Bloomberg: Canadian Stocks Look Cheap

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Many of the equity markets have double-digit percentage growth so far this year. For example, developed European markets like Austria and Denmark are up by 21.4% and 12.9% respectively. Among emerging markets, Chile and India are up by 20.6% and 18.4% respectively YTD based on their benchmark indices. The S&P 500 has increased by a decent 8.34% year-to-date on a price only basis. On the other hand, the Canadian stocks are in the doldrums this year with the S&P/TSX Composite down by 2.2% YTD.

According an article in Bloomberg this week, on a valuation basis Canadian equities are cheaper relative to their American peers. From the article:

An upbeat earnings season hasn’t had much impact on valuations yet. The gap in forward price-to-earnings between the S&P/TSX and the S&P 500 Index is the biggest it’s been since 2008. Several strategists and investors say a gap this big can’t last and will either be narrowed by declines in the U.S. or gains in Canada.

“There’s a good case to be made for the bout of serious underperformance in Canada to subside,” Robert Kavcic, senior economist at BMO Capital Markets, wrote in a recent note.

Any recovery in the S&P/TSX will need energy stocks behind it, given their importance to the benchmark. Although there are plenty of unknowns for oil prices — including OPEC’s commitment to production cuts and U.S. shale producers’ ability to fill the gap — there are also signals that investors are getting more bullish on energy.

Source: Five charts that show Canadian stocks could rise from the dead, Bloomberg via Financial Post

Investors looking to add Canadian stocks can consider some of the companies trading on the US markets. You can checkout the complete list of Canada Stocks Trading on the US Markets.

Income Inequality in Emerging And Developed Countries: Chart

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Income inequality is rising in many countries of the world especially in emerging countries and some developed countries. The Gini coefficient is one way to measure inequality. The higher the number the more inequal a country is. The chart below shows income inequality in emerging and select developed countries:

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Inequality is a major issue in emerging countries due to corruption and other factors.  Among advanced countries income inequality is the highest in the US and low in the Eurozone countries. This is because the US is a capitalist country where capital rules and the winner take all philosophy is followed. Eurozone countries on the other hand follow Socialism where the economy is designed towards social welfare rather than capital accumulation by some at all costs.

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Source: Inequality- is it increasing? What’s driving it? And what it means for economic growth and investors, AMP Capital.

According to the above charts, the US is just one step above emerging countries from an inequality perspective. Whether rising income inequality is good or bad for a country remains to be seen.

Time in the Market is More Critical Than Timing the Market

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One of the important investment concepts that investors have to always remember is the futility of trying to time the market. It is never a wise strategy to time the market – which simply means selling out at market tops and buying back at market lows and repeating the process over and over. Since this process involves predicting the future it is always destined to fail. There is no way to determine the market peak as well as market troughs. Hence instead of trying to time the markets investors are better off just being in the market with a long-term horizon. Or to put it another way time in the market is more important than timing the market. During the Global Financial Crisis(GFC) many investors lost out when they sold out at the peak of the crisis and failed to get back in when markets roared back strongly.

I have written articles before in timing the market using the example of US markets. In a recent article, James Norton, senior investment planner at Vanguard UK discussed about the importance of time in the market.The chart below shows that the return on the FTSE All-Share Index was cut in half when an investor misses the 10 best days of the market. The FTSE All-Share Index represents 98-99% of UK market capitalization and is the aggregation of the FTSE 100, FTSE 250 and FTSE Small Cap Indexes. So its a better representation of the British equity market than the FTSE 100.

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Source: Time in the markets, not timing the market, Vanguard UK

Related ETFs:

  • iShares MSCI United Kingdom Index (EWU)

Disclosure: No Positions

The Big Five Canadian Banks Are Great Dividend Growers

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The big five Canadian banks – Bank of Nova Scotia (BNS), Bank of Montreal (BMO), Canadian Imperial Bank of Commerce (CM), Royal Bank of Canada (RY) and Toronto-Dominion Bank (TD) –  are excellent picks for income investors. They are slow but steady winners in the long-term especially with growing dividends. According to an article at Bloomberg, these five banks have increased their dividends on an average by 64% since 2008.

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Source: Five charts that show Canadian stocks could rise from the dead, Bloomberg via Financial Post

Disclosure: Long all five banks

Australian Stocks’ Growth and Major Events Since 1900

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In an article yesterday we looked at how Australian stocks beat cash and bond since 1900. During this period there we many major political and economic events that shook Australia and the world. In general, investors have always something to worry about. For example, today it is North Korea. Just a while ago it was the US election drama.Before that many years of European debt crisis drama and so forth.

Despite multiple major events since 1900 Australian stocks continued to move upward as shown in the All Ordinaries share price index  below:

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Source: Five great charts on investing, AMP Capital

For investors, there is always something to worry about. In the past stocks have overcome the wall of worry to earn higher returns than cash and bonds.

The key takeaway is that investors cannot wait for an ideal environment for investing in the equity market. There will always be some negative events happening – whether it is fluctuating oil prices, wars or simply threat of wars, recessions, etc. Instead of worrying too much about events that are beyond their control investors should focus on the long-term goal and accumulate assets at cheaper prices when the opportunity presents itself.