How Canadians’ strategic view of US markets is changing
Tessier says that the Canadian clients Marsh is engaging with have raised a range of concerns about certain US assets, including concentration risk in US equities, issues with the US dollar, or high fiscal debt levels underneath US bonds. She notes that public assets tend to loom large in immediate decisions because they are the easiest positions to exit. However, certain private asset categories like private debt are becoming more sophisticated in other markets like Europe, motivating some reallocations by Canadian asset managers.
The fixed income segment, Tessier says, is in a degree of flux in part because of high debt levels in the US and much of the developed world. She notes, as well, that technology companies are issuing debt at a pace and volume never seen before to finance the AI buildout. She anticipates that technology-related debt will become as large a component of global bond indices as traditional government debt. These shifting dynamics in fixed income, Tessier says, has some investors revisiting their perceptions of safety in US bonds.
On equity markets, Tessier says that the Canadian asset owners surveyed by Marsh indicate a strong willingness to grow their global equity exposures. Some of that she attributes to strong US equity performance and a desire to diversify profits from that performance. She sees global markets as offering strong competition for investor capital and adds that while the US markets offer leadership characteristics in certain industries, asset owners are still looking globally.
Why Canada is still an outlier
The global macro forces and strategic realignment incentivizing a shift away from US assets apply to asset owners in every geography. Despite that, Canadian asset owners showed the greatest willingness to offload US exposures. Tessier offers three concurrent explanations for that outlier status: patriotism, global bias, and those aforementioned shifting opportunities.
There is a cohort of investor clients and asset owners, Tessier says, who are applying the patriotism of this current moment to their portfolios, preferring to invest in Canada and ex-US markets. That fits somewhat with Tessier’s view of Canadians as innately global investors, given the relatively narrow band of industries and opportunities that can be found in our domestic market.