Survey of Canadian money managers provides surprising results

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

PMs like Magnificent Seven but not U.S. market

Scotiabank’s survey of domestic institutional portfolio managers provided some surprising results (for me, at least),

“Institutional investors continue to diversify their portfolio outside the U.S. equity market for a second consecutive survey. Allocation for the TSX and EM ex-latam is going up sharply. At the margin, source of funds seems to be the U.S.. Within the U.S. equity market, 61 per cent of respondents believe the MAG-7 will continue to outperform, with the Technology sector cited as the 2nd most likely to outperform. Gold miners: exposure to the space is growing with no sellers, but only 42 per cent of investors are OW [overweight] while 26 per cent are still UW [underweight]. That’s higher than we would have thought based on recent anecdotal evidence from our recent Toronto marketing tour. Sector preference. Cyclicals continue to appeal to investors. Earnings & valuations. Canada is not screening as cheap as it used to be, but US equity valuation remains too high for 68 per cent of respondents. Surprisingly, that percentage is down from our last survey. Currencies and commodities: Dollar bearishness makes gold shines. Central banks: more rate cuts to come. Cyclicals continue to appeal investors. Industrials, Tech and Materials (i.e. Gold miners) are viewed as the most likely outperformers over the next 12 months. While Tech has been one of the best ranked sectors in the last few surveys, that’s a nice improvement for both Industrials and Materials, which were ranked number 5 and 7 in our preceding survey in July”

I will clarify that while the materials sector is cyclical. The TSX Materials index is dominated by gold stocks, which are only vaguely cyclical. Even so, the move to cyclicals was among my surprises from the survey, in addition to the faith in the Magnificent Seven despite the belief that U.S. stocks are prohibitively expensive.

China unfazed by U.S. tariffs

BMO chief economist Doug Porter highlighted a Chinese economy largely unfazed by U.S. tariffs,

“The latest flurry of tariff threats and partial backdowns between the U.S. and China comes against a staggering reality—China’s overall trade results have barely registered any pain. September data revealed that China’s exports climbed 8.3 per cent year-over-year, even with sales to the U.S. plunging by 27 per cent. How is that possible? Well, sales to the U.S. now barely account for 10 per cent of China’s exports. And exports to the rest of the world, now almost 90 per cent of the total, are thriving. Exports to the EU are up 14 per cent and they’re up 16 per cent to Southeast Asia, a good guide to what non-U.S. sales are doing. At the same time, even the 7.4-per-cent year-over-year rise in imports suggests that domestic activity is doing better. True, some of the uptick reflects inputs for the export machine, but a solid rise in imports suggests the economy is a long way from recession/depression—as the U.S. Treasury Secretary just diagnosed for that economy. Indeed, the IMF’s latest global forecasts kept China’s GDP outlook steady at 4.8 per cent this year (in line with us) and at 4.2 percent next year (we’re 4.5 per cent)”

“BMO - China and the trade war: flesh wounds so far” – (chart, text) Bluesky

Shipping rates imply worsening oil glut

BofA Securities commodities and derivative strategist Francisco Blanch addressed weakness in crude prices,

“Market participants have been sick worried about a crude oil glut for almost a year now, and front month Brent and WTI crude oil prices have come down by about 50 per cent from their respective peaks of $128/bbl and $124/bbl in 2022. Of course, weaker oil prices this year have a lot to do with OPEC+ agreeing to increase quotas within the Group of 8 by about 4 million barrels per day over 18 months starting in April 2025. Oil markets have already been on a surplus for some time, although inventories across the OECD remain low because most excess barrels have gone into Chinese strategic storage. Rapid strategic oil stockpiling in China and a looming surplus in 1H26 have resulted in an odd term structure in Brent: tight in the front, loose in the back. Yet, oil prices have come down quickly in recent days as China reimposed some limits on rare earth elements (REE), the US threatened China with fresh tariffs, and Iran threw down the gauntlet by turning on transponders to show the world where its oil is going … Historically, shipping rates have tended to increase as crude barrels flow into the water. We estimate that a rise in shipping costs today shows up in increased oil-on-water around 4-6 weeks later, and there are some signs that the going daily rate for oil vessels is rising. With oil[1]on-water increasing counter seasonally and at a fast rate too, we note that onshore inventories also tend to build, although this process could take around 3 to 4 months”

Bluesky post of the day

Diversion

“That “Diet” Drink Isn’t As Safe As You Think: New Study Links It to Severe Liver Disease” – SciTechDaily