Election outcome - Liberal minority: What's next for investors?

[Soft music plays] Financial Markets tend to react to surprises, and this election result was anything but a surprise.

[Avery Shenfeld, Chief Economist, CIBC World Markets] Score one for the pollsters, they basically had the seat count projections right on.

[Low angle tracking shots of parliament buildings in Ottawa.] And of course, in terms of the parliament, it's out with the old parliament, in with the old parliament, because we really haven't changed the distribution of seats. So, I don't expect a significant market reaction to this. What investors will be focusing on are some of the new agenda items that came out during the election.

[Aerial view of the Parliament of Canada in Ottawa. Low angle tracking shots of Canadian flags.] So, we see in Canada, as in other countries, for example, on climate change…

[Aerial view of solar panels. A wind turbine on a cliff. A man charges an electric car at a dealership.] …some further measures proposed, a more ambitious target, for example, for Canadians to be buying electric vehicles.

[An aerial view of two smokestacks. A time-lapse shot of cars speeding past two smokestacks. A high angle view of traffic at night.] I think in general, people around the world are seeing that the political momentum is towards more efforts on carbon emissions, and therefore some realignments of portfolios designed to both avoid the companies that might be most affected negatively, but also capitalize on the opportunities there. There were some items in terms of raising corporate taxes on some sectors that I think investors will be looking at for their implications.

[Parliament of Canada at night. Parliament of Canada during the day. Low angle tracking shots of Canadian flags.] But remember, all of this was an election result that was well predicted by pollsters, leaves the political landscape in Canada little changed, and therefore, you really have to just look back to the last liberal budget. That's where most of the initiatives are. And that's where most of the things that will affect investors also lie. Good news is that we didn't see in this campaign talk of increasing the tax on capital gains. That's always one that every budget I get asked about. Are we going to see an increase in the capital gains inclusion rate?

[Low angle tracking shot of a parliament building in Ottawa. Aerial view of the Parliament of Canada.] It didn't come up in this campaign. There is a tax on high income earners, a minimum tax of 15 percent that really won't affect that many people. So overall, I would say that investors are probably a bit relieved that at least during the campaign, we didn't see more of an effort to dip into people's pockets.

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[Economic outlook] In terms of the economic outlook.

[Low angle view of the parliament clock tower. Aerial view of the Parliament of Canada.] We come out of the election pretty much where we were at the beginning of this campaign, which is that in terms of the biggest risks to the economy, but also the biggest opportunities for the economy, it's all about COVID.

[Birdseye view of an empty parking lot, followed by images of an empty mall and grocery store.] So, in the here and now, we're seeing some disappointments in some economic readings associated with some caution on behalf of consumers in terms of what they're doing out there in the world due to the latest wave of COVID. But it's also still the biggest opportunity. [An plane sits on the tarmac. An empty restaurant.] Most of the gains that we will see in GDP in 2022 and 2023 will lie in the recovery of sectors that have been held back by COVID.

[Vaccine vials in a row. A nurse holds up a vial to camera.] That will benefit as increasing vaccination rates and the fact that more people around the world will be somewhat immune because they've already had COVID.

[A time-lapse shot of cars on a highway. Time-lapse shots of workers in a warehouse.] All of that is going to open the doors to, we think, quite brisk growth globally in 2022, a move to full employment. And while a lot of that is priced into equity markets, you know they're counting on earnings gains associated with the revitalization of the global economy. We still are reasonably comfortable that those gains are in fact coming.

[Soft music plays] [What this means for budget deficits] There isn't much of an impact of the election on budget deficits. They are slated to come down quite dramatically over the next few years, largely because the economy will recover… [Aerial views of the Parliament of Canada.] …and therefore, government revenues will recover. And in addition to that, of course, we'll gradually see the fading out of some of the pandemic relief spending that has helped elevate budget deficits. It turns out that although the liberal platform did include some additional spending as well as part of that paid by tax increases, we also, between the time of the last budget and the election, had an upgraded economic outlook that has lowered the projected budget deficits. So, at the end of the day, we might have had a slightly faster track of deficit reduction that's now offset by the new campaign measures if those indeed go ahead. And you can see that from the bond markets perspective, it doesn't seem that markets are particularly worried about the current level of deficits not only in Canada but around the world.

[Low angle tracking shot of a Canadian flag. Low angle shot of a row of American flags in front of the Washington Monument.] Just judging by how low real interest rates are not only in Canada but in the U.S.

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[Market outlook] We don't think that the election itself will cause jitters in the equity market. We certainly didn't see any volatility in equities during the campaign that you could attribute to the election. Nor for that matter did we see it in the bond market or the value of the Canadian dollar. In the very near term, there are reasons for some caution.

[A man wearing a mask walks down a street in slow motion. A woman wearing a mask looks at her phone on a train.] Again, a lot of the optimism that's already reflected in stocks could be challenged a little bit in the near term by the fact that COVID-19 is still out there, might weigh on economic activity and therefore earnings in the upcoming quarter. But for investors with a longerterm perspective, I think we have to look through this, this last perhaps serious wave of COVID towards the better times beyond 2021.

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