DIARY OF A PORTFOLIO MANAGER
“Someday, love will find you
Break those chains that bind you
One night will remind you
How we touched and went our separate ways”
Separate Ways (Worlds Apart) - Journey
December is finally upon us. So far so good.
Worlds Apart
The Journey song referenced above is one I find somewhat OK and somewhat fun to play. However, when I look at the lyrics, I am underwhelmed. Not sure if rhyming ‘you’ with ‘you’ and then ‘you’ again constitute really memorable lyrics that are noteworthy.
So, why do I reference a mediocre song from 1983? I invite you to read / listen to our latest commentary called “Worlds Apart: The chip industry's reshoring revolution”. You may wonder why I didn’t reference the Bruce Springsteen song called Worlds Apart. It crossed my mind but seemed too expected.
Apparently, people like to listen more than they like to read which is why podcasts and audiobooks are gaining popularity. I am giving you two options this week. What is the point of this piece?
Economic and national security concerns have countries striving to bring chipmaking back home. Frédérique Carrier, RBC Wealth Management’s Head of Investment Strategy for the British Isles and Asia, and Kent McClanahan, RBC Wealth Management’s Head of Responsible Investing, discuss the reshaping of the semiconductor industry and the opportunities arising from this strategy.
Listen
Listen here (approximately 11-minute duration).
Read
Please see our “Worlds apart” article on the reshaping of the semiconductor industry.
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Canadian Banks
The month of November finished on a high note, marking one of the best months this year for global equity and fixed income markets. This strength reflects growing confidence that inflationary pressures are easing, central banks are largely finished with their rate hikes, and economic growth is moderating in an orderly fashion, even in the face of tight financial conditions. My focus this past week was on the Canadian banks, all of which recently reported quarterly results.
Throughout the year, expectations for the Canadian banking sector have been overwhelmingly negative. That helps to explain the group’s lackluster stock performance year-to-date and even back the past two years. The anticipated turn in the credit cycle is a key factor, with a growing number of households and businesses expected to struggle with debts repayments as a result of higher interest rates.
This quarter’s bank earnings suggest credit trends are deteriorating, evidenced by delinquencies rising across various loan categories, including automotive loans and credit cards. Banks also made sizable additions to their provisions for future credit losses as they continue to prepare for challenges that may lie ahead. However, the turn in the credit cycle has been gradual compared to some investors’ expectations, suggesting consumers and businesses have, on average, weathered higher interest rates as well as can be expected so far.
Overall, I see the bank results as neither concerning nor inspiring. The results weren’t as dire as some anticipated and banks have demonstrated a level of prudence as they prepare for a range of economic scenarios that could develop. Pressures are indeed likely to mount with an increasing number of customers facing higher costs of living. Nevertheless, these headwinds are reflected to some degree in the valuations of the bank stocks, which sit near historical lows.
The banks seem reflect the broader economic issues that exist in Canada. Namely, growth is sluggish, but not terrible. Higher interest rates are having an impact but there are limited signs of significant stress.
Have yourself a great weekend,
