Market View

Quarter 2, 2023

Q2 2023 Market Summary

Mixed signals continue - from our December 31, 2022, Commentary

“So, what does our murky crystal ball say? Rising rates slow economic growth with a lag. Estimated earnings for 2023 look too high and that leaves us believing that equity market returns will be muted in the near term. However, as time passes, and assuming markets do not move significantly higher, the delaying of positive returns for a period can be looked at as the coiling of a spring, meaning, that when business conditions do improve, a market upturn may be on the horizon.” (IVQ2022 PMC Commentary, December 31, 2022)

At the end of the second quarter, our prognosis for markets has not changed. The future is still unclear. Interest rates continue to rise. Some pundits are calling for a recession. Other pundits are talking about the next bull market. The USA (United States) has outperformed due to technology stocks (see “The Newest Market Driver is AI (Artificial Intelligence)” below). But to us, the future is still murky.

Inflation is still the Bank of Canada’s focus. The Bank of Canada’s target for inflation is 2 – 3%. Canada’s annual inflation rate in May slowed to 3.4% from 4.4% in April, due to lower energy prices. Despite this news, due to the tight labour market, economists believe that there will still be a 0.25% increase in the bank rate in July, even though the bank rate was raised by 0.25% to 4.75% in June. South of the border, the Federal Reserve Bank took a pause in June and left the Fed Funds rate at 5.25%. At the meeting of central bankers in Portugal last month, central banks kept coming back to all the things economists do not know; inflation expectations are hard to decipher; energy markets are opaque; the speed that monetary policy affects the economy seems to be slowing; and there is little guidance on how people and companies will react to successive economic shocks.

The Newest Markets Driver is AI (Artificial Intelligence): The infinite possibilities offered by AI are the new darling of the markets. Tech stocks that offer AI have popped up as investors climb on board this new and unfiltered technology. As a test, we have asked ChatGPT to prepare an economic summary for this Commentary. The result is a good starting point, but human intervention is necessary to ensure that the information is correct (see our example below). We are keeping our eye on this developing story. There is a lot of noise about government regulation, advantages for health care – and warnings from industry insiders.

PMC’s perspective

Each of the 3 PMC partners have over 25 years' experience in navigating these cycles and we feel it best to wait until the dust settles. Canada’s economy has not posted a single month of negative growth so far in 2023. The Bank of Canada’s forecast is for an underwhelming 1.0 per cent growth in 2023. Quality companies continue to be our focus. Over time, other issues tend to come to light (bad loans) especially when interest rates have moved as far and as fast as they have.

PMC tested ChatGPT by asking a specific question about the economy, and then verified the “specific inflation numbers”. It was an interesting exercise.

Request to ChatGPT:     100-word description of the world's economy with specific inflation numbers for Europe, USA and China

ChatGPT: In 2023, the global economy has witnessed a varied recovery. In Europe, inflation has remained relatively moderate, with consumer prices rising by around 2%. The European Central Bank has implemented measures to maintain price stability and support economic growth. In the United States, inflation has been more pronounced, with consumer prices increasing by approximately 4%. The Federal Reserve has implemented policies to manage inflationary pressures while supporting employment and economic activity. In China, inflation has been relatively low, with consumer prices rising by approximately 1.5%. The Chinese government has implemented measures to stimulate domestic consumption and maintain stable inflation levels.  

Editor’s Note: We checked the actual inflation numbers. Chat GPT was not 100% correct; Europe and China’s numbers were incorrect. The actual inflation numbers are:

Inflation Rate by Country202320222020
Canada3.4% (May)6.32%0.73%
USA4.05% (May)6.45%1.36%
Eurozone6.10% (May)9.20%-0.30%
China0.20% (May)1.80%0.20%


Anish Chopra was interviewed by The Globe & Mail. “Why this portfolio manager has hiked his cash position” Globe & Mail, 2023-06-03. A copy of the interview is attached.

The principals of Portfolio Management Corporation are Frederick C. Burton, Anish Chopra, and Rhonda Dalley.  The company is 100% owned by its principals.

Commentary reflects the opinions of Portfolio Management Corporation (PMC) at the time of writing and may reference sources that PMC believes to be accurate and reliable. PMC does not guarantee the accuracy or completeness of such information and our opinions and viewpoints may change over time. Forward-looking statements are based on historical events and trends and may differ from actual results.

Why this portfolio manager has hiked his cash position amid stubbornly high inflation


Money manager Anish Chopra doesn’t love having one-fifth of his growth portfolio in cash right now, but believes it’s the best option while waiting to see what happens with inflation and the broader health of the economy.

“We’re not looking to keep the cash reserves for an extended period, but we just haven’t seen that many opportunities in the markets lately,” says Mr. Chopra, managing director and portfolio manager at Portfolio Management Corp. in Toronto, who oversees more than $500- million in assets.

While inflation has eased in Canada and the U.S., Mr. Chopra says it still remains “a significant issue” for the economy. Unlike some market watchers, Mr. Chopra doesn’t expect interest rates to fall in the coming months, and he wouldn’t be surprised if they inched higher in the near term. Hence, the higher cash holdings.

“We just haven’t seen anything that makes us make the trade-off between earning 4 and 5 per cent in Treasury bills or short-duration cash instruments versus long equities,” he says. The 20-per-cent cash weighting is up from 12 per cent last year. Equities currently make up 76 per cent of his growth portfolio, down from 84 per cent a year ago, while fixed income remains at 4 per cent year-over-year.

The asset mix and selection of 35 to 40 stocks have helped Mr. Chopra keep his clients out of the red during the recent market volatility. His growth portfolio returned 4.7 per cent over the 12 months ended April 30, and has seen a compounded average annual return of 10.2 per cent over the past three years. His performance is based on total returns, net of fees. The Globe and Mail spoke with Mr. Chopra recently about what he’s been buying and selling and a Japanese stock he wished he bought more of. Describe your investing style. We look to buy the highest- quality companies at reasonable prices. We view quality as companies with solid business models, strong balance sheets, high returns on capital and experienced management teams with good track records. We also think, ‘Will the business be able to survive difficult economic times?’ So, there’s an assessment of business quality, but we want to buy those companies at a reasonable valuation, so patience is important. What have you been buying? One stock we added to late last year is software consolidator Open Text Corp. OTEX-T . The stock dropped after its debt-heavy purchase of Micro Focus International PLC. We felt confident buying the stock when it dipped because Open Text is an experienced acquirer. The stock has recovered nicely since we added more.

Another stock we bought is U.K.-based Smith & Nephew PLC, which trades on the London Stock Exchange. The company specializes in making artificial hips and knees. We bought the stock during the early days of the pandemic when it dropped as a result of delays in elective surgeries. It’s a longer term hold with a recovery period that will take some time. Regarding fixed income, we recently bought the Saputo Inc. bond maturing in June, 2026, because we were able to get a 5-per-cent yield over the next three years.

What have you been selling? We haven’t sold anything of significance this year. We’re satisfied with the quality of the companies we currently hold and their valuations. Name a stock you wished you had bought or didn’t sell. Astellas Pharma Inc. is a Japanese multinational pharmaceutical company that we own on the Tokyo Stock Exchange. Late last year, the stock dropped after the U.S. Food and Drug Administration (FDA) said it needed more time to review its menopause drug. We wished we had bought more of the stock when it dropped because the company has a strong portfolio of pharmaceuticals. Also, the company announced the FDA approval in May, and the stock has risen a lot since. Also, Inc. AMZN-Q is a stock that we wished we bought decades ago. It was one of the few survivors coming out of the dot- com bust, and we all know the Amazon story today. That said, it was a much different company back then. And what’s driving today’s profitability, which includes largely its cloud services division, is much different than it was back then.

What advice do you have for new investors? Don’t focus on one stock that you think will work now. It’s important to diversify across asset classes and to think long-term. Also, investing will test your emotions. Know yourself. How comfortable are you watching markets go up and down? That should also shape your asset mix and what securities you own in the short and long term. thisportfolio-manager-has-hiked-his-cash-position-amid-stubbornly/

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