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If Canadian investors aren’t worried about market liquidity, they probably should be.

After a long post-crisis period where ultra-loose central bank monetary policy boosted profit margins and asset prices, global central banks are normalizing interest rate policies and taking away the punchbowl.

In his Financial Times column with the headline “Global Liquidity is drying up,” Colby Smith writes: “Since January, the number of rate hikes globally has increased quite a bit. According to a six-month rolling sum of global central bank rate hikes compiled by Bank of America Merrill Lynch, we’re nearing pre-Lehman levels … Given this tightening — much of which traces back to emerging markets trying to stem currency tremors or manage inflationary pressures — global liquidity has contracted quite substantially.”

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Markets do not like higher borrowing costs and inflation. Debt-financed business expansion becomes more expensive while rising employee wages cut into profit margins. Climbing interest rates means a higher discount rate for discounted cash flow calculations, making all stocks worth less. Hedge funds use less leverage – borrowing funds to invest – as the costs of credit increases.

Citi credit strategist Matt King was among the first analysts to quantify the direct relationship between global central bank activity, specifically open market asset purchases, and the performance of equity markets. His chart, which I posted on social media here (please read accompanying caption for context), is disquieting for investors to say the least.

Mr. King believes that the most obvious symptom of reduced central bank monetary stimulus is rising market volatility for higher-risk asset prices. I interviewed Mr. King for a column this week, which included his assessment of current market conditions: “When the Fed began shrinking its balance sheet last year, the effect was offset by the continued purchases by the [European Central Bank] and [the Bank of Japan]. Now, though, they are all moving in the same direction at the same time – and lo and behold, risk assets are suddenly looking much more vulnerable than they were last year.”

-- Scott Barlow, Globe and Mail market strategist

This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you, you can sign up for Globe Investor and all Globe newsletters here.

Stocks to ponder

Superior Plus Corporation (SPB-T) offers investors “a winning combination” of double-digit earnings growth, a 5.4-per-cent dividend yield and it is trading at a discount to its historical multiple, Jennifer Dowty reports (for subscribers). Year-to-date, Superior Plus is the top performing stock in its sector, delivering an attractive 13-per-cent year-to-date return with further gains expected by analysts. Among 11 analysts that cover this utility stock, with a market capitalization of $2.4-billion, eight have “buy” recommendations and three a “hold.” Toronto-based Superior Plus has two core business operations: the energy distribution segment and the specialty chemicals segment. The company is a market leader, the largest retail propane distributor in Canada and the fourth largest distributor in the U.S.

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True North Commercial Real Estate Investment Trust (TNT.UN-T) is a security best suited for consideration by investors seeking income given that it offers an attractive yield of just under 9 per cent, reports Jennifer Dowty. However, she says that, given the REIT’s valuation, further unit price appreciation may be limited in the near-term. Toronto-based True North owns and operates a portfolio of 42 commercial properties across Canada. Management has shifted its focus to major markets such as the Greater Toronto Area from its previous focus on secondary markets such as Hamilton and London, Ont. Management is focused on acquiring properties and has completed two financings year-to-date in order to fund its acquisition growth.

The Rundown

Want to beat the TSX index? Look for stocks with these dividend yields

Canadian dividend stocks delivered out-sized returns to investors over the last 16 years. To reap their benefits it’s best to focus on stocks with generous yields while avoiding the extremes, Norman Rothery reports (for subscribers).

In the wake of reforms, consider investing in Japan

While the Japanese stock market has delivered underwhelming returns, the region hasn’t been devoid of opportunity. In fact, it has been an unusually rewarding market for value-oriented stock pickers – and still is, writes Graeme Forster.

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The risk-reward for the TSX is shifting for the better

It’s fair to say that it is widely known that earnings growth is robust in the U.S, but what about Canada? The year-over-year growth rate in the earnings-per-share estimate for the S&P/TSX Composite Index over the next four quarters is running at 19.1 per cent, as of last week. This is not too far off the 22.5 per-cent growth rate for the S&P 500 and 23.8 per cent for the Nasdaq. The risk/reward may start to be shifting for the better, writes David Rosenberg (for subscribers)

Wall St.’s industry classification system shakeup will let more tech stocks shine

Chipmakers, cloud-computing sellers and even credit card payment companies will have a greater chance to stand out in the information technology sector next month following the largest-ever shakeup of Wall Street’s industry classification system, reports Noel Randewich of Reuters (for subscribers). In a reorganization spanning three sectors, none of the so-called FANG high-growth stocks — Facebook,, Netflix and Google-owner Alphabet — will be classified as technology companies, even though investors widely view them as the leaders of a tech rally that has powered the stock market higher in recent years.

Top Links (for subscribers)

Global analyst calls top-performing loonie a ‘moose on the loose'

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Canadians are getting hosed at the gas pump - and it’s not why you think

Others (for subscribers)

Thursday’s analyst upgrades and downgrades

Thursday’s Insider Report: Companies insiders are buying and selling

Wednesday’s analyst upgrades and downgrades

Wednesday’s Insider Report: Companies insiders are buying and selling

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Others (for everyone)

A Canadian blockchain ETF for the cryptocurrency-averse

Facebook investors who bought the historic dip aren’t seeing a quick recovery

Five steps to take if the bull market run has you thinking of unloading stocks

Investors in Tesla bonds, options show skepticism on buyout

Foreign investors cool on growing U.S. Treasuries due to government’s increasing budget gap

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Number Crunchers (for subscribers)

GARP-style screen straddles growth, value strategies

Seeking high-yielding stocks (that aren’t likely to cut their dividend)

Ask Globe Investor

Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.

What’s up in the days ahead

If NAFTA gets resolved favourably for Canada, is the TSX due for a rally? David Berman will take a look.

Click here to see the Globe Investor earnings and economic news calendar.

More Globe Investor coverage

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Compiled by Brenda Bouw

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