A daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO chief strategist Brian Belski sounds a bit frustrated about Canadians’ apparent lack of faith in their home equity market,
“Despite posting the strongest annual returns since 2009, much of the past 12 months can be defined by a market that lagged fundamentals, resulting in a massive game of ‘catch-up’ to match much stronger-than-expected earnings recovery – results that blew away upwardly revised estimates by near double digits every quarter in 2021. Despite this strong fundamental underpinning, unlike U.S. investors, Canadian equity market participants have remained skeptical and far too pessimistic, in our opinion – even as valuations compress to historical averages. Yes, not even two years into the recovery and many investors we talk with are already obsessed with diagnosing the end of the cycle, let alone suggesting we are in the late stages. In other words, ‘Canadian Eeyore’ is on full display as we head into 2022. However, from our perspective this spells opportunity. Canadian equities remain a strong relative value play within global markets, with 2022 likely positioned to see expanded reopening of the economy that should result in another year of record earnings and one of the strongest dividend growth cycles in decades”
“‘Canadian Eeyore’ holding TSX back: BMO’s Belski” – (research excerpt) Twitter
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Morgan Stanley strategist Marius van Straaten highlighted the state of emergency in Kazakhstan and it’s potential effects on global commodity prices,
“Kazakhstan is most exposed in the uranium and ferrochrome market, but also has meaningful shares in oil, zinc and copper supply. Social unrest in Kazakhstan has escalated rapidly this week, with a state of emergency declared across the country. Although there is no evidence that the widespread protests are impacting the country’s commodity production … All eyes are on the uranium market, in which Kazakhstan has a 44% mine supply share. Kazatomprom … is the world’s leading and lowest cost uranium supplier, with most of its operations quite isolated in the south of the country. The company has told Reuters that there have been no stoppages and it’s fulfilling its exports contracts. Kazatomprom’s joint venture partners Cameco and Orano (not listed) have also commented there haven’t been any disruptions to their respective operations so far… Copper: Kazakhstan accounts for around 3% of global mined copper production. According to Platts, transportation of copper concentrate to China is so far unaffected. Around 3.6% of China’s copper ore and concentrate imports came from Kazakhstan in the first 11 months of 2021.”
“MS: “All eyes are on the uranium market, in which Kazakhstan has a 44% mine supply share”” – (research excerpt) Twitter
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Citi global equity strategist Robert Buckland (who apologized for writing two big reports in two days) sees significant headwinds for markets in 2022,
“EPS momentum to slow: Global EPS grew 53% in 2021 (vs +26% forecast a year ago, green line). +7% (grey line) expected for 2022. Risks probably now to downside. Big positive EPS tailwind is done… Higher rates threaten equity valuations: Citi expect Fed to hike three times in 2022. 10y UST yields (currently 1.7%) expected to rise to 2.25%, with real yields driving most of that. Higher real yields put more expensive markets and sectors under pressure … Despite this more challenging outlook, Citi strategists still expect 8% gain in global equities over 2022. Best returns expected in Japan and UK where we are Overweight. Higher real yields will make it harder for US to outperform in 2022. We are not yet tempted to call the turn in EM. On sectors we are now less pro-cyclical or pro-growth. Financials offer best sector hedge against rising rates.”
“Citi: “Big positive EPS tailwind is over”” – (research excerpt) Twitter
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Diversion: (probably my favourite podcast series) “Our 22 Most anticipated TV shows of 2022″ – The Watch, (Open Spotify, with ads)
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Scott Barlow