Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotiabank analyst Mario Saric measures the results of a new report on corporate lending and their implications for Canadian REITs,
“We summarize CBRE’s published 2020 CAD Lenders’ Report. Analyzing lender intentions is important: lending appetite drives mortgage spreads, which drive cap rates, which drive NAVPU, which is the most relevant driver of CAD REIT unit prices over time.
“Our key observations in this report include: 1) We view lenders as cautiously optimistic post a tough 2020, with mid-teen target y/y net loan book growth; we reiterate a strong economy is positive for REIT returns 2) The gap between the “haves” and “have nots” may be widening (rising lender interest in Apartments and Industrial; less in Office and Retail; Exhibit 19), which may have NAVPU growth implications; report looks particularly good for Apartments … 4) A return to pre-COVID activity is not expected overnight … Value still has some legs, but be ready to shift back to growth in 2021 on narrowing valuation. We believe CAD REITs remain in ‘buy territory’, trading at an avg. 10% discount to NAV despite an avg. 9% return (vs. 6% for TSX) post Pfizer’s vaccine update on Nov. 9 … Several of our top picks offer both value and growth. Top Growth Picks = APR, BAM, GRT, IIP, NWH, SMU, SVI and TCN. Top Value Picks = AP, APR, BAM, BPY, CRT, CSH, DIR, ERE, FCR, SRU, and TCN”
“@SBarlow_ROB BNS: Top value and growth REIT picks for 2021” – (research excerpt) Twitter
CIBC economist Katherine judge assessed the outlook for the loonie, which is now at levels that threaten export growth,
“At 1.30, the C$ is firmer than levels that have historically been consistent with supporting Canadian export growth. With oil prices unlikely to return to earlier heights, that has the C$ starting at an overvalued level on trade fundamentals… Both Canada and the US will be dealing with second waves of Covid-19, but there are now some questions emerging on whether Canada will have a longer wait for mass vaccination, given its lack of domestic vaccine manufacturing capacity. If the vaccine timeline in Canada lags materially behind its peers, that could compound C$ weakness … Over the medium term, we look for the loonie to soften … Note that markets have been assuming that the BoC will lead the way on rate hikes, which runs counter to the fact that Canada’s GDP will have suffered a larger drop in 2020. As the BoC signals it can be very patient, we look for USDCAD to end 2021 at US$1.36 [C$.74].
“@SBarlow_ROB CM on CAD: “At 1.30, the C$ is firmer than levels that have historically been consistent with supporting Canadian export growth”' – (research excerpt) Twitter
The Financial Times warned about the power of indexes in an editorial with wide-reaching implications for passive investors,
“There is more than $12tn invested in index funds globally, and trillions more are benchmarked against the major indices, which means that admission into one of these benchmarks has never been more potentially lucrative. One standout example is Tesla’s imminent entry to the S&P 500. The electric carmaker’s value surged this week to more than $500bn as investors bought the shares in anticipation…Yet, like all clubs, the rules that govern the world’s flagship indices have usually included an element of subjective discretion. Nor are they a fail-safe against bad corporate behavior … the risk of individual companies or a particular sector dominating an entire index is also a challenge for regulators elsewhere. The situation is particularly acute in the US, where Tesla’s inclusion in Wall Street’s most followed index will force tracker funds to sell billions of dollars’ worth of stock in companies that are already constituents and use that money to buy Tesla shares in order to rebalance their holdings… the world’s indices should expect greater scrutiny in the future.”
“The risks in the power of stock market indices” – Financial Times (paywall)
Diversion: This story irritated me no end: “Microsoft’s Creepy New ‘Productivity Score’ Gamifies Workplace Surveillance” – Gizmodo
Tweet of the Day:
Goldman Sachs reckons that a majority of the population of the major economies will be vaccinated by the end of June 2021. pic.twitter.com/7puWIzFnlx— Robin Wigglesworth (@RobinWigg) November 27, 2020
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