Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO analyst Joanne Chen discussed the sustainability of the Canadian Industrial REIT success story and provided top picks,
“We have often been questioned on the strength of the growth runway for the Canadian industrial REITs in our coverage, and there continues to be areas of concern surrounding the sustainability of it among the investor base. Based on our analysis and feedback from the CRE broker community, we note that the industrial REITs in our coverage are actively looking to capture the existing growth runway and focus on their portfolio growth in a strategic manner … Record low availability rates, minimal supply growth, and increasing rental rates across Tier I markets have led tenants to look for alternative markets… Landlords, tenants and investors are focused on the next growth industrial markets – Brantford, Hamilton, Kitchener Waterloo Cambridge (Ontario), Montreal (Quebec) and Calgary (Alberta) – amid tightening supply pipelines in Tier I markets … We see Nexus REIT (Restricted) and Summit Industrial Income REIT (See our note) as leaders of the pack within Canada, which have begun to deploy capital and are constantly circling new industrial markets”
“BMO top picks in industrial REITs” – (research excerpt) Twitter
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Global commodity investors continue to wait (somewhat) patiently for Chinese officials to support the flailing domestic property market but no significant initiatives have been announced yet,
“Risks of a hard landing in the property sector continued to hit onshore market sentiment, given a lack of forceful policy support for the sector so far, amid increasing default cases and sharp declines in property activity. We do not think China can afford another durable decline in property activities similar to 2014-15 (during which property starts fell 10-15 per cent year-over-year for two consecutive years), particularly ahead of the 20th Party Congress in late 2022 … The next 1-3 months will likely see weakening Chinese supply/demand across most metals, both seasonally and property-related. Steel and iron ore demand is immediately vulnerable to declines in new starts following the current weak land purchases. Copper and aluminium are used at later stage of the construction cycle, though reduced home appliance purchases (partly related to weak property sales) and delayed home completions due to developers’ funding stress should also hit physical demand for both metals … We expect very limited restarts at energy-intensive industries such as aluminium and steel over the next 3-6 months.”
“Citi: “risks of a hard landing in the [Chinese] property sector continued to hit onshore market sentiment”” – (research excerpt) Twitter
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Scotia foreign exchange strategist Juan Manuel Herrera and the firm’s head of modelling and forecasting Rene Lalonde believe the Canadian dollar is 2.0 per cent undervalued relative to the greenback,
“Our fundamentals-based USDCAD model is built on four key pillars: commodity prices, interest rate differentials, risk sentiment, and broad USD forces.1 In the long-run, the equilibrium exchange rate is driven by relative currency demand which depends on the trade balance (increased US demand for Canadian goods sees increased purchases of Canadian dollars), the relative return on assets, overall USD movements (whether it’s liquidity-driven or due to US global trade imbalances), and haven-seeking demand for the US dollar … As of November 16, 2021 the Canadian dollar is 2% undervalued relative to the US currency. A 2% deviation is around the level where the exchange rate tends to begin to re-align closer to its fundamental value. Outside of the financial crisis years, we count only eight episodes where the CAD has been undervalued by, or over, 2% and these rarely last more than one month.”
“Scotiabank sees the CAD significantly undervalued” – (research excerpt) Twitter
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Newsletter: These stocks are the biggest winners from green energy transition – Globe Investor
Diversion: “Partial lunar eclipse will be the longest since the reign of Henry VI” – CBC
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