July 10th, 2015

Strategy Review

Second Quarter Review North American Capital Appreciation Strategy June 2015

It seems there is never a dull moment in the capital markets. As we headed into the Canada Day and the Fourth of July Independence Day holidays, it looked like an extra-long weekend for some after a relatively uneventful quarter in the North American equity markets. However, the markets ended up facing another bout of volatility as Greece opted to miss a debt payment and called a referendum, asking its people to decide whether they are willing to accept more austerity in return for remaining in the Eurozone and receiving more aid. Overall, the reaction in peripheral country bond yields and global equity markets was relatively subdued compared to the reaction when Greece was in the headlines back in 2012, although the timing from a quarter end return perspective was not ideal. Meanwhile, the Chinese central bank cut rates for a fourth time since November in an effort to stem the correction the Shanghai Composite has endured in the past two weeks as it officially enters a bear market (down -20%) at the time of this writing. While we are concerned about these developments, that are continuing to unfold, we don’t believe these problems pose systemic risks unless they lead to severe deflation or recessionary economic conditions that are beyond the central bank’s ability to reverse them.