Chinese stock investors use computer terminals to monitor stock prices at a brokerage house in Nantong in eastern China's Jiangsu province Jan. 6.The Associated Press
The current fixation of global financial markets on China has blinded investors to the discounting of assets, including Canadian stocks, David Rosenberg, chief economist with Gluskin Sheff + Associates Inc., said in a note.
The recent decline of investor sentiment globally has amplified Canada's slide by dragging down oil and commodity prices, the Canadian dollar and Canadian stocks relative to U.S. stocks. On all counts, the cumulative downside qualifies as "two-standard-deviation moves," which have less than 5-per-cent probability.
"This could mean a buying opportunity is in the making – not a screaming buying opportunity, mind you, but a sign that it could be time to shift exposure north of the border," Mr. Rosenberg said in the Friday edition of his daily economic newsletter Breakfast with Dave.
The turmoil in China's financial markets and concerns about the vulnerability of the global economy have gripped investors in a volatile start to the year, which qualifies as the worst on record by some measures.
"Much technical damage has been done and the rupture has shaved $4-trillion out of the global market for equities just this week," Mr. Rosenberg said.
The volatility gauge known as the VIX rose by 37 per cent this week through to Thursday's close, nearly the entire high-yield bond market is trading below par, and commodities in aggregate have been driven down to 17-year lows, he said.
Excluding the U.S., the global stock market has entered official bear market territory.
But even in the U.S., "there is carnage beneath the surface," Mr. Rosenberg said. "More than four in five stocks on the S&P 1500 are down 10 per cent or more – so clearly in corrective mode."
But the vagaries of the Chinese stock market have little to say about the fate of the U.S. economy, he said, characterizing the global reaction as potential "irrational pessimism."
"I sense that investors are sitting on cash today and waiting for some bell to ring," he said. Longer-term investors "are going to wish they started to chip away now that the panic selling has set in."
"This time last year, all I heard was how everything was too expensive and there was nothing to buy. Today we have a smorgasbord of asset classes and geographies cheapening up dramatically and all I see are deer in the headlights."
"Isn't this what value investors were waiting for a year ago?"
Tim Shufelt