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

Scotiabank has reinstated coverage of the retail REIT sector and has chosen two favourites,

“We are reinitiating coverage of RioCan REIT … with a Sector Outperform rating. Our $25.00 target price is based on 16.25 times 2023 estimated recurring AFFOPU [adjusted funds from operations per unit] and implies a 17% NTM [ next 12 months] total return based on our October 8 pricing date (16% as of today) versus 13% for the universe average (11% as of today) … We like a ‘barbell’ approach with CAD Retail REITs. CRR [Crombie REIT] is our preferred ‘Defensive’ pick (although it also has 1st-quartile NTM NAVPU [ net asset value per unit] growth potential) while REI is our preferred ‘Recovery or Value’ pick, also with first-quartile NTM NAVPU growth potential.”

“@SBarlow_ROB Scotia’s top picks in retail REIT sector” – (research excerpt) Twitter


BofA’s monthly fund manager survey (FMS) sees institutional investors taking a turn for the bearish,

“Least bullish survey since Oct’20; FMS cash levels jump to 12-month high as global growth expectations turn negative 1st time since Apr’20 on inflation & China pessimism; allocation to bonds slumps to all-time low, to stocks still very high … FMS on Macro: bearish…net 6% of investors say global growth to weaken next 12-months, 15% say profit growth to slow (margin outlook worst since May’20); predictions of ‘boom’ drop to 61%, of “stagflation” up to 34%, as gap between ‘transitory’ vs ‘permanent’ inflation continues to narrow (58% vs 38% respectively) … risk-on … allocation to commodities jumped to net 28%, to stocks remain high 50%, to cash up to 27% (15-month high), to bonds -80% = all-time low; FMS cash shoots up to 4.7% from 4.3%; … FMS Contrarian Trades: on ‘rates shock’ sell US & tech; on ‘growth shock’ go long bonds, utilities, staples & short banks, energy, commodities; on ‘return-to-Goldilocks’ go long EM, industrials & short US dollar (investors most positive on US$ since Jun’18).”

“@SBarlow_ROB BofA: “Least bullish [fund manager] survey since Oct’20″ – (research excerpt) Twitter


Also from BofA, U.S. quantitative strategist Savita Subramanian argued that investors are under-pricing China risk in U.S. stocks,

“Unlike Europe, possibly due to the primacy of US Tech as well as expectations for a US capex boom amid stimulus and reshoring, US stocks with exposure to China have been surprisingly resilient. Valuations have compressed less for companies with high China sales exposure than for the overall market, and our top China exposure basket still trades at ~20% premium to peers (ex-TSLA). This risk premium seems too low … Watch for S&P EPS cuts, pain in Tech and select consumer. Based on the historical relationship, the China GDP cut translates to a 4.4% hit to S&P EPS. Also, ~80% of margin expansion since ‘90 has been driven by globalization (tax, labor arbitrage, supply chain efficiency), with Tech the poster-child. Peak globalization, slower China & protectionism could pressure Tech & retailers with high China exposure”

“@SBarlow_ROB BofA: U.S. stocks underpricing China risk’ – (research excerpt) Twitter


Newsletter: “Where to invest when the recovery is delayed” – Globe Investor

Diversion: “The 10 richest (i.e. highest-earning) songs of all time " - A Journal of Musical Things

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