With political tensions heightened after Russia’s annexation of the Crimean peninsula, gold and other safe haven assets experienced a decent rise in the first quarter of the year. This certainly helped the Canadian equity markets, which saw the S&P/TSX Composite Index rise by more than 6%. Small and mid-caps were even stronger, gaining nearly 8%.
Global markets were also largely higher, although the majority of the gains in the quarter were the result of a drop in the Canadian dollar. With signs of a stronger U.S. economy, the Canadian dollar lost ground to the greenback, falling nearly $0.04 over the quarter.
Bond markets were higher, with longer dated and corporate issues continuing to outperform. Despite little evidence of a re-emergence of inflation, real return bonds were the strongest performers, with the DEX Real Return Bond Index gaining more than 6%.
Looking ahead, the Russia / Ukraine situation is once again in the spotlight as tensions have risen as pro-Russian forces have launched an attack in Kiev. Many believe that the Ukraine is on the verge of a civil war. Tensions are likely to remain high, which will likely drive investors towards the more traditional safe haven investments such as bonds and gold.
From an investment standpoint, I am concerned we may see a further in the global equity markets. Investor uncertainty around the standoff, combined with mixed economic signals out of China are expected to weigh on investor confidence. In the U.S., I expect that markets will grind higher in the near term, on improving economic numbers. I expect that the S&P/TSX should outperform, given the significant exposure to gold and materials. Fixed income markets should again hold their value relatively well over the near term as investors seek safe haven.