Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO economist Shelly Kaushik notes that Canada is far from a popular destination for foreign direct investment,
“Following a multi-year period of soft foreign direct investment (FDI) inflows, Canada hit a new milestone in Q1 — flows marked a net divestment from the country for the first time in 14 years. True, the figure was weighed by M&A activity in the finance and insurance sector — but still, it’s notable that other activities (think: M&A in other sectors, reinvested corporate earnings, etc.) didn’t provide enough offset. On the other side, Canadian companies’ direct investment abroad increased in the quarter, in part from the highest level of M&A activity in a year. In total, foreign investment patterns remain weak, even beyond quarterly movements. The softness highlights concerns around the attractiveness of doing business in Canada, in turn weighing on the growth outlook”
“BMO: Canada is not a popular destination for foreign capital” – (chart, excerpt) X
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RBC Capital Markets head of global equity strategy Lori Calvasina surveyed the U.S. oil and gas sector,
“The sector looks attractive on our valuation model, which takes into account the sector’s own valuation relative to a long-term history as well as the sector’s valuation relative to the broader S&P 500. The sector is seeing mostly upward revisions on both earnings and revenues. Though it is important to note that earnings have more positive revisions momentum than revenues. After reaching a peak in mid-April of this year, flows have recently lost momentum. This deteriorating trend is also evident across the rest of the cyclical and commodity-oriented sectors. Like most cyclical sectors, this sector has a positive track record within the S&P 500 in the second half of presidential election years. We think cyclicals tend to do better than defensives around elections because the broader market rallies as optimism on the economy builds and investors move past the uncertainty associated with the event. From a macro indicator standpoint, the sector shows a modestly positive correlation to 10-year yields. With this in mind, we’ve viewed our overweight to the sector as a hedge against the expectations that inflation and interest rates will moderate this year.”
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BofA Securities investment strategist Michael Hartnett’s weekly Flow Show report is as punchy as usual,
“Political polarization, protectionism, war, inflation, supply (even Saudi Arabia on course for record bond issuance in ‘24) means secular “buyers’ strike” in global government bonds is valid; but cyclical always able to trump secular and we say 3Ps of Positioning, Profits, Policy means H2 reversal of “ABB” Anything But Bonds trade; buy any-dip in bond prices & for credit & stocks “sell the first cut” still the call. The Price is Right: equity “breadth” worst since Mar’09 as AI “crowds out” Wall St & Main St dollars; 2020s just one pain trade after another… next is “value” outperforming “growth” stocks + “breadth” winning as economic growth slows … The Biggest Picture: higher yields & weaker currency “no bueno” = sign of impending debt crunch;
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Diversion: “The Best Postapocalyptic Movies of All Time Ranked By Survivability” – The Ringer
Column: “Watch these two indicators for clues on how to position your portfolio this year” – Barlow, Inside the Market