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

CIBC analyst Dean Wilkinson highlighted the domestic REITs best positioned for both continued economic reopening and the possibility of further lockdowns,

“If we have learned anything over the past year, it’s that a re-tightening of lockdown restrictions should never be ruled out (despite many politicians’ insistence to the contrary); in such a scenario, we would expect a resurgence in short-term pressure surrounding the “recovery trade,” which would likely favour continued strength in the “defensive” retail, apartment, and industrial REITs (our top picks in that scenario would be CRR [Crombie REIT], GRT [Granite REIT], BSR REIT, TCN [Tricon Capital Group Inc. , and KMP [Killam Apartment REIT]). With that said, in the event that the case count doesn’t materially increase (or if it does but it doesn’t hinder re-opening progress), this scenario would favor the more economically sensitive re-opening theme of a retail recovery, and eventually the “back to the office” trade (top picks include FCR [First Capital REIT], REI [RioCan REIT], SRU [Smartcentres REIT], AP [Allied Properties REIT] and D [Dream Office REIT]).”

“@SBarlow_ROB CIBC top picks in REITs” – (research excerpt) Twitter

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The Chinese government cracked down heavily on major technology companies and also moved to restrain the excesses in the real estate-related credit markets. Both initiatives caused significant market volatility.

Citi analyst Li-Gang Liu attempted to discern how far the government will go,

“A People’s Daily editorial on September 8 asserted that recent regulatory actions do not signal any change in China’s openness to business and market-based reforms — The editorial states that policies aimed at curbing monopolistic practices and unfair competition are not new … The Central Economic Work Conference in December 2020 also highlighted ‘strengthening anti-monopoly enforcements and preventing disorderly expansion of capital’ as a policy priority for 2021. Echoing the People’s Daily editorial, a CCTV article stated that the regulatory actions relating to big domestic internet platforms had four objectives: 1) maintaining fair, orderly and competitive markets; 2) protecting customer privacy and national data security; 3) reducing systemic risk, and preventing and resolving financial risks; and 4) maintaining social justice and promoting the wellbeing of the general public. To our knowledge, this is the first comprehensive explanation by official media of the rationale for the regulatory actions. While we expect these commentaries to be positively received by the markets … They are unlikely at a stroke to fully restore foreign investors’ confidence in the China investment story… The People’s Daily editorial further stated that while promoting economic developments remains an important element of the policy agenda, regulations will need to continue to be strengthened. As such, economic growth and a stronger regulatory framework are both important for China’s future development. This is a fairly new, if subtle, shift in emphasis, likely signaling the authorities will not tolerate what are deemed to be disorderly economic developments that are dictated by market forces alone.”

Credit creation and construction activity lie at the heart of China’s incredible growth story, and the extent of credit curbs will be watched closely by global investors, particularly owners of commodity exposure.

“@SBarlow_ROB Citi attempts to clarify Chinese government interventions’ – (research excerpt) Twitter

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BMO chief economist Doug Porter thinks the ongoing rally in natural gas prices “may have serious legs,”

“Overall commodity prices have been losing some altitude in recent weeks amid somewhat milder global growth prospects. But not all commodities are following the playbook. Natural gas, for one, is on a tear for a few reasons, and is now approaching $5/mmBTU for the first time since early 2014. (On futures prices; spot prices spiked earlier this year amid the Texas freeze.) The major drivers of the sustained strength in gas have been: • Reduced U.S. supplies amid lower oil production • Strong utilities demand, given a further boost by the hot summer • Hurricane Ida disrupted production After years of disappointment, this rally may have serious legs. Note that U.S. storage levels are 16% below a year ago.”

“@SBarlow_ROB BMO: Nat gas rally ‘may have serious legs’” – (research excerpt) Twitter

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Newsletter: “BofA sees little upside in equities for 2022” – Globe Investor

Diversion: “A Single Laser Fired Through a Keyhole Can Expose Everything Inside a Room” – Gizmodo

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