Investors sell off real estate, utility shares
Financial shock waves from Trump victory still playing havoc locally
As speculation swirls around the impact Donald Trump will have on financial markets, some Calgary-based real estate and utility stocks have been hit by the resulting shock wave, according to analysts who say the upheaval could continue for months.
There is widespread speculation that president-elect Trump’s fiscal policies, including tax cuts and massive infrastructure spending, will boost inflation and ultimately lead to higher interest rates, analysts said.
As a result of this bet, investors have sold off shares in utilities and real estate, sectors that are highly sensitive to interest rate changes and become less attractive when rates rise, said Martin Pelletier, a portfolio manager at the Calgary investment firm TriVest Wealth Counsel Ltd.
“It’s happening globally,” Pelletier said.
Two Calgary-based real estate investment trusts — Boardwalk REIT and Northview Apartment REIT — have seen their share prices tumble since the U.S. election Nov. 8. Similarly, two Calgary utilities, TransAlta Corp. and ATCO Ltd., have seen their share prices drop since Trump’s victory, though TransAlta’s stock has nearly recovered its loss.
“If you were to line up all the utility stocks, you will probably find they are down since the election, while long-term interest rates are up,” said Patrick Kenny, an analyst at National Bank Financial, who covers TransAlta and ATCO.
TransAlta’s stock slid 57 cents, or nearly 10 per cent, in the six days after the election, to $5.17, though it has since recovered slightly and closed Tuesday at $5.64. ATCO’s shares closed at $43.37, a nearly seven per cent reduction from Election Day levels.
Among other reasons for the share price drops, high interest rates hike borrowing costs for utilities and REITs, which are often big spenders, according to analysts.
Higher rates also undercut the value of real estate.
Boardwalk, Canada’s largest residential landlord, saw its stock value decline from $47.78 two weeks ago to close Tuesday at $44.11, a nearly eight per cent drop.
Northview’s stock fell $1.10, or 5.5 per cent, to $19.07.
Frederic Blondeau, head of real estate research for Dundee Capital Markets, said market speculation that interest rates will rise was behind share price declines for both Boardwalk and Northview, though he noted Boardwalk was also hit by weaker-than-expected quarterly earnings.
Before the U.S. election, Blondeau had warned “it was time to take a pause” on buying REIT stock because rising investor interest had driven up share prices. At the same time, he wrote in an Aug. 3 note that interest rates were expected to remain low — “unless they became subject to a shock.”
“For us, it was good timing to be a bit more conservative on the sector but never in a lifetime would I have predicted that Trump would get elected, but it happened,” Blondeau said Tuesday. “That was the shock.” The analyst said the markets are reacting to perceptions, and that there are no market fundamentals that currently suggest interest rates will rise.
How long these perceptions will play havoc with real estate and utility stocks remains to be seen.
“I don’t think we have seen the full impact of it yet,” Blondeau said.
Pelletier of TriVest said he doesn’t “believe the hype” that a Trump presidency will cause the high inflation that markets are expecting.
“Until we see the policies of Trump actually being implemented, we just won’t know (the impact),” he said. “Both the bond markets and equity markets can continue to be irrational, and I think that’s going to be the theme over the next couple of months.”