Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
RBC Capital Markets analyst Bish Koziol made six changes to the firm’s quantitatively driven QuaDS Score Top 40 list of top picks. Gone are Exchange Income Corp., Western Forest Products and First Quantum Minerals. In are Quebecor Inc., Canadian National Railway and Tourmaline Oil Corp. The proprietary stock selection method combines valuation, price momentum, profit growth and predictability.
The other 37 stocks on the list are Pembina Pipeline, Gibson Energy, Pason Systems, Keyera Corp., PrairieSky Royalty, Canadian Natural Resources, Cenovus Energy, CES Energy Solutions Corp., Parex Resources Inc., Enerplus Corp., Stella-Jones Inc., Major Drilling Group International, Labrador Iron Ore Royalty Corp., Richelieu Hardware Ltd., Toromont Industries Ltd., Finning International Inc., Canadian Tire Corp., Restaurant Brands International, Loblaw Companies Ltd., Metro Inc., North West Co. Inc., Empire Co. Ltd., Bank of Montreal, National Bank, TMX Group Ltd., Bank of Nova Scotia, Great-West Lifeco Inc., Equitable Group Inc., TD Bank, CGI Inc., Open Text Corp., Celestica Inc., Cogeco Communications Inc., Rogers Communications Inc., Quebecor Inc., BCE Inc., Shaw Communications Inc. and Fortis Inc.
“RBC Capital’s top 40 quant portfolio” – (table) Twitter
Citi’s global macro strategy team believes the market is getting ahead of itself in believing the Federal Reserve is about to halt rate increases,
“Recent FOMC speakers have pushed-back on more dovish market pricing of the Fed Funds rate. The FOMC needs to see sequentially lower prints in CPI. But these prints are backward looking, and if market pricing of inflation is proved correct, then a 2023 pivot is likely. Furthermore, history suggests that Fed cuts which are priced, are Fed cuts which are delivered, even with CPI above target. This creates a different dynamic for equities, which at the beginning of the year, saw lower growth and tight policy, but now has lower growth and easy-(ier) policy on the horizon. EPS is the key risk, and Citi equity strategist’s earning’s breadth indicators are negative and falling. We stay cautious on risk, long duration and long USD.”
“Citi: “FOMC needs to see sequentially lower prints in CPI “” – (research excerpt) Twitter
The Chinese government’s ongoing efforts to curb over-investment in the real estate sector has uncovered what the Financial Times calls ‘financial monsters’:
“To contain the fallout from the Asian financial crisis two decades ago, Beijing set up a group of bad banks and packed them with the country’s most toxic debts. But with deepening distress in China’s property sector threatening to spark wider economic turmoil, those bad banks are now struggling to help… The problem is that the balance sheets of China’s “Big Four” asset management companies — China Cinda Asset Management, China Huarong Asset Management, China Great Wall Asset Management and China Orient Asset Management — have become so bloated that their capacity is restricted… Together, the bad banks have about Rmb5tn ($740bn) in total assets and have resolved Rmb400bn of bad debts in the property market in 2021, one-fifth of the total, according to a Bank of China International estimate.”
" ‘Financial monsters’: China’s bad banks complicate property crisis” – Financial Times (paywall)
Diversion: “Can North America’s downtowns reverse their downturns?” – BBC News
Tweet of the Day: " Big cap tech is looking expensive again, particularly considering the rates outlook. The effective fed funds rate, at 2.33%, nearly equates to the level where it peaked in 2019. At that time, the S&P 500 tech sector traded at a P/E of about 20x, or nearly 2x below current.” – Twitter
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