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

BMO economist Robert Kavcic warned clients that things are about to get really difficult for the commercial real estate sector,

“The rest of the year is shaping up to be an enormous challenge for the sector given the unprecedented broad-based shutting of economic activity. ... Landlords … especially if leveraged, might not have too much room to maneuver either. This will be especially true in segments such as Main Street commercial/retail, where foot traffic and services are all but reduced to zero … Coming out the other side, any businesses that can’t remain solvent through the downturn, however temporary, won’t be there to simply turn the lights back on, which could cause vacancies to linger, depress rents and elevate cap rates.’

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“@SBarlow_ROB BMO: [Cdn] "Commercial Real Estate in the Crosshairs" – (research excerpt, chart) Twitter

***

There is a growing consensus among strategist and economists that Asian markets are set for a bounce, and this is good news for the S&P/TSX Composite, which has been highly correlated to the MSCI Emerging Markets Index once currency is taken into account.

Australian firm CLSA sees Asian markets extremely cheap on book value,

“Asia is sitting close to a 10 year PB low and history shows that at a PB of 1.28x the MSCI Asia ex- Japan index has a high strike rate of delivering a positive return over the following 12 months – in fact CLSA’s quant team assesses it at 100% “ – (research excerpt) Twitter

***

Citi strategist Chris Montagu identified the top performing investment themes for April in a Thursday report,

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“Top of the tree for forward attractiveness is [Property and Casualty] Pricing, IT Services, and Space Race … at the end of February we saw the attractiveness of Video Games and Healthcare IT significantly rising respectively to #7 and #15, and we see those positions consolidate at #5 and #6 in this month’s analysis … we see three more Healthcare-related themes feature in the top quintile this month, namely Aging Demographic Healthcare Spend (#9), Value Healthcare Spend (#10), and a dramatic jump up from the bottom to top quintile of Generic & Biosimilars (#16)”

Mr. Montagu provided a list of stocks with the highest exposure to the most promising themes but many of the names aren’t familiar. These include health care technology firm Tabula Rasa (which I do know a bit about, and is interesting), health care logistics firm Cerner Corp., diagnostics provider Exact Sciences, and Allscripts Healthcare Solutions.

“ @SBarlow_ROB C: top performing investment themes” – (research excerpt) Twitter

***

Optimism regarding Asia is rising, but faith in the U.S. equity market rally is being greeted with increasing skepticism,

“My concern is this relief rally might not be sustainable,” said Mislav Matejka, global equity strategist at JPMorgan… Goldman Sachs and Citigroup have also urged caution, particularly as companies absorb the scale of the shock from the pandemic. “Equity markets may need to fall 50 per cent before they have priced in this year’s likely earnings drop,” Robert Buckland, head of equity strategy at Citi said. ... In a note to clients this week, Goldman Sachs’ strategists said equities are already pricing in a recovery in economic growth, even as the extent of the corporate shock remains unclear. “This increases the risk of disappointment near term,” they said … Oaktree Capital Management’s Howard Marks, a market veteran, revealed in his latest memo to clients that the investment group he founded had also started to dip back into the market, despite the risk of further declines. “It’s not easy to buy when the news is terrible, prices are collapsing and it’s impossible to have an idea where the bottom lies. But doing so should be the investor’s greatest aspiration,” he wrote.”

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“Wall St urges caution as bullish investors rush into recovery bets” – Financial Times (paywall)

***

Newsletter: “Post-crisis market trends, and top beaten-down REIT picks” – Globe Investor

Diversion: “ My Conversation with [up and coming Canadian author] Emily St. John Mandel” – Marginal Revolution

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