What Moved
US-China trade tensions escalated sharply in May. President Trump raised tariffs on $200 billion of Chinese goods from 10% to 25%, and China retaliated. Global equity markets sold off, with the S&P 500 falling roughly 6% before recovering. The TSX dropped in sympathy but held up better, supported by energy and financials (Reuters, May 2019).
The Bank of Canada held at 1.75%, with no decision scheduled for May. The dovish tone from the March statement continued to set expectations. Canadian bond yields declined as global uncertainty pushed investors toward safe-haven assets.
In private markets, the trade war noise had limited direct impact on domestic deal flow. Private credit in Canada continued to function smoothly, with lenders originating mortgages and construction loans at a steady pace. MIC capital inflows remained healthy, driven by the ongoing yield gap between private credit (6-9%) and public fixed income (2-3%).
Canadian PE activity was mixed — deal flow continued in domestically focused sectors, while export-oriented companies faced valuation uncertainty due to trade headwinds (CVCA, Q2 2019).
What It Means
May illustrated one of the structural advantages of private market investing: insulation from short-term public market volatility. While public equities whipsawed on trade headlines, private credit portfolios continued to generate steady income. MIC investors collecting monthly distributions were largely unaffected by the noise.
This insulation is real but not unlimited. A full-blown trade war that caused a Canadian recession would eventually affect private credit through rising defaults and falling real estate values. But for portfolio construction purposes, the low correlation between private credit returns and public market gyrations was exactly the diversification benefit that Canadian alternative investments are designed to provide. The contrast between public market turbulence and private market stability was one of the clearest demonstrations of this principle in 2019.
For PE investors, trade uncertainty created both risk and opportunity. Companies with domestic revenue streams were less affected and potentially undervalued. Sponsors with a Canadian mid-market focus had reason to be selectively active.
What We're Watching
The G20 summit at the end of June could produce a trade breakthrough — or further escalation. Markets were pricing in uncertainty, and any resolution would likely trigger a relief rally.
Canadian housing data for spring was coming in mixed — sales recovering modestly but prices still soft in key markets. The summer months would provide further clarity on whether the housing market was stabilizing or merely pausing before further declines.
The BoC's next decision on May 29 was expected to be a hold, but the statement would be parsed for any shift in the Bank's assessment of trade risks to the Canadian economy.
Closing
Trade wars make headlines. Private markets make distributions. That contrast was on full display in May — a reminder that the value of alternatives often shows up most clearly when public markets are at their most volatile.
For the full quarterly analysis, see Q2 2019: Waiting for Direction.
Alts Insider provides educational content for Canadian accredited investors. This is not investment advice. Always consult qualified professionals before making investment decisions.