Soft-landing bets fuel Canadian bank stocks despite real estate worries
BNN Bloomberg
Canada’s economy is stalling, the unemployment rate is rising and housing costs are crushing some households. The country’s banks are exposed to all of that, yet their shares are surging.
A major index of Canadian bank stocks is up 11 per cent since the beginning of November, erasing most of the year’s earlier losses. When dividends are included, investors have actually made a small profit so far in 2023 — in contrast to the KBW Bank Index of U.S. lenders, which is still in the red.
The rally is a bet on a softer economic landing in 2024, one in which bank profits won’t be badly damaged by the financial squeeze that’s hitting Canadian households because of mortgage-rate resets and higher rents.
For the Big Six banks, earnings per share dropped more than six per cent, on an adjusted basis, in the fiscal year that ended Oct. 31. They’re expected to decline an average of 1.1 per cent in the current fiscal year, according to analyst forecasts compiled by Bloomberg.
