Deal count reached a seven-year high in Canada last year, but there has been a loss of momentum in the first half of 2019. On-going trade conflicts and concern over a possible market correction have generated greater economic uncertainty, and the investment outlook for the second half of the year continues to be clouded by these factors.

Rising valuations have been partly attributed to favourable debt conditions. With stimulus measures like the central bank holding interest rates low, the financial environment has been conducive to growth in Canada – so why are some investors dubious? For one, the availability of lower discount rates on long-term earnings has encouraged greater financial risk-taking, and a there is mounting concern that global trade issues could cause a reckoning.

Trade tension with China and the residual impact on global trade is soon expected to redress lofty earning expectations in some sectors of the Canadian economy. Global economic growth has softened, and the persistently high valuations set against this backdrop has manifested doubt in the market consistent with predictions made earlier this year.

A survey of M&A and capital markets professionals across 53 countries completed by Refinitiv in January anticipated that uncertainty caused by escalating global trade tensions and political instability in key economies would slow M&A activity. Sure enough, worldwide M&A deal count was down 16% compared to the first half of 2018 and it has become apparent that trade wars among the world's largest economies has shaken investor confidence across the globe.

While the US tariffs on Canadian steel and associated countermeasures have been lifted, the precarious process of negotiating a North American trade pact has been disruptive to Canadian investment decisions. Despite a rebound in Canadian exports, threats of further hostile trade actions contribute to a general sense of economic uncertainty. It seems likely that the loss of momentum seen in the first two quarters of 2019 is a preview of what is to come, and markets will continue to respond to escalating trade tension.

The author would like to thank Alisha Alibhai, summer student, for her assistance in preparing this legal update.

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