased by nearly 400% since late 2025. This is due to booming defence demand, but also this is due to China imposing export controls on the metal. As a result, what we have is cost-push pressure in the supply chain of chips.
This is something that could bring more volatility in the tech sector, because that cost-push pressure could impact the timing at which companies will be able to monetize their investments.
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