The investment industry has this in common with farming: It pays to be an optimist.
Like farmers who choose to believe it will be better next year, the standard reaction to a drought in the securities business is to hit the lake for the summer and hope things improve in the second half.
This year, however, the general consensus is that a rebound after Labour Day is a long shot.
How quiet has it been this year? Merger and acquisition activity in Canada fell by about a third in the first half of this year relative to the first six months of 2012. Trading volume on the Toronto Stock Exchange fell 10 per cent. On the TSX Venture Exchange, trading volume plunged 23 per cent.
Ian Russell, the head of the Investment Industry Association of Canada, said in an interview last week that as he looks toward the end of the year "it's really hard to get very optimistic about the outlook."
Perhaps because I'm soon going to be heading to the lake myself, and so feeling good about life, I'm going to take the other side of that trade. Here are some reasons to hope that the worst is behind the Canadian securities industry and the second half will show some signs of revival.
Commodity deals may rebound.
There are some significant transactions in the pipeline, including Rio Tinto PLC's sale of a stake in its Quebec iron ore operations, on which Canadian pension plans may show up as bidders.
Beyond that, there's reason to expect a pickup in energy and mining deals.
The stress of low gold prices will push for further strategic moves in precious metals miners. Citigroup's gold analyst just put out a report saying that every company the investment bank covers is burning through cash with gold prices below $1,300 (U.S.) an ounce, and that will lead to "high-cost-asset disposals."
The real upside is likely to be in energy. Deal activity in the sector has gone off a cliff. Some of that is a result of foreign acquirers learning to navigate new rules on buying in Canada. That cannot last forever. Especially as National Bank Financial points out that oil producers are cheap, with oil-weighted company shares trading at a level implying crude should be at $80 (U.S.) a barrel when it is actually trading at just over $100 a barrel.
If investors don't close that gap, buyers will.
Interest rates are not going to head vastly higher.
Canadian investment dealers have dined out on selling securities that provide investors with income. Bonds and dividend stocks were hot until a surge in interest rates this spring threatened to dampen that trade. The worst is likely over for now. Analysts surveyed by Bloomberg expect that Government of Canada 10-year bond rates (the ones that set return expectations for real estate investment trusts) are actually likely to drop a bit in the second half.
What's more, the bigger reasons behind the income trade have not suddenly gone away. Canada, as a society, is not getting any younger. The demographics still suggest that people with money to invest prefer to get a regular cheque.
The initial public offering last week of Choice Properties Real Estate Investment Trust (a.k.a. the Loblaw REIT), which had very strong demand, is a clear indication of that.
Equity trading volumes won't get any worse – partly because it is hard to imagine how they could.
Canadian stock trading volumes have been inexorably heading downward. A lack of appetite for Canadian stocks, combined with a general move away from equities, along with a dash of mistrust in markets, has been a recipe for bored traders. However, as bonds sell off, and equities come back into favour, there should be a bit of respite here. Even if nobody wants Canadian companies, flows into U.S. stocks should give Canadian traders something to do.
Technology stocks will remain on fire.
Bankers are scouring the country for companies that need investment now that nobody can get enough technology. Keep an eye on Toronto-based Keek Inc., a maker of a mobile application to let people record 36-second videos, similar to Twitter's Vine application but with longer snippets. Its user numbers are exploding, and it has raised a number of rounds of venture capital. Keek is clearly on track for an initial public offering, but also has the feel of one of those companies that gets bought by a big Web company.
Costs cuts at brokerages (at least larger ones) are likely closer to the end than the beginning.
Figures last week showed that the number of investment dealers in Canada is at the lowest level in years, and so is industry employment. The reason for optimism here is that revenue per employee is now the highest in four years.
Some earnings estimates for brokerages a couple of quarters out show sequential improvement. Take Canaccord Financial Inc., Canada's biggest independent securities firm. Analysts expect earnings of 11 cents a share in the quarter ended June 30, 14 cents the quarter after that and 19 cents the quarter ending Dec. 31.
There will still be cuts by attrition, as bonus cheques disappoint. But layoffs of any significant size don't seem likely at this point.
So enjoy a drink on the dock. Maybe things will indeed be looking up by the time you get back.
(Boyd Erman is a Globe and Mail Capital Markets Reporter & Streetwise Columnist.)
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