REITs with the most and least at risk in lockdown

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

Citi chief U.S. equity strategist Tobias Levkovich came right out and wrote that current market conditions resemble the last stages of the technology bubble in1999,

“There’s a 1999 perspective being noted with pressure for fund managers to participate in rising share prices even if there’s also a recognition that it could end badly. With an expected Fed tapering later this year, some slippage in forward earnings guidance and the likelihood of alarming inflation data on the come (even if transitory), the upside reward versus downside potential seems skewed toward taking cautious stances. The investment community is too upbeat in our opinion, not showing any concern for plausible tax increases being proposed by the Biden administration. Indeed, all developments are perceived as positive news. Yet, such one-sided views are not usually a good starting point.’

“@SBarlow_ROB Citi’s Levkovich is feeling a ’1999 vibe’” – (research excerpt) Twitter

“@SBarlow_ROB S&P 500 market cap as % of sales (Citi)” – (chart) Twitter

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BMO chief strategist Brian Belski noted a broadening out of the rally in Canadian stocks that bodes well for the remainder of 2021 (my emphasis),

“Canadian equities quietly outperformed their global peers in the first quarter, with the S&P/TSX ending the quarter up 7.3% and just 4.3% shy of our 2021-year end price target of 19,500. Indeed, surging Energy stocks and now swelling Financials helped propel the TSX to new all-time highs. However, performance also broadened out significantly with the percent of stocks outperforming the S&P/TSX over the last 12 months at the highest level since 2010. From our perspective, this broadening out of performance and a continued cyclical tilt in overall performance point to a healthy early stage of a bull market, not to mention a gradual return to normalcy. Overall, we continue to believe cyclical areas are well positioned to outperform in the near term and the TSX will likely maintain positive price momentum through 2021. While risks to our S&P/TSX 19,500 price target are clearly balanced to the upside, especially as energy prices remain strong and above our base-line assumptions, momentum will more than likely diminish throughout the balance of the year”

“@SBarlow_ROB BMO: “the percent of stocks outperforming the S&P/TSX over the last 12 months at the highest level since 2010” – (research excerpt) Twitter

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CIBC analyst Dean Wilkinson’s monthly update on the domestic REIT sector doesn’t sound as optimistic as his previous reports (my emphasis),

“Hotel, seniors, retail, office and diversified asset classes have all delivered 10%+ returns year to date. Indeed, the entire complex is up ~10% through the first quarter, potentially outpacing our ~20% return target for the full year (consider that distributions alone should deliver another ~5% to investors over the remaining course of the year)… – if this is indeed … ‘the final lockdown’ … and the vaccine rollout does truly help us mitigate the pandemic situation, then we believe the recovery trade is well positioned to continue outperforming (there is material optionality on a reversion to prepandemic valuation levels). If, however, investor optimism in our ability to aptly overcome the pandemic proves to have been premature (i.e., the longevity of the pandemic is underestimated), then it stands to reason that downside risk within the recovery trade has significantly increased over the course of the past few months … The tightening of restrictions will represent a headwind for already struggling restaurant, fitness, entertainment, and personal care businesses that were never really included in the ‘re-opening’ that occurred in early 2021. We estimate that, on average, Canadian retail REITs have ~10% exposure to such tenants, with FCR and REI carrying a higher exposure, and CRT and CRR carrying a relatively lower exposure "

“@SBarlow_ROB CIBC: REITs most and least exposed to new lockdown” – (research excerpt) Twitter

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A terrific interview of Scotiabank economist Derek Holt by BNN Bloomberg’s Amber Kanwar covered a lot of ground on the domestic housing market.

Mr. Holt noted his belief that the Bank of Canada is making a mistake by signaling low rates forever because it stokes risk taking in real estate. He believes Canadians should be reminded that “interest rate risk can cut in both directions.”

The economist also noted that successive government have been trying unsuccessfully to cool the housing market for 15 years. He is also looking for clarity on foreign buying restrictions announced in 2020.

“Would prefer BoC indicate rate hikes earlier to temper hot housing market: Scotiabank’s Holt” – BNN Bloomberg (video)

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Diversion: “Canada’s Vaccine Mess” – The Atlantic

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