Investor aversion to Canadian banking stocks intensifies amid housing slowdown

by Ephraim Vecina14 Aug 2017
Investors are being scared off by Canada’s banking stocks as a noticeable slowdown in the national residential property market is pointing towards dim prospects for banks’ future growth, industry observers warned.

The same investors are gravitating towards insurance companies (and higher interest rates) as a more reliable bet—a development that might cut into banks’ revenue streams, which largely rely upon mortgage and loan payments.

“Once Toronto started getting hit I think the housing fears became much more front-of-mind for a lot of people,” Manulife Asset Management equity analyst Ian Scott told Reuters. “I think now when you get a move higher in yields and you are looking for financial exposure in Canada, the incremental dollar seems to be flowing into the [life insurance companies] rather than the Canadian banks.”

Canadian bank shares have struggled despite the BoC’s recent increase in its policy interest rate, a step that might further bog down the real estate sector’s growth.

Banks’ net interest margins “are lagging because of questions over how the changes in the housing market are going to be affecting them,” Portfolio Management Corp. managing director Norman Levine explained.

Toronto home sales have dramatically declined by over 40 per cent year-over-year in July, while prices fell by almost 19 per cent from April. These results came in the wake of the implementation of various measures (including a 15-per-cent foreign home buyers’ tax) intended to moderate the market.

COMMENTS

  • by 8/14/2017 11:32:45 AM

    Safest banking system. Not deregulated and conservative.
    Survived 2008. Stock may not be a rocket but steady as you go.
    Still making millions.

  • by John Torsen 8/24/2017 1:53:43 PM

    Absolutely. Canada's bank stocks are some of the safest in the world...

  • by Atul Prakash 8/25/2017 12:09:26 PM

    Canada's Banking Stocks are kept high due to extraordinarily high interest earnings from their Mortgage Formula.
    No wonder they employ an army of IT Consultants to manipulate how their Mortgage Formula really works for the benefit of the Banks and against the Property owner. Perhaps the legislation is bound by some rule to help the Bank's grow rich by a minimum of 8.5 % return, irrespective of the Capital Market Performance.

    Nothing against the Banking Institutions. This is simply the way our well fed Monopolies thrive on the backs of our home owners.No wonder the Banking Institutions have carved their presence on every corner of the street. They have the steady money flow.

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