Canadian bank stocks continue to outperform global peers

Canadian bank stocks continue to outperform global peers

Credit Suisse analyst Joo Ho Kim reports that Canadian bank stocks continue to outperform their global peers,

“The Canadian banks have outperformed their international peers by a wide margin (~32%), based on indexed performance since the start of the pandemic (end of 2019) (Figure 1). Taking a longer-term view, the banks have also generated a significant relative return (~4.5x the peer average return) since the beginning of 2000. More recently, we saw the relative performance gaps narrow, with the group trading essentially in line with their international counterparts from the end of 2021… From a valuation standpoint, we see that the Canadian banks have been outperforming their international peers this year, with a ~4% contraction in the NTM P/E [next 12 months price to earnings ratio] for the banks vs. a ~12% contraction on average across the largest U.S., Australian, the U.K., and Nordic banks … Although the Y/Y consensus growth implied in F2023E for the Canadian banks looks muted vs. peers, we see a much stronger growth relative to F2019 for the banks on a relative basis … Relative to the historical levels, the Canadian banks are currently trading 14%-points above its historical discount to the TSX, whereas peers are essentially in-line to their respective historical levels on average.”

“Canadian banks continue to outperform global peers (CS):” – (research excerpt) Twitter

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TD Securities’ Market Musings report discussed my biggest worry for the Canadian economy – that high debt and inflation will result in an abrupt halt in domestic consumption,

“Higher interest rates and surging inflation have introduced a material headwind to the outlook for household consumption in 2022 and 2023. BoC rate hikes will push the debt service ratio into record territory by 2023, while stronger inflation forces households to increase nominal spending to maintain their standard of living. Excess savings accrued through the pandemic will help to support household consumption amid these headwinds, but they may not be enough to maintain real consumption through 2023. This could produce a scenario where household consumption maintains its current trajectory through 2022, before slowing sharply next year. A sharp erosion of household confidence or protracted slowdown in housing would introduce new risks to this scenario, and we have already seen cracks emerge on this front.”

I note that the U.S. housing market is weakening quickly – taking lumber prices lower with it – as mortgage rates climb, and the U.S. debt disposable income ratio is over 100 percentage points lower than Canada’s .

“Yup, this is exactly what I’m worried about (TD): “BoC rate hikes will push the debt service ratio into record territory by 2023″ – (research excerpt) Twitter

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BofA Securities strategist Anthony Cassamassino updated his top short term U.S. investment ideas, dropping Target Corp. from buy to neutral after the firm’s analyst downgraded the company,

“The List for Q2 still includes eight longs and one short idea across 9 industries. The picks for Q2 are based on our views of potential significant market and business-related catalysts that we think will affect these stocks. Our remaining Buys are Alaska Air, Advanced Micro, Camden Property, DR Horton, lululemon, Signature Bank, Teledyne Tech, and Valero. Our Underperform is AutoZone. Ideas will generally remain on the list through the quarter unless coverage is dropped or the recommendation changes. Any security that is removed will not be replaced.”