Rising Dividends Help 2014 Market Match U.S. – Bloomberg 12-03-13

Salient to Investors:

Robert Gorman at TD Wealth said:

  • The 3-yr period of sharp underperformance for Canada is coming to a close
  • Dividend stocks will continue to rule but resource stocks will do comparatively better after showing signs of bottoming out.
  • The S&P/TSX Composite Index and the S&P 500 will both return 7 percent in 2014 including dividends, as economies in the US, Europe and China grow.
  • Expansion of US P/E multiples, now at 17 times, is unlikely to continue with the prospect of tapering.
  • Diversified miners producing coking coal and base metals are preferred over gold miners.
  • Energy producers with rising production and free cash flow are attractive, and preferred over oil stocks based on the expectation of a rising commodity price.
  • Stocks with a history of increasing dividends are preferred over stocks with high dividends that trade purely on yield, especially in an improving global economy that suggests a rise in bond yields, like utilities and to some degree any large REITs.
  • This will be the first year of synchronous global growth since the credit crisis and with significant favorable impacts throughout.
  • US and Canadian stock performance will converge.
  • The outlook for economic growth remains below-average.

The Canadian stock market is forecast to improve in 2014 to at least match the performance of the US for the first time since 2010, led by companies raising their dividends. The average economist expects 2014 will be the first year since 2011 when Canada, the US, China and Europe all post positive growth.

The average economist expects the global economy to grow 2.8 percent, the Canadian economy to grow at a 2.3 percent annualized rate, and the US economy to grow 2.6 percent in 2014.

Brian Belski at BMO Capital Markets said current US levels suggest it may be more difficult for the market to continue its impressive run without equally impressive earnings growth.

David Madani at Capital Economics said the better-than-forecast 2.7 percent growth in Canada’s Q3 showed continued weakness in exports and “one-off” rebounds in business spending following a flood in Alberta and the end of a labor strike in Quebec.

Ian Nakamoto at MacDougall MacDougall & MacTier, said Canada and other commodities-based markets will stay out of favor with investors until global growth accelerates past 4 percent as equity investors continue to believe commodities will not do much or go down, not up. Nakamoto said countries that consume commodities have been in favor and does not see that changing, and sees no broad-based uplift in Canada.

Read the full article at http://www.bloomberg.com/news/2013-12-03/rising-dividends-help-2014-market-match-u-s-.html

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The Breakdown of the BRICs – Bloomberg Businessweek 07-12-13

Salient to Investors:

In Q1 2013, BRIC bonds, currencies, and stocks fell together for the first time since 2006.

Since 2003, the MSCI BRIC Index has returned 227 percent, but is down 17 percent in 2013 and trailing the S&P 500 by the most since 1998. The MSCI BRIC Index trades at 1.2 times net assets, a 36 percent discount to the MSCI All-Country World Index.

BRICs accounted for 62 percent of global growth in 2012 versus 11 percent a decade ago.

EPFR said from 2005 through 2012, investors put $52 billion into BRIC mutual funds, and in 2013 have withdrawn $13.9 billion.

Ruchir Sharma at Morgan Stanley Investment Mgmt said every decade has a theme that captures investors’ imagination: gold in the 1970s, Japan in the 1980s, tech in the 1990s, and BRICs in the 2000s, which has basically run its course.

Olivier Blanchard  at the IMF said the BRICs are beginning to run into speed bumps.

Read the full article at  http://www.businessweek.com/articles/2013-07-12/the-breakdown-of-the-brics

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Scotiabank Leads Mutual Funds Cutting Bank Holdings – Bloomberg 03-28-13

Salient to Investors:

The Scotia Canadian Dividend Fund cut bank holdings by 40 percent from the end of 2011 on concern that lending is slowing as consumers retrench. Fund manager Jason Gibbs at GCIC said there is no question that things are going to slow down and is using the released funds to increase real estate holdings to 13 percent versus 8 percent at the end of 2011 to capitalize on increased demand for commercial real estate in North America, particularly Canada. Gibbs said there is not a lot of supply in real estate and the demand remains enormous.

The World Economic Forum ranks Canada’s banks as the world’s soundest for the past 5 years. Canadian banks expect  domestic banking profit to slow in 2013 amid record household debt.

Standard & Poor’s expects revenue and loan growth for Canadian banks to reach mid single-digits in 2013 from 9 percent and 10 percent in 2012, respectively.

John Aiken at Barclays Capital said ongoing headwinds will lead to significantly lower earnings growth through the remainder of 2013.

The ratio of Canadian household debt to disposable income rose to a record 165 percent in Q4 2012.

Fidelity True North Fund cut bank investments to 14 percent from 16 percent two years ago, TD Dividend Growth Fund cut to 41 percent from 42 percent. Investors Dividend Fund upped its bank exposure to 34 percent from 31 percent at the end of 2011.

Read the full article at http://www.bloomberg.com/news/2013-03-28/scotiabank-leads-mutual-funds-cutting-bank-holdings.html

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Beyond Wall St., Curbs on High-Speed Trades Proceed – The New York Times 09-26-12

Salient to Investors:

Germany advanced legislation that would force high-speed trading firms to register with the government and limit their ability to rapidly place and cancel orders. The European Commission agreed on even broader rules for all of the EU if governments also give their approval.

Celent estimates high-speed trading accounts for 30 percent of all trading in Australia stocks versus 65 percent in the US. Australia intends to bring computer-driven trading firms under stricter supervision.

Michael Aitken at the Capital Markets Cooperative Research Center said the push for regulation in Australia and much of the rest of the world has been driven by hysteria rather than evidence based policy.

Canada has increased the fees it charges firms that flood the market with orders, and in October will curtail the growth of dark pools that have proliferated in the United States.

Near 15 percent of all American stock trading occurs in dark pools.

Read the full article at http://www.nytimes.com/2012/09/27/business/beyond-wall-st-curbs-on-high-speed-trading-advance.html?partner=rss&emc=rss&src=igw