Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotiabank real estate analysts and quantitative strategists combined for a timely report called CRE Situation Worsening; Office in the Spotlight – Implications for Portfolio Strategy, REITs, Banks. Here are some excerpts,
“Within CRE, Office is receiving the most scrutiny due to some high-profile defaults and vacancy rates challenging the early ‘90s levels. A higher-for-longer interest rate scenario is likely to inflict more pain on the CRE space … The CRE situation is likely to get worse, adding to our macro concerns. We still expect challenging equity markets, and would reiterate our UW [underweight] stance on RE and [financials]/Banks. Within RE, Office is least appealing, while Industrial could do better. Banks lending will keep slowing with PCL [provisions for capital loss] rising … We see access to capital (via new debt or asset sales) as the biggest issue facing the sector. In our view, REIT valuation metrics that are real-estate-centric, (P/NAV, implied cap rate, implied price-per-foot) are now less relevant for Office REITs in a declining asset value market (we estimate office values have declined 30 per cent to 50 per cent since 2021 … The large Canadian banks all have a very small exposure to office loans (and an even smaller exposure to U.S. office loans) when measured as a percentage of total loans, but that exposure does become more meaningful when scaled against earnings. What that means is that while the risk to capital from a potential CRE credit cycle is very low, the potential for losses to materially impact earnings in any given quarter is real. Based on commentary from this past Q2 earnings season, that earnings risk is manageable for now, but we think that investors should not remain complacent”
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BMO chief strategist Brian Belski is disappointed in TSX earnings,
“The negative earnings headlines and results from Canadian banks dampened an otherwise strong first-quarter earnings season for the TSX. In fact, if we exclude the Financials sector, the S&P/TSX is beating expectations by 6 per cent on average with the more cyclical areas of the market continuing to recover. However, the net miss by the big three sectors has been a key drag on S&P/TSX bottom up 2023 EPS estimates which are now 3 per cent below our 2023 EPS target. .. While we continue to expect earnings to normalize in the back half of 2023, our models suggest the earnings contraction could be slightly deeper than initially expected. This could be exacerbated further if Financials and Resources continue to see net negative revisions, as these three sectors make up 59 per cent of the index … In our opinion, the earnings contraction in 2023 and subsequent recovery in 2024 will not be smooth and synchronized across sectors, which highlights the importance of a more selective investment approach and more emphasis on active portfolio management”
“BMO strategist disappointed in TSX earnings” – (research excerpt) Twitter
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Citi analyst Maximilian Layton recommends investors add to copper holdings over the next six months,
“We recommend consumers and long-term investors gradually build copper exposure over the next 6 months or so, depending on the timing of a potential substantial easing in China policy. We see good risk-reward with this strategy due to our expectations of 50 percent upside and 10 percent downside from current price levels by 2025… We suggest remaining cautious in 2H’23 through 1Q’24 on a base case assumption of extended ex-China growth weakness and a gradual, services-led, China growth recovery that is less metals intensive… We see a cyclical global growth upswing driving prices to an average of $12k/t in 2025 in our base case. If the pace of decarbonization-related investment accelerates at least in line with a 2-degrees pathway, then we see $15k/t in this bull case by 2025. Our base case of $9-10k/t copper long-term is enough to ensure sufficient supply if the world decarbonizes at its current pace, on average.”
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Diversion: “Eating Disorder Helpline Takes Down Chatbot After Its Advice Goes Horribly Wrong” – Gizmodo
HALIFAX – A village of tiny homes is set to open next month in a Halifax suburb, the latest project by the provincial government to address homelessness.
Located in Lower Sackville, N.S., the tiny home community will house up to 34 people when the first 26 units open Nov. 4.
Another 35 people are scheduled to move in when construction on another 29 units should be complete in December, under a partnership between the province, the Halifax Regional Municipality, United Way Halifax, The Shaw Group and Dexter Construction.
The province invested $9.4 million to build the village and will contribute $935,000 annually for operating costs.
Residents have been chosen from a list of people experiencing homelessness maintained by the Affordable Housing Association of Nova Scotia.
They will pay rent that is tied to their income for a unit that is fully furnished with a private bathroom, shower and a kitchen equipped with a cooktop, small fridge and microwave.
The Atlantic Community Shelters Society will also provide support to residents, ranging from counselling and mental health supports to employment and educational services.
This report by The Canadian Press was first published Oct. 24, 2024.
Housing affordability is a key issue in the provincial election campaign in British Columbia, particularly in major centres.
Here are some statistics about housing in B.C. from the Canada Mortgage and Housing Corporation’s 2024 Rental Market Report, issued in January, and the B.C. Real Estate Association’s August 2024 report.
Average residential home price in B.C.: $938,500
Average price in greater Vancouver (2024 year to date): $1,304,438
Average price in greater Victoria (2024 year to date): $979,103
Average price in the Okanagan (2024 year to date): $748,015
Average two-bedroom purpose-built rental in Vancouver: $2,181
Average two-bedroom purpose-built rental in Victoria: $1,839
Average two-bedroom purpose-built rental in Canada: $1,359
Rental vacancy rate in Vancouver: 0.9 per cent
How much more do new renters in Vancouver pay compared with renters who have occupied their home for at least a year: 27 per cent
This report by The Canadian Press was first published Oct. 17, 2024.
VANCOUVER – Voters along the south coast of British Columbia who have not cast their ballots yet will have to contend with heavy rain and high winds from an incoming atmospheric river weather system on election day.
Environment Canada says the weather system will bring prolonged heavy rain to Metro Vancouver, the Sunshine Coast, Fraser Valley, Howe Sound, Whistler and Vancouver Island starting Friday.
The agency says strong winds with gusts up to 80 kilometres an hour will also develop on Saturday — the day thousands are expected to go to the polls across B.C. — in parts of Vancouver Island and Metro Vancouver.
Wednesday was the last day for advance voting, which started on Oct. 10.
More than 180,000 voters cast their votes Wednesday — the most ever on an advance voting day in B.C., beating the record set just days earlier on Oct. 10 of more than 170,000 votes.
Environment Canada says voters in the area of the atmospheric river can expect around 70 millimetres of precipitation generally and up to 100 millimetres along the coastal mountains, while parts of Vancouver Island could see as much as 200 millimetres of rainfall for the weekend.
An atmospheric river system in November 2021 created severe flooding and landslides that at one point severed most rail links between Vancouver’s port and the rest of Canada while inundating communities in the Fraser Valley and B.C. Interior.
This report by The Canadian Press was first published Oct. 17, 2024.
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