The news of alternative lender Home Capital Group’s death in recent weeks continues to be premature, as the company refreshes its leadership team and secures new funding, giving it time to reassess its strategic direction. However, Home Capital’s woes have cast a long shadow over Canada’s Big Six banks. All of the Big Six reported higher year-over-year profits and either met or exceeded analyst expectations. Some of the banks took the additional step of increasing their dividends, yet stock prices for all of the banks have come down since March.
Home Capital may be one of the reasons the Canadian banks are underperforming. An overheated housing market is another. The new measures the Ontario government has brought in have, at least in the short term, had their intended effect, cooling the GTA’s red hot market a degree or two. However, as we saw with the Vancouver market, the effect may be short lived as buyers and sellers gain a better understanding of what the new measures mean for them.
As markets take a wait-and-see approach to the housing market, the banks, and the upcoming NAFTA renegotiations, it’s the perfect time for investors to be investing more in Canadian banks.
The Canadian economy continues to chug along
The markets may be in a holding pattern, and the Canadian dollar may continue to be in a slump, but Canada’s economy certainly isn’t. Statistics Canada is reporting that the country’s economy expanded 3.7% in the first quarter, putting Canada ahead of all other Group of Seven nations in growth.
The irony is that much of the growth comes as a result of energy prices, which, while below recent increases, are significantly higher than last year’s lows. At the same time, the housing boom, particularly in Toronto and Vancouver, is fueling growth in the construction industry and creating a new level of wealth for citizens that spills over into the consumer goods market as people feel more inclined to spend.
Canada’s trade surplus, a double-edged sword as we enter NAFTA negotiations with the US, also rose to a three-year high in April.
Take a breath, run a marathon and protect your Achilles heel
As the markets take a breath, it may be time for investors to do the same. The summer is almost here. It’s time to focus on the things we enjoy. Gardening, going to the cottage, or getting outside for some exercise.
That’s certainly what Sabrina is doing. She’s training for a marathon. She completed a half marathon over the weekend and is on track to meet her goal of completing a full marathon in January.
I’m not quite as active as Sabrina is at the moment. If I could impart any advice this month, it would be this: don’t tear your Achilles heel. It’s a gift of slow mobility that keeps on giving. However, not all is lost. Because I can’t drive, my daughter is picking me up every morning and driving me to work. That alone has been worth every spasm of pain and moment of aggravation as I hobble my way back to health.
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