Global Asset Allocation Perspectives

October 2023

To help guide the positioning of Scotia Portfolio Solutions, the Multi Asset Management team of Scotia Global Asset Management meets regularly to discuss and debate the current macro environment and what it means for portfolio positioning. The following report captures the team’s current views.

Key macroeconomic themes

Global economic themes that are most likely to influence our views on portfolio asset allocation over the next 12-to-18 months.

Continued slowing of economic growth

Global growth will likely be challenged as the lagged impact of higher interest rates takes hold on the global economy. A recession is possible, however, if one were to happen, we do not expect it to be deep or prolonged.

Stubborn inflation and higher for longer interest rates

Overall, central banks of developed countries remain hawkish as continued interest rate hikes are likely, albeit at a slower and less consistent pace, in the ongoing campaign to normalize inflation which remains elevated.

Risks are increasing

As the lagged impact of higher interest rates and the general perception that interest rates will remain higher for longer takes hold, risk-on assets like equities will likely experience increased volatility.

Let's talk investing: Q3 2023 in review with the Multi-Asset Management Team

After delivering solid performance in the first half of 2023, markets pulled back in the third quarter. On the latest "Let's talk investing" podcast, Greg Sweet, Scotia Securities Director, chats with Craig Maddock, Vice President & Senior Portfolio Manager, and Wesley Blight, Portfolio Manager, both from the Multi-Asset Management team. They discuss the key takeaways of 3Q23, and their thoughts on where things will go from here.

Asset allocation perspectives

Equity outlook

After delivering solid performance in the first half of the year, equity markets pulled back. The S&P/TSX Composite Index declined by 2.2%, the S&P 500 Index dropped 1.2% ($C), the MSCI EAFE Index slipped by 2.0% ($C), and the MSCI Emerging Markets Index dipped by 0.5% ($C) over the quarter.

Notably, value stocks outperformed growth stocks in the third quarter, reversing the trend seen over most of the past year.

Considering the high degree of uncertainty regarding the outlook, any rallies in risky assets may create the opportunity to take a more defensive position.

Fixed income outlook

The Canadian bond market declined 3.9% over the quarter, giving back earlier gains and slipping into negative territory year-to-date.

Inflation ticked higher after steadily declining over the past year, prompting central banks to raise rates further.

Earlier this year, markets were expecting interest rate cuts by mid-2023, which shifted to late 2023, before shifting out further to mid-2024.

Fixed income remains attractive over the long term as yields have moved higher, offering return potential from both income and capital appreciation perspectives.



The Bank of Canada increased rates by 0.25% in July, before holding steady for the rest of the quarter. The Bank remains prepared to increase the policy rate further if needed. Yields have moved higher.

Canadian stocks performed well at the beginning of the quarter, before slipping in August and September. The S&P/TSX Composite index, experienced losses in nine of its 11 sectors with the Energy sector benefitting from rising oil prices and Materials pulling back on weaker metals prices.

The Canadian market should continue to benefit from secular strength in commodity prices and better prospects for relative growth.



The U.S. Federal Reserve increased rates by 0.25% in July and continues to suggest additional rate hikes will come if needed to bring inflation under control. Yields climbed higher on signs of U.S. economic strength and sticky inflation.

Performance was broadly weak across American stocks, with nine of 11 sectors down in the quarter – the S&P 500 Index pulled back 1.2% in Canadian dollar terms.

The U.S. economy continues to show fairly solid performance. The U.S. market continues to have secular relative strength with strong fundamentals.



The Bank of England raised rates another 0.25% in August and the European Central Bank increased rates twice, totalling 0.5% over the quarter.

The MSCI EAFE Index slipped lower in the third quarter, down 2.0%, but remains up year-to-date. The U.K. led the way, while Germany, France, and Japan gave up some of the gains from earlier in the year.

Economic data in Europe has continued to show a slowing economy, with manufacturing and services both losing momentum. Inflation in Europe continues to trend lower, yet remains elevated, leading to continued monetary tightening.

Emerging Markets


The war in Ukraine, the unfolding situation in the Middle East, along with continued monetary tightening provides significant uncertainty for global growth.

Emerging markets declined slightly in the quarter in Canadian dollar terms, with a positive translation impact coming from a weaker Canadian dollar. China and Hong Kong declined in the quarter, which was partially offset by a solid performing India.

Being a major component of the emerging market index, China is of particular concern. It’s unclear if recent weakness is a blip or a signal of a more significant slowdown. Stimulus efforts have been modest to date, but investors continue to watch for announcements of more material stimulus efforts.