Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BofA Securities equity and quant strategist Ohsung Kwon is getting more optimistic about domestic stocks,
“Our Canada Cycle Indicator (CCI) shows further improvement in May, recovering for the sixth straight month. Widening rate differentials vs. the U.S., an improving Earnings Revision Ratio, and rising commodity prices drove the uptick (CPI and Leading Indicators haven’t been released yet). The latest 1-month reading (the indicator uses the 3-month average) was 0.03, the first positive reading since Feb 2023, suggesting that the indicator could enter into positive territory in a few months. When the indicator was in positive territory, the TSX outperformed the S&P 500 60 per cent of the time by 4.2 percentage points over a 12-month period (vs. 23-per-cent hit rate and 5.9 percentage point when negative). TSX 60 earnings grew 1 per cent year-over-year, marking an end to the earnings recession that started in 1Q23. Comps get easier in 2Q (vs. down 22 per cent in 2Q23) and consensus expects acceleration to 9 per cent year-over-year in 2Q EPS, similar to 10 per cent expected for the S&P 500. Narrowing growth differentials should result in relative re-rating of the TSX vs. SPX”
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RBC Capital Markets analyst Jimmy Shan reported the highlights of the firm’s recent real estate conference,
“Many questions centered around the impact of the Federal government’s announcement to reduce non-permanent residents (including foreign students), which seemed to have been the main driver of underperformance of the multi-res sector since March. Responses were generally: 1) skepticism of whether the Federal government will actually hit the 5-per-cent target given conflicting policies and motivation; 2) market has overreacted – there is still pent-up demand from prior demand/supply imbalance; 3) foreign student impact should be limited, especially given that the key target were the smaller colleges. 2. Market rent growth moderation: Investors were generally sniffing out whether we are starting to see market rent softness and whether we are starting to hit affordability issues. Responses were generally that softness may be occurring at the top end of the market or in markets that saw significant growth last year. More affordable markets (Nova Scotia, Alberta) remain strong. The resounding message by most was that there is a significant mark-to-market rent opportunity within their portfolio such that even if market rent growth moderates, there is still a good runway for revenue growth. 3. Acquisitions: Investment market remains quiet, with few institutional bids, and there remains a gap between buyer and seller expectations”
RBC analysts have outperform ratings on Boardwalk REIT, BSR REIT, Flagship Communities REIT, Interrent REIT, Killam Apartment REIT, Minto Apartment REIT, Morguard Residential REIT, Chartwell Retirement REIT, Allied Properties REIT, Dream Industrial REIT, Granite REIT, First Capital REIT, RioCan REIT, Smartcentres REIT, and Storagevault Canada Inc.
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Goldman Sachs global head of FICC sales Sam Morgan discussed how India’s growth outlook is (and isn’t) similar to China’s 20 years ago,
“India’s growth is similar to China’s 20 years ago in some regards, including demographics (the current median age in India is around 28, similar to China’s in the late 1990s), sectoral distribution of labor force (agricultural sector accounts for more than 40 per cent of India’s labor force, similar to China then), rate of decline in agricultural labor force (around 1.25 per cent), urbanization (around 35% in India in 2023 comparable to China in early 2000s), and challenges of air quality. However, there are key differences in terms of domestic political processes, investment as a share of GDP (much lower in India), external environment (the world was globalizing in the 1990s versus protectionist developments of recent years), labor force participation, including female labor force participation (lower in India) and services / manufacturing split (China is more manufacturing-oriented than India)”.
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Diversion: “Do we need antitrust action against “big alcohol”?” – Marginal Revolution
