Omnigence’s Alternative Alpha Outlook for Q4 2025 examines a structural shift in Canada’s macroeconomic regime, driven by the convergence of persistent capital outflows, expanding fiscal deficits, and sustained current-account imbalances.
Rather than reflecting a typical cyclical slowdown, these trends point to a longer-term erosion in domestic capital formation and productivity. Fiscal policy is increasingly supporting consumption rather than productive investment, while outward capital allocation by institutional investors continues to weigh on future growth potential. At the same time, external imbalances introduce currency vulnerability, raising the risk of imported inflation even in a low-growth environment.
The result is a regime characterized by weaker growth and more persistent inflation. In this environment, traditional portfolio assumptions become less reliable. The 60/40 framework, which depends on stable capital inflows, benign fiscal dynamics, and negative stock–bond correlation, faces increasing pressure.
For allocators, the implication is clear: portfolio construction must adapt to a world where growth is constrained, inflation is less transitory, and diversification benefits are less predictable. This includes reassessing reliance on GDP-linked returns, testing resilience under positive stock–bond correlation, and incorporating assets with structural independence from traditional market drivers.