Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
The title of Scotiabank strategist Hugo Ste-Marie’s most recent report is blunt – Foreign Investors Show Little Interest in Canadian Equities,
“While the TSX Composite is posting solid gains this year (+10%) and in the past year (+16%), foreign investors show little appetite for Canadian equities. In fact, the latest data from Statistics Canada for the month of June shows that foreign investment in Canadian equity and investment fund shares dropped by C$5.5B ... the negative print in June is not a new phenomenon as foreign investors have been constantly reducing their exposure to CDA equities in the past few years. They sold for C$14B worth of stocks this year and C$27B in the past 12 months, which should not come as a surprise given the massive outperformance of US equities (Mag-7 + AI-theme). Interestingly, the divestment in June was mainly in shares of Canadian banks. With their FQ3 reporting season starting this Thursday, if banks manage to beat expectations and deliver solid results all around, global investors could be tempted to make a comeback and possibly turbo[1]charge TSX returns once again”
***
RBC Capital Markets analyst Darko Mihelic previews earnings reports in the banking sector which begin in two days with TD,
“We make a few changes to our models and our Q3/24 core EPS estimates modestly increase; we increase our Canada P&C [personal and commercial] loan growth assumptions in line with RBC Elements’ model predictions and adjust our capital markets estimates (higher for NA and lower for CM and TD). We continue to view credit quality as one of the key areas to watch for the Canadian banks as we have seen signs of credit quality deterioration (increasing unemployment, higher NCO ratios at U.S. peers, etc). We expect impaired PCL ratios to increase 3 bps QoQ and 12 bps YoY on average. We adjust our models to reflect a muted level of capital markets revenue growth of 0.8% QoQ in aggregate for the large Canadian banks we cover. Capital continues to be solid in our view as the last remaining banks with discounted DRIPs are turning them off soon (CM is turning it off in Q3/24 and BNS intends to turn it off in Q4/24)”
Mr. Mihelic has an outperform rating only on TD among the major banks, favouring insurance stocks.
***
BofA Securities analyst Arjun Goyal believes that the rapid fall in the VIX index is (counterintuitively) a signal to hedge against risk,
“Vol markets have rapidly stabilized from 5 Aug’s spike, with the VIX having already retraced almost all the way back to its pre-August YTD average level. In fact, the speed of this retracement has been historic, with the VIX dropping from its peak to below its long-term median in just 7 days (fastest in history). With vol back to relatively low levels, equities having resumed their rally, and numerous downside risks ranging from macro to political to seasonal, hedging the downside remains prudent in our view”
***
BMO Canadian rates and macro strategist Benjamin Reitzes charts the lack of growth in mortgage originations,
“With the housing market continuing to languish through spring under the pressure of high interest rates and high prices, mortgage activity has remained similarly under wraps. Mortgage balances grew by 3% annualized in Q2, the second slowest quarterly pace since 2000. Last week’s July home sales figures showed a small decline, suggesting that Canadians are maintaining a cautious view on housing even as interest rates are starting to come down (mortgage rates are off the highs, though BoC rate cuts didn’t start until June). While the modest growth in mortgage borrowing reflects softness in housing, the bright side is that it also points to a further dip in household debt-to-income ratios. The latter will be welcome news, as elevated leverage drives household financial vulnerability”
***
Diversion: “The Terrifying Rise of Ransomware Gangs” – Macleans