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Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

BMO economist Robert Kavcic notes that the TSX is trading near record lows relative to the S&P 500 and has yet to benefit fully from inflation fears,

“The TSX is currently trading near its lowest level of the postwar era relative to the S&P 500. That in itself is a story worth exploring (think a lack of exposure to what has really been working, like technology and consumer discretionary). The other curiosity, as shown in the chart, is that the steep relative decline in the TSX comes as inflation has turned up. Historically, relative TSX performance has a pretty good fit with U.S. CPI inflation. Of course, it matters a lot why inflation is running hot, and if it will persist. The oil supply shock through the late-1970s was clear relative win for the TSX; as was the commodity boom through the early-2000s. The current situation, where demand and supply are shocked in various ways by the pandemic, is a little trickier. Still, Canadian equities should probably be viewed as a decent inflation hedge, if that is a concern…”

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I’m tempted to view the TSX’s relative value as a positive sign – the lows are in. Still, markets are fading inflation fears in general in recent days and bonds are rallying.

“@SBarlow_ROB BMO: “TSX is currently trading near its lowest level of the postwar era relative to the S&P 500” – (research excerpt) Twitter

" @SoberLook It’s been a tough couple of days for inflation-sensitive stocks (“infl. long” = companies that benefit from higher prices) as the market comes to terms with the Fed’s “transient” inflation narrative.” – Twitter

***

Citi analysts argued that solar power stocks are unlikely to be eclipsed,

“Led by Pierre Lau in HK, [a recent research] report focuses on China, the US, Europe and India – markets that Pierre and team forecast will represent 70% the global solar installations in 2021. Increasing use of renewable energy to cut emission levels will keep solar capacity additions on a secular and irreversible uptrend, helped by falling equipment prices and innovation-led efficiencies. The team forecast China’s solar capacity installations will rise +12% year-over-year to 55GW in 2021E and +11% yoy to 60GW in 2022E. In China’s solar value chain, we like polysilicon makers on expectations that local polysilicon prices will stay high at around Rmb200/kg in 2H21E; we have a Buy on Tongwei. For the longer term, we like LONGi – a global solar wafer, cell and module manufacturer – for its leading market position and greater vertical integration through growing in-house supplies of cells. Clearly, the US is also an important market for the solar industry, represents 10-15% of global installations. In 2020, 19GW of solar capacity was added in the US, and we expect it rise 5-10% pa through 2025E. JB Lowe and team have Buy ratings on FSLR and CSIQ.’

“@SBarlow_ROB Citi: Solar power stocks won’t be eclipsed” – (research excerpt) Twitter

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***

BofA Securities U.S. quantitative strategist Savita Subramanian released a report summarizing positioning for active fund managers with some surprising observations,

“Energy makes up a paltry ~2% of the average long only (LO) portfolio manager’s (PM) weight, half as much as its exposure to Facebook (4.2%). Not owning Energy wasn’t painful when the sector was <2% of the S&P 500. But the astronomic 92% price return since October has bumped Energy’s weight to 3%; another big move in oil may be felt more acutely… There are other pain trades for active managers besides oil moving higher. Active Los currently maintain a 30% overweight in the top decile of S&P 500 companies by percentage of foreign sales relative to companies with purely US sales (primarily via Tech exposure)… the average high vs. low beta exposure of an active fund vs. the benchmark is 1.7, well above average, indicating that funds are positioned for continued strong market gains. With near term pressures building, reducing one’s beta may be prudent ahead of what could be a weaker second half for stocks.”

“@SBarlow_ROB BoA: “Funds own 2X as much Facebook as entire Energy sector”” – (research excerpt) Twitter

“@SBarlow_ROB S&P 500: Best recent returns (mostly) from smaller sectors as % of benchmark” – (chart) Twitter

***

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Diversion: “Photos: California’s Growing Drought Disaster” – The Atlantic

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