Fewer pandemic restrictions, lower inflation and repair of supply chain problems are some economic factors that could positively influence how the economy — and investments — perform this year, a consultant says.
Jerrod Schafer with RBC Dominion Securities — the company that manages the City of Moose Jaw’s stock investments — spoke during the recent city council meeting about how the economy performed last year and how the situation looks in 2023.
A ‘perform storm’
Last year a “perfect storm” of challenging events influenced the economy, including COVID-19, rising interest rates, the slowdown of global growth and inflation that economists predicted would be “transitory” or short-term, said Schafer.
In particular, additional pandemic measures, supply chain disruptions, too much demand chasing too few goods, increasing wages (worker shortages) and the commodity price shock from Russia’s invasion of Ukraine added “fuel on the fire” of inflation, he continued.
All these incidents forced central banks to increase interest rates. Meanwhile, bond markets corrected because of the rate increases and equity markets corrected due to fears of a recession because of the efforts to fight inflation.
For Moose Jaw’s stock investments last year, the moderate-term portfolio declined 4.53 per cent overall while the long-term portfolio declined 8.54 per cent overall, said Schafer. Last year was the first time since the stocks were invested in 2019 that both portfolios were negative. However, those good years “more than compensated” for 2023.
Before the municipality updated its investment policy, it targeted stocks that were short-term, high-quality corporate and government bonds, he continued. The economy has not spared those bonds, even in an environment with low interest rates.
“So … even though there’s more volatility in the portfolio today because of the equity component, the city is by no means worse off. In fact, we could easily argue the city has been better off the last several years by making these changes (and) getting better performances despite last year,” Schafer stated.
Schafer’s report showed that to Jan. 31, 2023, the moderate-term portfolio stood at $24,250,584 and the long-term portfolio stood at $74,046,082.
The city’s investments have earned $15.6 million since inception and withdrawals have been $16.55 million, he summarized. Further, the investment committee has avoided panic by managing the changes to the investment policy with quarterly meetings and using GICs to fund withdrawals.
“Even with market volatility in 2020 and 2022, the city’s investment portfolio has provided better returns than a representative ‘short-term bond index,’” he added.
Several factors could positively influence the economy in 2023, including fewer pandemic restrictions, China reopening after its lockdowns, resilient household finances, supply chain problems normalizing, inflation peaking last June, stock valuations normalizing and bond yields performing better.
Some negative factors could include inflation remaining high, continued pandemic effects, the lagging effect of monetary tightening, geopolitics in the U.S., commodity shocks from the war and a recession.
Meanwhile, experts are split on whether the U.S. will see a recession this year, while a “recession scorecard” is also divided, he added. Three factors indicate a recession is likely, while four factors indicate economic expansion will continue.
Coun. Dawn Luhning, who sits on the investment committee, reminded everyone that the city invests its money as a corporation compared to how individuals invest.
“Obviously, 2022 was rough for everybody, but the City of Moose Jaw has an indefinite length of time (to exist and invest the money),” she added, so the portfolios could continue to do well forever.
Coun. Jamey Logan thought it was good to hear updated investment numbers and that they weren’t terrible. He noted that the city was slightly ahead of its target in the moderate-term portfolio and slightly behind in the long-term portfolio.
“Given the situation in the world last year, our situation is pretty good,” he added.
The next regular council meeting is Monday, Feb. 27.
