Canadian corporate insiders are reacting to this month's plunge in the value of the loonie by selling financial stocks.
According to INK Research, which monitors the buying and selling of shares by officers and directors within their own businesses, absolute dollar selling levels among insiders in the financial sector - when excluding real estate investment trusts - rose to above-average levels during the week of Jan. 6 when the Canadian dollar lost 2 cents (U.S.) against the greenback.
What's behind it? One theory is that a weaker currency would slow Canadian companies' plans to expand globally, notes INK Research CEO Ted Dixon. That could put a damper on the demand for investment banking and transaction services.
"In addition, in so far as the currency drop reflects an edginess on the part of international investors towards Canadian household debt levels and home price inflation, the loonie may be signalling the potential for weakness in the financials sector. It may well be a mistake to assume that the loonie's travels are all US and commodity related," suggested Mr. Dixon.
The jump in insider selling among financial stocks led INK Research to downgrade the sector to what it calls "fair valued." It had been rated "undervalued."
Insider sentiment for REITs, however -- which INK lumps in with the financial sector -- is holding up just fine. Insiders there continue to be upbeat about their prospects for the next six to 12 months.
INK's financials indicator is at 188 per cent, signifying there are almost two stocks seeing key insider buying for every one with selling. But it would be weaker if REITs were taken out of the equation.
INK's sentiment indicator for the overall TSX is at 102.8 per cent, down modestly from 107.1 per cent two weeks ago. Indicators are calculated by taking companies with buy-only transactions and dividing the number with sell-only transactions filed by insiders over the last 60 days.
Our Scott Barlow recently took a look at which TSX sectors are most likely to gain and lose form the cratering loonie. His analysis can be seen here.