Soaring earnings growth prospects for TSX index have raised portfolio managers’ confidence that the commodity-linked market’s move to a record high is justified and could boost the attraction for global investors who rushed in this year.
Analysts estimate that earnings for the TSX Composite, which notched a record high on Monday, will grow 45.2% in 2021, Refinitiv I/B/E/S data shows. That is the fastest pace in data going back to 2017 and runs ahead of the 36.9% rate for the S&P 500.
The level of growth reflects a rebound after earnings slumped 18.1% last year as well as a particularly favorable environment for Toronto-listed stocks, with many companies highly geared to economic activity. Growth was 3.3% in 2019, before the COVID-19 pandemic.
Among the sectors with the highest estimated growth this year are energy and industrials, at a 106.3% and 96.8% pace respectively. Shares of resource, industrial and other cyclical companies account for about 70% of the Toronto market, versus 40% of the S&P 500.
Earnings estimates feed into measures used by investors to assess value, such as the ratio of price to earnings. Strong growth tends to support a higher valuation.
“It’s all about earnings,” said Barry Schwartz, a portfolio manager at Baskin Financial Services. “If the earnings rise in concert with the stock price then you have a phenomenon where ‘Holy smokes my stocks have gone up,’ yet on a valuation basis they are no more expensive.”
At 13.8, the price-earnings multiple for the TSX has barely changed since the start of the year, according to the data. Meanwhile, the index has gained 16%, outpacing major U.S. indices.
FOREIGN INFLOWS
The S&P 500’s multiple is higher, at 22.2, reflecting a much heavier weighting in technology shares. But strategists at BofA Securities said last week that the discount for the Toronto market is overdone, especially because it is better-positioned to benefit from global economic recovery.
“If you believe that we’re on a multi-year tailwind for earnings growth, then you want to own those companies that are going to benefit,” Schwartz said.
Foreign investors appear to have caught on, with data from Statistics Canada showing that portfolio inflows into Canadian equities have jumped to C$28.6 billion ($23.2 billion) in the first four months of the year, the biggest inflow for the period since 2017. It follows outflows for the full year in 2019 and 2020.
“Global investors see the TSX as a way to benefit from the upturn in the global economy,” said Angelo Kourkafas, investment strategist at Edward Jones in St. Louis.
The IMF expects the global economy to expand 6% this year after contracting 3.3% in 2020. The improved outlook has bolstered commodity prices, including oil.
There are risks to the outlook, such as faster-than-expected interest rate hikes from central banks. But analysts expect earnings growth to extend into 2022, at a rate of 10.8% for the Composite index.
Last month, portfolio managers in a Reuters poll forecast the TSX would rise to 21,750 by the end of next year, about 8% above current levels.
“The market is pricing in earnings growth and that earnings growth will drive the majority of the index going forward,” said Kevin Headland, senior investment strategist at Manulife Investment Management.
($1 = 1.2321 Canadian dollars)
(Reporting by Fergal Smith,; Editing by Denny Thomas and Dan Grebler)
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets also climbed higher.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
This report by The Canadian Press was first published Sept. 13, 2024.
OTTAWA – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.
The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.
The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.
The personal and household goods subsector fell 2.5 per cent to $12.1 billion.
In volume terms, overall wholesale sales rose 0.5 per cent in July.
Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in the base metal and energy sectors, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 172.18 points at 23,383.35.
In New York, the Dow Jones industrial average was down 34.99 points at 40,826.72. The S&P 500 index was up 10.56 points at 5,564.69, while the Nasdaq composite was up 74.84 points at 17,470.37.
The Canadian dollar traded for 73.55 cents US compared with 73.59 cents US on Wednesday.
The October crude oil contract was up $2.00 at US$69.31 per barrel and the October natural gas contract was up five cents at US$2.32 per mmBTU.
The December gold contract was up US$40.00 at US$2,582.40 an ounce and the December copper contract was up six cents at US$4.20 a pound.
This report by The Canadian Press was first published Sept. 12, 2024.
