Continued economic disruption and why Manulife Private Wealth is turning towards ESG

Markets continued to be cautious amidst the pace and unevenness of the global recovery. Volatility heightened, particularly during the last several weeks of the quarter, as investors weighed growth prospects for China and the impact of the Evergrande debt crisis. On the geopolitical side the potential shutdown of the US Federal Government due to the debt ceiling has added to the mix of uncertainty. The net result of this was the equity markets hit all-time highs during Q3 however the pull back in the latter half of September meant the S&P TSX ended up 2.6% and the S&P500 was up .6% for the quarter. On the fixed income side, yield compression continued while inflation numbers continued to grow.

The surging numbers of infections from the Delta variant has led to economic growth being subdued in some jurisdictions and has been coupled with lockdowns in others. Both events are impacting the short- and longer-term global recovery.

In Canada, we saw a non-event election take place with no clear directional changes, while the fourth wave of COVID infections in most areas seems to have stalled.

With these things in mind, what do we see going forward, and how is Manulife Private Wealth trying to ensure we stay ahead of things? Global supply chains are one of the most worrisome factors in the economy presently, as it is not only a primary driver of the inflation we are seeing, but also impedes the recovery by stalling demand. The pent-up demand created during lockdowns has since been mitigated by price increases causing deferrals of purchases, which in turn constrains economic growth instead of the strong bounce back initially experienced. Energy prices remain firm, with oil gaining ground on OPEC+ compliance with production levels and demand increases amid re-openings, while natural gas prices have increased as the supply demand balance remains tight as winter approaches.

We continue to see labour pressures and mismatches taking place where jobs cannot be filled and where they are being filled, the replacements are not as efficient or trained, which again has a cascade effect on the recovery and growth.

The concerns on how long these supply chain issues may take to resolve are holding things back and will likely persevere through 2022. With the potential for further economic shocks from China, a degree of caution is due. However, there is room for cautious optimism as we are seeing steady growth in the US economy with Canadian economic numbers also starting to pick up. European countries have also begun starting to reopen and reengage their economies.

Overall, the approach is one of steady diversification with no large bets being taken. The asset allocation team continues to review the MPW asset mixes for the lowest risk return profile and we will continue to adapt as the economy unfolds.

One message that has become really clear in our industry is the importance of ESG (environmental, social and governance) integration into the overall investment and economic framework. It is something Manulife Investment Management is an early adopter of, signing on to the PRI in 2015, and I am pleased that this quarter we hosted a webinar on. You can re-watch the event and learn how sustainability issues could influence the way financial markets respond to traditional economic developments and data points here: Applying an ESG lens to our macroeconomic and investment analysis.

Wishing you a safe and happy fall season.

A widespread health crisis such as a global pandemic could cause substantial market volatility, exchange trading suspensions and closures, and affect portfolio performance. For example, the novel coronavirus disease (COVID-19) has resulted in significant disruptions to global business activity. The impact of a health crisis and other epidemics and pandemics that may arise in the future, could affect the global economy in ways that cannot necessarily be foreseen at the present time. A health crisis may exacerbate other pre-existing political, social and economic risks. Any such impact could adversely affect the portfolio’s performance, resulting in losses to your investment.

The material contains information regarding the investment approach described herein and is not a complete description of the investment objectives, risks, policies, guidelines or portfolio management and research that supports this investment approach. Any commentary in this report is provided for informational purposes only and is not an endorsement of any security or sector. The opinions expressed are those of Manulife Private Wealth as of the date of writing and are subject to change. The information in this document including statements concerning financial market trends, are based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. This material does not constitute an offer or an invitation by or on behalf of Manulife Private Wealth to any person to buy or sell any security. Past performance is no indication of future results. The information and/or analysis contained in this material have been compiled or arrived at from sources believed to be reliable but Manulife Investment Management does not make any representation as to their accuracy, correctness, usefulness or completeness and does not accept liability for any loss arising from the use hereof or the information and/or analysis contained herein. Neither Manulife Private Wealth or its affiliates, nor any of their directors, officers or employees shall assume any liability or responsibility for any direct or indirect loss or damage or any other consequence of any person acting or not acting in reliance on the information contained herein. Please note that this material must not be wholly or partially reproduced.

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PPM 544098

Glen Brown

Glen Brown, 

VP, Managing Director, Head of Manulife Private Wealth

Manulife Private Wealth

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