A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
HSBC research published their list of top 10 investment risks for 2019.
There are a few of them like ‘Eurozone Crisis 2.0’ that won’t be much interest to Canadian investors. On the other hand, there’s others like “corporate profit margins fall” and “no bid in a credit sell-off” that are very much of concern domestically.
A disorderly global credit market collapse is arguably the most financially terrifying prospect for the coming year,
“In a sharp sell-off, it follows that there would be limit to how much investors could sell – and after all, there has to be a buyer for every bond sold. Of particular concern are mutual funds and Exchange Traded Funds (ETFs) which tend to have a high level of retail investors. ... Even if investors understand that they do not benefit from deposit insurance and are subject to floating net asset value (NAV), given that mutual funds offer daily liquidity there is an incentive to be first to redeem in a market downturn.”
“@SBarlow_ROB HSBC: Top 10 investment risks for 2019” – (full list of risks) Twitter
“@SBarlow_ROB HSBC imagines the horror show of a disorderly corporate sell-off in 2019” – (research excerpt) Twitter
So far in the fourth quarter, the S&P/TSX Bank index (down 9.4 per cent) has underperformed the S&P/TSX Diversified Mining Index (down 9.2 per cent), and this still makes no sense to me, particularly in light of the fact that fears about global economic growth are believed to be the main catalysts for recent market weakness.
Scotia bank analyst Sumit Malhotra discussed this phenomenon in a report released Tuesday,
“The divergence between fundamental trends and share price valuation is the most significant we have seen since 2007, a scary reference point given the 'late cycle' concerns that have weighed on the stocks over the past few months. That said, with both credit quality metrics (GIL ratio is at the lowest level in 11 years) and capital flexibility (CET1 ratio at a record 11.45%) remaining constructive, our estimates reflect an EPS CAGR of 6% in 2019E/20E -- slower than the 12% avg. of the past two years, but growth nonetheless. Bottom line, with macro volatility set to continue, we think the ability to play both 'offense' (growth outside of Canada to complement domestic heft) and 'defense' (capital deployment options) will play a bigger role in in relative stock performance.”
“@amberkanwar Scotia's view of Canadian banks. Hasn't seen divergence like this since 2007” – (research excerpt) Twitter
Canadian officials had no choice but to arrest Huawei CFO Meng Wanzhou from what I understand of extradition treaties. George Mason University economics professor Tyler Cowen discussed why the U.S. was wrong to ask Canada to do this,
“In the longer run, bringing charges against Meng is likely to accelerate the division of the world into two competing systems of law, technology and commerce — namely those of China and the U.S. That will encourage international relations to develop along the dimension of power — what can you get away with? — rather than law or orderly cooperation. The West’s dirty little secret is that the rule of law works well only when tempered with a high degree of discretion.”
“Don’t arrest Chinese CFOs and CEOs” – Cowen, Marginal Revolution
“China's threats over Huawei CFO's arrest rattle Canadian business” – CBC
“Shares of jacket company Canada Goose have plunged since the arrest of the Huawei CFO” – Bloomberg
Tweet of the Day:
We have our first quasi-meaningful inversion of the Canadian yield curve: 2s5s— Luke Kawa (@LJKawa) December 11, 2018
(if you say 10s30s I will laugh) pic.twitter.com/p75FrG37jb
Diversion: “Does It Matter Where You Go to College?” – The Atlantic