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BY: HANS ALBRECHT, CIM®, FCSI®, VICE-PRESIDENT, PORTFOLIO MANAGER AND OPTIONS STRATEGIST, HORIZONS ETFS

China’s economic growth recently slowed to its weakest pace since the first quarter of 2009. President Trump sure knows how to whip his rally attendees into fervour, but he really isn’t helping their cause much.

High tariffs are going to cost soybean growers massively in Iowa, a state that overwhelmingly voted for him. Rhetoric and reality – one gets ratings and votes, the other describes people who are ironically voting against their own interests. China, the world’s biggest buyer of soybeans, will turn to countries like Brazil for part of their supply. This kind of thing has the potential to disrupt a world economy that has already become fragile and too reliant on the U.S.

Do tariffs take long to kick in? In fact, the effects are swift. USD $250 billion in Chinese imports have immediately had 10% to 25% tariffs imposed on them. Soybean exports have stopped on a dime for U.S. exporters. We may see the effects of tariffs creep in very quickly to S&P 500 earnings – and that is (in part) what’s worrying markets. Damage is being done to important world economies at a time when stimulus is going in opposite directions for large central banks. Europe is now on hold as Italian and Brexit issues play out, China’s economy is slowing and U.S./China relations are weakening as the U.S. and Canada remain hawkish.

I wouldn’t want to bet against the temporary cheer that Hanukah and Christmas usually bring to end-of-year markets. But serious issues are here to stay. All is not well, and the sooner powerful people realize it, the better. The ‘Art of the Deal’ technique may not work as well as one might hope on massive superpowers that prize pride as much as money. 

This isn’t the China of 20 years ago – the Chinese economy has grown much more quickly than that of the U.S. in the past 15 years. Because it wields much more power, the bully needs to realize that the victim isn’t going to stand for it. The playground has changed, so it’s time to play more nicely. A continuing ‘doctrine of patriotism’ may have the U.S. losing a great deal, and the world economy and equity markets may not be able to handle it right now.

The views/opinions expressed herein may not necessarily be the views of Horizons ETFs Management (Canada) Inc. All comments, opinions and views expressed are of a general nature and should not be considered as advice to purchase or to sell mentioned securities. Before making any investment decision, please consult your investment advisor or advisors.

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Recreational Marijuana is Legal in Canada. Now What?

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The Horizons Exchange Traded Products include our BetaPro products (the “BetaPro Products”). The BetaPro Products are alternative mutual funds within the meaning of National Instrument 81-102 Investment Funds, and are permitted to use strategies generally prohibited by conventional mutual funds: the ability to invest more than 10% of their net asset value in securities of a single issuer, to employ leverage, and engage in short selling to a greater extent than is permitted in conventional mutual funds. While these strategies will only be used in accordance with the investment objectives and strategies of the BetaPro Products, during certain market conditions they may accelerate the risk that an investment in units of a BetaPro Product decreases in value. The BetaPro Products consist of our 2x Daily Bull and 2x Daily Bear ETFs (“2x Daily ETFs”), Inverse ETFs (“Inverse ETFs”) and our BetaPro S&P 500 VIX Short-Term Futures™ ETF (the “VIX ETF”). Included in the 2x Daily ETFs and the Inverse ETFs are the BetaPro Marijuana Companies 2x Daily Bull ETF (“HMJU”) and BetaPro Marijuana Companies Inverse ETF (“HMJI”), which track the North American MOC Marijuana Index (NTR) and North American MOC Marijuana Index (TR), respectively. The 2x Daily ETFs and certain other BetaPro Products use leveraged investment techniques that can magnify gains and losses and may result in greater volatility of returns. These BetaPro Products are subject to leverage risk and may be subject to aggressive investment risk and price volatility risk, among other risks, which are described in their respective prospectuses. Each 2x Daily ETF seeks a return, before fees and expenses, that is either 200% or –200% of the performance of a specified underlying index, commodity futures index or benchmark (the “Target”) for a single day. Each Inverse ETF seeks a return that is –100% of the performance of its Target. Due to the compounding of daily returns a 2x Daily ETF’s or Inverse ETF’s returns over periods other than one day will likely differ in amount and, particularly in the case of the 2x Daily ETFs, possibly direction from the performance of their respective Target(s) for the same period. Hedging costs charged to BetaPro Products reduce the value of the forward price payable to that ETF. Due to the high cost of borrowing the securities of marijuana companies in particular, the hedging costs charged to HMJI are expected to be material and are expected to materially reduce the returns of HMJI to unitholders and materially impair the ability of HMJI to meet its investment objectives. Currently, the manager expects the hedging costs to be charged to HMJI and borne by unitholders will be between 15.00% and 35.00% per annum of the aggregate notional exposure of HMJI’s forward documents. The hedging costs may increase above this range. The manager will publish, on its website, the updated monthly fixed hedging cost for HMJI for the upcoming month as negotiated with the counterparty to the forward documents, based on the then current market conditions. The VIX ETF, which is a 1x ETF, as described in the prospectus, is a speculative investment tool that is not a conventional investment. The VIX ETF’s Target is highly volatile. As a result, the VIX ETF is not intended as a stand-alone long-term investment. Historically, the VIX ETF’s Target has tended to revert to a historical mean. As a result, the performance of the VIX ETF’s Target is expected to be negative over the longer term and neither the VIX ETF nor its target is expected to have positive long-term performance. Investors should monitor their holdings in BetaPro Products and their performance at least as frequently as daily to ensure such investment(s) remain consistent with their investment strategies.

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