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Investors look to 2008 for guidance on when to jump back in – Reuters

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LONDON (Reuters) – Investment banks are dusting off models from the 2008 financial crisis to gauge the right time to buy back into stock markets that have plunged 30% from their February record highs because of the coronvirus crisis.

The Wall Street sign is pictured at the New York Stock exchange (NYSE) in the Manhattan borough of New York City, New York, U.S., March 9, 2020. REUTERS/Carlo Allegri

That inflection point is not easy to model when the virus is still spreading rapidly across Europe and the United States.

But the U.S. government’s $2 trillion in fiscal stimulus, coming on top of unprecedented measures from the U.S. Federal Reserve and other central banks on Tuesday triggered one of the sharpest global equity market rallies in decades.

Wall Street’s so-called fear gauge, the Cboe Volatility Index has also fallen from its highs.

For some, the signals for a reversal are in place.

Veteran investor Bill Ackman told investors in his listed Pershing fund he had turned increasingly positive on stocks and credit, and taken off hedges he put in place in early March when markets first started cratering.

He said Pershing was “redeploying our capital in companies we love at bargain prices that are built to withstand this crisis”.

Goldman Sachs’ view was that this week’s record stock market rally had been led by “underweight” sectors, suggesting many funds had been covering short positions. Indeed, energy, travel and auto stocks were Tuesday’s biggest gainers.

At Morgan Stanley, Andrew Sheets, head of cross-asset strategy, said in these situations, including in 2008, markets often trough well before the crisis actually ends.

From the 2008 trough there followed a decade of stunning gains that added more than $25 trillion to global equity value.

“(The market) won’t need to see a peak in U.S. (Covid) cases, it just needs to see some confirmation of the path and it nees to be happy with the path,” Sheets said.

But so far he remains underweight credit and has only marginally upped equity exposure.

GETTING IT RIGHT

JPMorgan says there is more than one way of measuring it, especially given the unique nature of the crisis which hit the real economy first, with financial markets following.

John Normand, JPM’s head of cross-asset strategy said one model suggested now is the time to re-enter — a quarter before a recession is likely to end. His view is that the coronavirus-induced recession will be “undoubtedly deep but also possibly the shortest-ever.”

Normand also said investors could wait for “green shoots” or evidence of an actual upturn — reflected in a trough for JPMorgan’s global Purchasing Managers Index.

A third, valuation-based model triggers a “Buy” signal when risk-premia across several asset classes fall to certain “deep value” thresholds.

Norman said the latter two models were not yet signalling it was time to buy.

Notably, U.S. and European stock valuations based on a 12-month forward price-to-earnings ratios now have dipped well below historical averages, according to Refinitiv data.

Meanwhile, credit markets are still sending out distress signals — yields on junk-rated U.S. bonds are around 10% currently compared to 6% a month ago, meaning many companies may find it hard to service debt.

In Europe, an index of European credit default swaps, ITEXO5Y=MG that measure the default risk of a basket of sub-investment grade companies, is off its peaks but remains elevated at around 520 basis points, almost double end-February levels.

The volatility index’s (VIX) 30% drop from recent peaks is a clear positive for riskier assets. But if 2008 is any guide, its decline may not yet signal the market trough. In 2008, the VIX retreated from highs in October, but markets took another five months to bottom out.

The recession in 2008 was a long one — some economists reckon this time a turnaround in global growth will come by the third quarter.

Yet some also warn that markets are only now coming to grips with how severe a potential downturn could be.

“We … haven’t fully appreciated how far this recession will go,” said Andrea Cicione, head of strategy at TS Lombard, in London. Some of her concerns center on potential second-round effects such as rising unemployment and companies slashing their capital expenditures.

For now, the trajectory of the coronavirus and its economic fallout will play a key role in determining the market’s path, said Randy Watts, chief investment strategist at William O’Neill+Co.

“In the short run, the market is still going to stay very volatile until one of three things happens – either the number of deaths and the number of new infections in the U.S., peak, there is some kind of a cure or vaccine developed or until the U.S. economy begins to reopen,” he said.

Reporting by Thyagaraju Adinarayan, Sujata Rao and Yoruk Bahceli in London. Additional reporting by Medha Singh. Editing by Jane Merriman

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Telus prioritizing ‘most important customers,’ avoiding ‘unprofitable’ offers: CFO

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Telus Corp. says it is avoiding offering “unprofitable” discounts as fierce competition in the Canadian telecommunications sector shows no sign of slowing down.

The company said Friday it had fewer net new customers during its third quarter compared with the same time last year, as it copes with increasingly “aggressive marketing and promotional pricing” that is prompting more customers to switch providers.

Telus said it added 347,000 net new customers, down around 14.5 per cent compared with last year. The figure includes 130,000 mobile phone subscribers and 34,000 internet customers, down 30,000 and 3,000, respectively, year-over-year.

The company reported its mobile phone churn rate — a metric measuring subscribers who cancelled their services — was 1.09 per cent in the third quarter, up from 1.03 per cent in the third quarter of 2023. That included a postpaid mobile phone churn rate of 0.90 per cent in its latest quarter.

Telus said its focus is on customer retention through its “industry-leading service and network quality, along with successful promotions and bundled offerings.”

“The customers we have are the most important customers we can get,” said chief financial officer Doug French in an interview.

“We’ve, again, just continued to focus on what matters most to our customers, from a product and customer service perspective, while not loading unprofitable customers.”

Meanwhile, Telus reported its net income attributable to common shares more than doubled during its third quarter.

The telecommunications company said it earned $280 million, up 105.9 per cent from the same three-month period in 2023. Earnings per diluted share for the quarter ended Sept. 30 was 19 cents compared with nine cents a year earlier.

It reported adjusted net income was $413 million, up 10.7 per cent year-over-year from $373 million in the same quarter last year. Operating revenue and other income for the quarter was $5.1 billion, up 1.8 per cent from the previous year.

Mobile phone average revenue per user was $58.85 in the third quarter, a decrease of $2.09 or 3.4 per cent from a year ago. Telus said the drop was attributable to customers signing up for base rate plans with lower prices, along with a decline in overage and roaming revenues.

It said customers are increasingly adopting unlimited data and Canada-U.S. plans which provide higher and more stable ARPU on a monthly basis.

“In a tough operating environment and relative to peers, we view Q3 results that were in line to slightly better than forecast as the best of the bunch,” said RBC analyst Drew McReynolds in a note.

Scotiabank analyst Maher Yaghi added that “the telecom industry in Canada remains very challenging for all players, however, Telus has been able to face these pressures” and still deliver growth.

The Big 3 telecom providers — which also include Rogers Communications Inc. and BCE Inc. — have frequently stressed that the market has grown more competitive in recent years, especially after the closing of Quebecor Inc.’s purchase of Freedom Mobile in April 2023.

Hailed as a fourth national carrier, Quebecor has invested in enhancements to Freedom’s network while offering more affordable plans as part of a set of commitments it was mandated by Ottawa to agree to.

The cost of telephone services in September was down eight per cent compared with a year earlier, according to Statistics Canada’s most recent inflation report last month.

“I think competition has been and continues to be, I’d say, quite intense in Canada, and we’ve obviously had to just manage our business the way we see fit,” said French.

Asked how long that environment could last, he said that’s out of Telus’ hands.

“What I can control, though, is how we go to market and how we lead with our products,” he said.

“I think the conditions within the market will have to adjust accordingly over time. We’ve continued to focus on digitization, continued to bring our cost structure down to compete, irrespective of the price and the current market conditions.”

Still, Canada’s telecom regulator continues to warn providers about customers facing more charges on their cellphone and internet bills.

On Tuesday, CRTC vice-president of consumer, analytics and strategy Scott Hutton called on providers to ensure they clearly inform their customers of charges such as early cancellation fees.

That followed statements from the regulator in recent weeks cautioning against rising international roaming fees and “surprise” price increases being found on their bills.

Hutton said the CRTC plans to launch public consultations in the coming weeks that will focus “on ensuring that information is clear and consistent, making it easier to compare offers and switch services or providers.”

“The CRTC is concerned with recent trends, which suggest that Canadians may not be benefiting from the full protections of our codes,” he said.

“We will continue to monitor developments and will take further action if our codes are not being followed.”

French said any initiative to boost transparency is a step in the right direction.

“I can’t say we are perfect across the board, but what I can say is we are absolutely taking it under consideration and trying to be the best at communicating with our customers,” he said.

“I think everyone looking in the mirror would say there’s room for improvement.”

This report by The Canadian Press was first published Nov. 8, 2024.

Companies in this story: (TSX:T)

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TC Energy cuts cost estimate for Southeast Gateway pipeline project in Mexico

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CALGARY – TC Energy Corp. has lowered the estimated cost of its Southeast Gateway pipeline project in Mexico.

It says it now expects the project to cost between US$3.9 billion and US$4.1 billion compared with its original estimate of US$4.5 billion.

The change came as the company reported a third-quarter profit attributable to common shareholders of C$1.46 billion or $1.40 per share compared with a loss of C$197 million or 19 cents per share in the same quarter last year.

Revenue for the quarter ended Sept. 30 totalled C$4.08 billion, up from C$3.94 billion in the third quarter of 2023.

TC Energy says its comparable earnings for its latest quarter amounted to C$1.03 per share compared with C$1.00 per share a year earlier.

The average analyst estimate had been for a profit of 95 cents per share, according to LSEG Data & Analytics.

This report by The Canadian Press was first published Nov. 7, 2024.

Companies in this story: (TSX:TRP)

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BCE reports Q3 loss on asset impairment charge, cuts revenue guidance

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BCE Inc. reported a loss in its latest quarter as it recorded $2.11 billion in asset impairment charges, mainly related to Bell Media’s TV and radio properties.

The company says its net loss attributable to common shareholders amounted to $1.24 billion or $1.36 per share for the quarter ended Sept. 30 compared with a profit of $640 million or 70 cents per share a year earlier.

On an adjusted basis, BCE says it earned 75 cents per share in its latest quarter compared with an adjusted profit of 81 cents per share in the same quarter last year.

“Bell’s results for the third quarter demonstrate that we are disciplined in our pursuit of profitable growth in an intensely competitive environment,” BCE chief executive Mirko Bibic said in a statement.

“Our focus this quarter, and throughout 2024, has been to attract higher-margin subscribers and reduce costs to help offset short-term revenue impacts from sustained competitive pricing pressures, slow economic growth and a media advertising market that is in transition.”

Operating revenue for the quarter totalled $5.97 billion, down from $6.08 billion in its third quarter of 2023.

BCE also said it now expects its revenue for 2024 to fall about 1.5 per cent compared with earlier guidance for an increase of zero to four per cent.

The company says the change comes as it faces lower-than-anticipated wireless product revenue and sustained pressure on wireless prices.

BCE added 33,111 net postpaid mobile phone subscribers, down 76.8 per cent from the same period last year, which was the company’s second-best performance on the metric since 2010.

It says the drop was driven by higher customer churn — a measure of subscribers who cancelled their service — amid greater competitive activity and promotional offer intensity. BCE’s monthly churn rate for the category was 1.28 per cent, up from 1.1 per cent during its previous third quarter.

The company also saw 11.6 per cent fewer gross subscriber activations “due to more targeted promotional offers and mobile device discounting compared to last year.”

Bell’s wireless mobile phone average revenue per user was $58.26, down 3.4 per cent from $60.28 in the third quarter of the prior year.

This report by The Canadian Press was first published Nov. 7, 2024.

Companies in this story: (TSX:BCE)

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