/Posthaste: Canada’s biggest losers face purge in tax-loss selling — and is globalization dead?

Posthaste: Canada’s biggest losers face purge in tax-loss selling — and is globalization dead?

Good Morning!

Some ugly data out of China has markets on edge this morning. World stocks nudged down and U.S. futures are pointing to a weaker open. “China’s October data painted a grim look at the economy and suggests that President Trump may be on to something when he said that China really wants a trade deal,” wrote BMO senior economist Jennifer Lee this morning. Industrial production, retail sales and fixed asset investment all came in below expectations. China’s National Institution for Finance and Development now expects China’s GDP growth rate to slow to 5.8% in 2020 (from 6.1% this year), which is below the official 6%-to-6.5% target, wrote Lee. “The pressure to agree to a deal is on.”

But what if trade disputes are the new norm? Over the past 20 years the world has enjoyed a wave of globalization driven by technology and policy that has opened trade and capital flows. Now that globalization “seems to have hit a wall”, says Capital Economics senior economic adviser Vicky Redwood. Capital says policy killed the last two waves of globalization and that is looking increasingly likely again. The first wave began to ebb during the First World War and completely halted during the protectionism of the 1930s. The second wave that started in the 1950s ended after Nixon in the early 1970s and was followed by Reagan’s trade restraint polices. Capital says while the U.S., China trade war in itself is not a big deal (trade between the two countries represents only 3% of total world goods trade), “it is a symptom of more fundamental factors in the relationship between China and the West. China’s emergence as a strategic competitor means that some of form of pushback was inevitable whoever the U.S. president happened to be.” Capital estimates a trade war in which every country imposed import tariffs of 25% would knock 4% off global GDP by 2030, “significant but not devastating … However, the one de-globalization scenario that is especially concerning is a deep split between China and U.S.-led economic blocs in which case economic growth and stability could be seriously endangered.” Capital says if de-globalization happens it would contribute to lower asset returns over the next decade, and if it slows economic growth and weighs on markets this effect could be a “major drag on returns.”

Here’s what you need to know this morning:

  • U.S. Federal Reserve Chair Jerome Powell addresses U.S. House Budget Committee
  • Bank of Canada governor Stephen Poloz gives speech to the Asia Economic Policy Conference hosted by the Federal Reserve Bank of San Francisco
  • The Parliamentary Budget Officer will post online a new report entitled “Economic and Fiscal Outlook – November 2019”
  • Barack Obama addresses Montreal Chamber of Commerce
  • Ontario’s financial accountability officer, Peter Weltman, releases expenditure estimates for the Ministry of Transportation
  • Premier Doug Ford speaks at the Ontario Economic Summit
  • Lightspeed POS Inc. to participate in the TD Securities Technology Conference in Toronto
  • Saskatchewan Premier Scott Moe gives a speech to the Saskatoon Chamber of Commerce about the next decade of growth in the province.
  • The Commission of Inquiry into Money Laundering holds public meetings in Prince George, B.C.
  • Rural Municipalities of Alberta 2019 convention in Edmonton
  • Environment Minister Pauline Frost and Energy Minister Ranj Pillai release the draft version of Yukon’s strategy for climate change, energy and a green economy in Whitehorse
  • Notable earnings: Aurora Cannabis, Canopy Growth, Green Organic Dutch Holdings Ltd., Brookfield Asset Management, Cineplex, Freshii, Chorus Aviation, Walmart, Nvidia
  • Today’s data: Canadian new housing price index, U.S. producer price index

It’s that time of year again when investors are looking to reduce their tax bills by dumping losing stocks. The two biggest Canadian losers this year are energy and cannabis shares. According to Bloomberg about 70% of the energy stocks in the S&P/TSX Composite Index have hit one-year lows this year and the iShares S&P/TSX Capped Energy Index ETF is almost flat. Cannabis investors have also had a rough ride with the 10 largest pot producers by market cap yielding an average negative return of more than 57% since legalization last fall. The Horizons Marijuana Life Sciences ETF has plunged more than 50% since its March high. “Such underperformance begs the question: what happens to the sector when tax-loss selling begins?” Graeme Kreindler, analyst at Eight Capital, told Bloomberg.

— Please send your news, comments and stories to [email protected]. — Pamela Heaven @pamheaven

With files from The Canadian Press, Thomson Reuters and Bloomberg


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