Canadian housing – Logic behind the madness? [Upbeat music] [CIBC logo] [Canadian housing – Logic behind the madness?] [Benjamin Tal Managing Director and Deputy Chief Economist CIBC Capital Markets] The big question is to what extent the Canadian housing market will continue with this kind of very strong activity? And the first question is why it's happening in the middle of a pandemic? And the answer, of course, is the asymmetrical nature of this recession, with all the jobs lost being low paying, rentals and therefore homebuyers found themselves in a position - and that's very important - that they were able to take advantage of what the recession can give you, namely low interest rates without the cost of a recession, vis-a-vis a broadly based increase in the unemployment rate. That's something that we have never seen before and led to this surge in home buying. [Urban cityscapes] Today, what we are seeing is another factor. Namely, interest rates are starting to rise. People are tweeting about the Bank of Canada moving. Bond yields are starting to move. Therefore, people are sensing that the window is closing and there is this sense of urgency to get into the market and basically, buy this house before it's too late. So, we are borrowing activity from the future. [Aerial shot of a sprawling suburb. A bungalow with a ‘for sale’ sign in front of it. Aerial shot of a sprawling suburb in winter.] And that's exactly why we see activity still accelerating at this stage of the game. That will slow down in the second half of the year as interest rates start rising and the future basically has arrived. [Upbeat music] [The impact of gifting] Now, it doesn't mean that the housing market will derail. The opposite is the case. The fundamentals of the housing market are still very strong, and two things are happening that we have to understand. One is gifting. We have a situation in which one third – one third! – of homebuyers now are getting a significant gift from a family. [Vancouver suburbs and city skyline. Aerial shot of a subdivision.] The average gift is about $80,000. In places like Toronto, Vancouver, it's close to two hundred thousand. And mover-uppers, another 10 percent of people who get a gift, in places like Vancouver, the average gift is three hundred and forty thousand. That's a big gift. This is a major factor impacting the housing market, and if you are interested in understanding the housing market, that's part of it. [Upbeat music] [The impact of immigration] During COVID 2021, last year, we got four hundred and ten thousand new immigrants. That's a huge wave of increase in activity. And next year, we will get more as the quota is rising, which means that this demand will continue to influence the market. [A jet descending onto a landing strip. A timelapse of a jet being filled with passengers. A construction site. A worker making measurements on a construction site.] And we have still very limited supply, with inventories at record low. For the first time, governments at all levels are admitting that supply is the issue because until now we were using demand tools to fight supply issues. For the first time, governments are suggesting that they have to do something about supply. This will take time, but at least it's a step in the right direction. So, at this point, we might see the market still accelerating in the next few months, maybe slow down in the second half of the year as rates start rising, but it will not be derailed. The only thing that can lead to a major adjustment in the market at this point is a monetary policy error in which the central bank, the Bank of Canada, will start raising interest rates way too quickly. That can shock the market. I believe that will not happen, but that's a risk that is facing the housing market at this point. [Upbeat music] [This video is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this document should consult with his or her advisor. All opinions and estimates expressed in this video are as of the date of publication unless otherwise indicated, and are subject to change. ™The CIBC logo is a trademark of Canadian Imperial Bank of Commerce (CIBC). The material and/or its contents may not be reproduced without the express written consent of CIBC.] [CIBC logo] [The CIBC logo is a trademark of CIBC, used under license.]

Ukraine crisis – What investors need to know

[Upbeat music]

[Ukraine crisis – What investors need to know]

[CIBC logo]

[Luc de la Durantaye, Chief Investment Strategist and CIO, CIBC Asset Management]

In our last update, we had mentioned that 2022 would be an eventful year, and so far it has not

disappointed. The events in Ukraine have forced market participants to re-evaluate their global

economic scenario, and the range of possible market outcome has widened in light of Russia's

full military action and also the increased unpredictability of the geopolitical environment, as well

as the rapid and collective response of Western countries. And so, these developments have

naturally translated into higher volatility. So while it remains certainly an understatement that

predicting what Russia's President Putin will do or not do, nevertheless, it's a necessary evil, if

you will, to re-evaluate the environment. Our best take on the conflict at this time so far is that

first, I think NATO is a much stronger opponent than Ukraine. So this suggests that Russia's

invasion will most likely be limited to Ukraine, particularly given the slow progress of Russian

military is making in Ukraine. So that's an important assumption. Second, the extent of the

economic and financial backlash against Russia from G10 countries and a growing contingent

of large multinational corporations suggests that the economic warfare against Russia is very

swift and effective, which means Russia is increasingly isolated. China also is unlikely to come

to its rescue because its economic ties are much, much larger with the West than with Russia.

So this is a new form of economic and financial warfare.

[Upbeat music]

[Economic implications]

It's still uncertain, but we have both direct and indirect effects of this crisis. The direct effects:

the crisis-related sanctions will negatively affect international trade. That's the direct impact, but

it's likely to be small given that Russia contributes to less than two percent of the global

economy and Russia is not very well integrated with the global economy. The indirect effect is

likely more impactful, but also uncertain. It includes obviously expected negative impact from

higher commodity prices, including energy and food. And Russia is also a major producer and

exporter of many commodities. So that's going to have a negative impact on growth and

inflation and likely affect negatively spending plans of corporations and individuals.

[Upbeat music]

[Increased inflation risk]

As a result of recent events and the risks they imply for commodity prices and confidence, our

previous growth and inflation forecasts will have to be adjusted. Probably growth will be

adjusted downwards and inflation will be adjusted upwards. So given the starting economic

landscape, the upside risk to inflation outlook is arguably the most relevant for policymakers. So

what we're going to be watching from here also is policymakers’ reaction, and so far they have

demonstrated that they are continuing on their policy renormalization. So the Bank of Canada

recently raised interest rates and gave indications that they would continue to raise interest

rates and so did the Federal Reserve indicated that they will continue or they would start

removing their accommodations.

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[Financial market implications]

The rise in geopolitical events risk confounds what we already see as a complex outlook for the

financial markets. Given the pandemic, given relatively high and broadening inflation, developed

markets, central banks need to remove some of their massive liquidity stimulus since they

injected that since March 2020 after the pandemic. So all this means that in the short term, it

seems likely that we'll experience continued market volatility and a lack of direction in both

equity and fixed income markets as investors continue to evaluate the full impact of the

geopolitical situation. Thereafter I think if we try to lift our eyes on the horizon, a world of higher

commodity prices and receding policy stimulus from central banks could generate a more

pronounced economic slowdown than what we initially expected at the start of the year. This

represents an additional near-term challenge to risky assets, including equity markets, which

had started the year in 2022 at somewhat elevated valuation levels for at least some markets.

Still, I think we do need to keep our eyes on the horizon. Already, some equity markets are in

bear market territory. That creates opportunities, once geopolitical events will calm down.

[Upbeat music]

[Investor outlook]

Well-diversified portfolios, I think, comprising of government bonds, stable paying dividend

stocks, gold and other commodities in the current environment, as well as cash and some safe

haven currencies should provide more stability to a global portfolio. --So that's number one.

Again, to balance your portfolio with non risky and risky assets is always helpful. And finally,

given the uncertainty, resisting the urge to do something I think is often better than reacting to

daily events that can change on a dime given the current situation. So I think that's another

element that sometimes we feel we need to do something and sometimes not doing anything is

the best thing.

[Upbeat music]

[Canadian assets]

The prospects for Canadian assets is actually relatively favourable. Canada is very far away

from this whole situation. Exposure to Russia is very low. Yet we are an exporter of commodity.

Our trade balance will benefit from these high commodity prices. Our equity market index has a

favorable composition with high-dividend-paying stocks, energy stocks and commodity stocks in

the index. That's also a favorable composition for our equity markets. And our equity market has

performed relatively well and has outperformed. And our Canadian bonds - Canadian

government bonds - are of highest quality and can be attractive for foreign investors in this type

of environment. And finally, our currency is somewhat undervalued and is supported to a certain

degree by higher commodity prices. So all in all, many mandates that we have, that we run, we

remain overweight Canadian equities, and we have a good portion of our balanced portfolios in

Canadian assets. so that brings some stability in this difficult environment.

[Upbeat music]

[This video is provided for general informational purposes only and does not constitute financial,

investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or

sell any securities referred to. Individual circumstances and current events are critical to sound

investment planning; anyone wishing to act on this document should consult with his or her

advisor. All opinions and estimates expressed in this document are as of the date of publication

unless otherwise indicated and are subject to change.

The CIBC logo is a trademark of Canadian Imperial Bank of Commerce (CIBC), used under

license. The material and/or its contents may not be reproduced without the express written

consent of CIBC Asset Management Inc. Certain information that we have provided to you may

constitute “forward-looking” statements.

These statements involve known and unknown risks, uncertainties and other factors that may

cause the actual results or achievements to be materially different than the results, performance

or achievements expressed or implied in the forward-looking statements.]

[CIBC Logo]

[The CIBC logo is a trademark of CIBC, used under license.]

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