Canadian market set to post a good year
From big banks to pot stocks, things are looking up for 2019
You might wonder at the surprising bullishness about Canadian equities this year. The benchmark S&P/TSX 300 dropped12 per cent in 2018, well below analysts’ expectations.
Then again, most of the fundamentals accounting for the downward pressure on Canadian equities in 2018 most powerfully manifested themselves in the second half of the year.
And it has been in the year’s closing weeks that the U.S. bull market, very long in the tooth, seemed finally to have run its course, with knock-on effects for Canadian stocks.
But to forecast further Canadian market declines or even a mere flatlining requires a market bear to assume that 2018’s headwinds will continue into 2019.
They include fears of a global trade war, which has not, in fact, fully materialized and might not, a stubborn refusal of global oil prices to stage at least a modest recovery and failure to notice the Bank of Canada has eased up on its earlier plans to hike borrowing rates three times in 2019, which has given way to a likelihood of just one or two hikes this year, and mild ones at that.
An energy sector hardest hit in 2018 (down 21 per cent on the year) boasts buying opportunities among the bestfinanced players, including Suncor and Canadian Natural Resources.
And Canada’s finance sector, notably the Big Six banks, almost qualify as “screaming buys” with record profits and low price-earnings multiples.
Even pot stocks, subjected to overexuberance before finally slumping late in 2018, deserve a second, selective look. The handful of well-capitalized marijuana firms, especially those strongest in a medicinal market in its infancy, promise impressive profitability that in turn makes them takeover bait. The Quebec drag on Canada’s race for global talent
Canada is already among the world’s most aggressive poachers of international talent, but it will have to step up its efforts still more. Facing the tightest labour market in decades, U.S. employers such as Walmart and Walt Disney are offering free college tuition to employees to upgrade their skills and retain scarce talent. A rapidly growing U.S. tech sector is scouting for hundreds of thousands of high-skilled workers. And a traditionally insular Japan, coping with skills shortages and an aging population, has launched a multi-faceted campaign to attract foreign talent to boost GDP about 10 per cent by 2020.
So far, Canada is a winner in the global race for talent. There were close to 600,000 international students in Canada in August, a 60 per cent jump from August 2017. And with about 65 per cent of foreign-born Canadian adults holding a post-secondary degree in 2017, Canada leads the 36-member Organization for Economic Co-operation and Development on that metric.
But Quebec is holding back Canada’s drive to address its own mounting skill shortages, as the country’s traditional open-door immigration policies are working as intended to spur entrepreneurship and job creation. In the same way U.S. President Donald Trump’s anti-immigrant rhetoric has redirected international students from Stanford University to the University of British Columbia, Quebec Premier François Legault’s vow to cut legal immigration to Quebec by 20 per cent, and his policy of banning religious symbols among civil servants, are redirecting foreign students from Montreal to Toronto.
As noted in this space earlier, it’s up to Quebec’s leadership class to crush this self-destructive, state-sanctioned xenophobia before it consigns Canada’s second-largest province to economic irrelevance. Nostalgia for Steve Jobs’ Apple The biggest problem users have with their mobile devices is that the batteries die. A lesser but annoying problem is that as smartphone screens have grown in size for easier viewing, they have become more difficult to stow in a pants pocket or small purse, for lack of a foldable screen.
That might seem an odd place to start in assessing last week’s sharp, shocking drop in the value of shares in Apple Inc. But it points to the everyday vigilance required in keeping a great enterprise great. Genuine innovation in smartphones has been lacking for years, and so the global market has shrunk in each of 2017 and 2018.
The Apple story is one of disruptive technologies, of iPods, iPads and iPhones that changed the world of consumer electronics. But faced with a stagnant market for the smartphones Apple relies on for close to two-thirds of its revenues, the company fixated on its iPhone cash cow, compensating for declining unit sales by jacking up the price per unit, and buying back stock to artificially prop up Apple’s share price.
The mere Band-Aid nature of those efforts was finally exposed last week, when Apple acknowledged that its sales will fall about 5 per cent in its next fiscal quarter. Apple’s absurdly high market valuation was tied to expectations of ever-increasing sales, so of course the stock has tanked.
It’s unlikely this humbling would have occurred at Steve Jobs’ company, which by now would be offering mobility devices with “insanely great” batteries. And it’s unthinkable that Jobs’ Apple would allow Samsung and Huawei to beat it to market with the foldable smartphones Apple’s rivals will launch this year.