Despite a deluge of stock sales during the first full week of September, the momentum has already stalled.Nathan Denette/The Canadian Press
Higher-for-longer interest rates will keep Canadian equity markets lower for longer, as far as one market veteran is concerned.
“Until the market is convinced there will be no more rate hikes, I truly believe we are unfortunately going to be treading water,” said Peter Miller, the head of global equity capital markets at Bank of Montreal BMO-T, which was the top investment bank for stock deals in the third quarter, according to data set for release by Refinitiv on Thursday.
“I think the worst is behind us, but I think it is going to continue to be slow.”
Despite a deluge of stock sales during the first full week of September – more than $5.5-billion, including a blockbuster $4.6-billion bought deal from Enbridge Inc. – the momentum has already stalled.
The total value of new stock issues in the third quarter was $7.5-billion, Refinitiv said. While that figure is more than double the generational lows set during the same period in 2022, it remains 5 per cent below the most recent 10-year third-quarter average of $7.9-billion. And stripping out the Enbridge ENB-T deal would leave just $2.9-billion, the lowest result for that period in more than a decade.
“We would have thought that week in early September was the beginning of a new, bright future. I don’t think that has transpired,” Mr. Miller said. “From what I am seeing, I think we have hit the bottom and we are rebuilding off of the bottom, but anyone who thinks they have visibility into strong deal flow coming, I would disagree.”
For companies borrowing money through public debt markets, however, strong deal flow has already arrived. According to Patrick MacDonald, growing expectations of higher-for-longer interest rates are very much to thank for that.
“If you were to turn the clock back by six months, there was a hope that central bankers would begin to cut interest rates sooner,” said Mr. MacDonald, co-head of Canadian debt capital markets for Royal Bank of Canada RY-T, the top investment bank for all debt deals in the third quarter. “Now, there is a realization that rates are going to stay elevated for the longer term and therefore this is an opportune time to tap the market.”
Total corporate debt issuance hit $17-billion in the third quarter, representing an almost 63-per-cent increase year-over-year. Already impressive, Mr. MacDonald said a closer look at the debt market activity in the quarter reveals the bulk of those deals, about $15.8-billion of the total, according to RBC estimates, occurred in September, setting an all-time high for that month.
Debt issuance from Canada’s six largest banks was actually down 30 per cent year-to-date, according to RBC data, but total corporate debt sales from outside those banks were 63 per cent higher than at this point in 2022. That means banks have been borrowing less but other Canadian companies have been borrowing much more.
“Certainly that is an encouraging story, and I would argue represents more issuers tapping the market,” Mr. MacDonald said.
Among the most noteworthy debt deals were a $1.2-billion refinancing from the West Edmonton Mall and a $3-billion bond from Rogers Communications Inc. RCI-B-T Both came to market in September.
Merger and acquisition activity was also higher in the third quarter on a year-over-year basis, with combined deal value rising more than 5 per cent, to US$43.6-billion, though the Enbridge deal alone, worth a total of US$15.9-billion, accounts for more than a third of that.
Jeffrey Singer, the chair of Stikeman Elliot LLP, which was the No. 2 law firm for advising on M&A in Canada during the third quarter, said deal flow has remained strong, with substantial midmarket activity throughout the fluctuating economic outlook.
“There can be amazing opportunities in a down market and there can be fantastic opportunities in an up market,” Mr. Singer said. “I’m just not sure which one we’re in right now.”
Neither do the corporate issuers working with BMO’s Mr. Miller, which is why “they are sitting on their hands,” he said.
“Markets are forward-looking, so once investors feel that rates are not going up any more, things will start to firm up because they will start baking in the assumption that rates will start to come down at some point,” Mr. Miller said.
“But right now, they are looking out and they don’t know if rates are going up or staying flat, but they are certainly not coming down. That is the problem right now.”
Top banks for debt underwriting (Jan. 1- Sept. 30)
Rank
Banks
Value (billions)
No. of issues
RBC Capital Markets
$30.6
152
TD Securities
27.2
127
Scotiabank
22.2
99
CIBC World Markets
22.2
141
National Bank of Canada
20.4
145
top BANKS FOR equity underwriting (Jan. 1- Sept. 30)
Value (billions)
Rank
Banks
No. of issues
BMO Capital Markets
$2.3
23
CIBC World Markets
1.6
18
RBC Capital Markets
1.5
14
Scotiabank
1.4
18
National Bank of Canada
1.2
13
Historical Canadian Q3 equity issuance
Value in billions of dollars
$12
10
10-year avg.
8
6
4
2
2013
2015
2017
2019
2021
2023
2023*
* Ex Enbridge
THE GLOBE AND MAIL, SOURCE: refinitiv
Top banks for debt underwriting (Jan. 1- Sept. 30)
Rank
Banks
Value (billions)
No. of issues
RBC Capital Markets
$30.6
152
TD Securities
27.2
127
Scotiabank
22.2
99
CIBC World Markets
22.2
141
National Bank of Canada
20.4
145
top BANKS FOR equity underwriting (Jan. 1- Sept. 30)
Value (billions)
Rank
Banks
No. of issues
BMO Capital Markets
$2.3
23
CIBC World Markets
1.6
18
RBC Capital Markets
1.5
14
Scotiabank
1.4
18
National Bank of Canada
1.2
13
Historical Canadian Q3 equity issuance
Value in billions of dollars
$12
10
10-year avg.
8
6
4
2
2013
2015
2017
2019
2021
2023
2023*
* Ex Enbridge
THE GLOBE AND MAIL, SOURCE: refinitiv
Top banks for debt underwriting (Jan. 1- Sept. 30)
Rank
Banks
Value (billions)
No. of issues
RBC Capital Markets
$30.6
152
TD Securities
27.2
127
Scotiabank
22.2
99
CIBC World Markets
22.2
141
National Bank of Canada
20.4
145
top BANKS FOR equity underwriting (Jan. 1- Sept. 30)
Value (billions)
Rank
Banks
No. of issues
BMO Capital Markets
$2.3
23
CIBC World Markets
1.6
18
RBC Capital Markets
1.5
14
Scotiabank
1.4
18
National Bank of Canada
1.2
13
Historical Canadian Q3 equity issuance
Value in billions of dollars
$12
10
10-year avg.
8
6
4
2
2013
2015
2017
2019
2021
2023
2023*
* Ex Enbridge
THE GLOBE AND MAIL, SOURCE: refinitiv