The Canadian equity market is doing very fine," says Reynald Harpin, chief investment officer of Alcan Adminco in Montreal. Last year returns peaked at 28.4% and in the first two months of this year they reached 6.5%.

"We expect good returns this year because the Canadian market is economy-sensitive," says Harpin. With economic growth of 4% in the last quarter of 1996, and predicted to be around 3% in the first quarter of this year, the market should follow suit. "It's not a booming economy but an economy which is growing faster than the potential rate." Depending on global growth, share prices will do better than in 1996 and Harpin's prediction for Canadian growth is about 4%.

The best prospects for European investors this year are commodity-related sectors: mining, paper, oil and gas, he says. The banking sector had a "very nice run" last year, increasing by 50%, "so the Canadian banks are still attractive". He is comfortable with the state of the bond market. "The Canadian bond market has done quite well overall last year and it should be a good year."

Inflation will remain at its present level despite current pressure on wages which, he says, "may eventually have some impact on inflation, but this is not a major concern".

Harpin's confidence in the equity markets reflects the proportion of Alcan's C$3bn pension fund that is invested in Canadian stocks, a total of C$1.2bn. "We feel, in the long run, equities outperform fixed income," says Harpin, "also, because we have a surplus, a fully funded pension fund, we can afford to take some risk." The weighting of 60% equities, 40% bonds is typical of a Canadian pension fund, says Harpin. But, he adds, "we are not aggressive but at the same time we are not very conservative, as there are some pension funds which are only 40% equities."

The rest of the portfolio is invested in fixed income bonds (30%), in US domestic equities (7%) and international equities (12%) covering mostly Europe and Japan. The fiscal limit in Canada for investing outside the country is 20% of the pension fund. "We respect that limit" says Harpin, though admitting it would be relatively easy to venture outside it. Of the C$3bn fund, just 15% (C$400m) is managed internally, with the bulk of the portfolio spread across three Canadian managers. Rachel Oliver"

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