Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Desjardins analyst Kyle Stanley sees a “compelling buying opportunity” in domestic apartment REITs,
“the correction among the Canadian apartment REITs is overdone and presently see a compelling buying opportunity … Unsurprisingly, with significant exposure to Calgary and Edmonton, BEI [Boardwalk REIT] led the way with estimated 1Q24 rent growth of 7.3 per cent. Otherwise, market rent growth was fairly consistent in the 5.2‒6.0-per-cent range across the balance of the REIT portfolios. Notably, only KMP’s portfolio rent growth was flat vs 4Q23, while the rest of the REITs’ estimated market rental growth rates decelerated year-over-year from 4Q23 … In the wake of proposed changes to temporary resident immigration announced on March 21, investor sentiment has weakened (apartment REITs down 11.7 per cent vs the Capped REIT Index at negative 6.8 per cent). We do not believe the near-term impact to population growth is as clear-cut as it seems, with the federal government needing cooperation from the provincial governments to effect change. Moreover, we see a current housing supply deficit of 659,000 units (269,000 for apartment units) in aggregate. Assuming population growth of 0.7 per cent in 2025‒26 and an aggressive acceleration in housing completions, we see the housing shortfall improving by just 10,000 units through 2027 … While the fundamentals remain robust across the country, we believe BEI screens best on this market rental growth analysis”
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BMO chief economist Doug Porter estimates the limit to which the Bank of Canada can cut rates independently of the Federal Reserve,
“Appearing before the House Finance Committee on Thursday, Governor Macklem said that the BoC can cut rates independent of the Fed, within limits. A look back at the history of Canadian and U.S. short term rates (chart), shows that the gap has sometimes exceeded 5 ppts (as recently as the early 1990s). The median spread over the 50-year span has been about 50 bps (Canada above U.S rates), but less than 15 bps since 2000. Since the BoC shifted to fixed action dates in the early 2000s, the spread has calmed considerably. The widest since 2000 was +200 bps in 2003 (a year the loonie rocketed higher), and the lowest was -100 bps in 2005-07. Following the GFC, the gap between Canadian and U.S. rates has tightened further, with the spread never reaching 100 bps in either direction since late 2008. We would view the experience of the past 15 years as setting the reasonable limits to which the BoC could deviate without causing undue stress on the currency. With the spread already starting around -33 bps, that gives the BoC room for roughly two independent cuts”
“BMO: “Separation Anxiety: How Far Can the BoC Go?” - (research excerpt, chart) X
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BofA Securities U.S. equity and quant strategist Savita Subramanian detailed a difficult April for the S&P 500 and the evidence of stagflation fears,
“The S&P 500 fell 4.1% (total return) in April, the first decline since Oct 2023 after a 98th percentile 5-month rally (+26%), 5%+ pullbacks historically occur three times a year, on average. Inflation concerns were among the biggest headwind, with the 10-yr yield +48bps in April. Long-term Treasuries fell 5.2%, while investment-grade credit outperformed (-2.0%). The equal-weighted index underperformed (-4.9%) despite the Nasdaq underperforming (-4.4%). Gold gained 4.2% and remains the best-performing asset since the end of 2021 (+31% vs. +10% for the S&P 500). International equities outperformed US stocks, -0.2% in local currency and -1.7% in USD. Stagflation” news counts soared to the highest level since June 2022. Sector performance in April also indicates stagflation concerns, with Utilities (+1.6%) and Energy (-0.9%) leading. These sectors have outperformed the most during historical stagflation regimes and were also the best-performing sectors in 2022 amid stagflation concerns. Real Estate (-8.6%) was the worst performing sector amid higher rates, followed by Tech (-5.5%).
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Diversion: “What is the problem in Australia?” – Marginal Revolution
Scott Barlow