For the first time since the big financial crisis in 2008 hit the world, Canadian investors are pessimistic to banks. In case you practice portfolio diversification; odds are you’re investing into at least one bank in Canada. According to experts, this year is going to be a rough one. No, it’s not that bad but the earnings per share growth of Canadian banks were reduced significantly. That should be worth checking.
A slowdown in consumer lending household debt caused the steady earnings per share growth of Canadian banks to be halved. That means the once 10% we’ve come to expect as the lowest earnings per share are now a dwindling 5%. Such sector of Canada has always been considered impervious. Well, I guess we’re wrong about that. For those who knew the big fraud led by various central banks in the past, I wouldn’t get shocked to discover you still don’t trust them. In case you missed it, I recommend that you browse the blog archives of The Day Trading Academy.
Because of the sudden event, commercial lenders shouldn’t be optimistic when borrowing to the country’s central bank. And the reason for that is obvious; they the banks don’t have a choice but to curtail what they take on. According to John Aiken (analyst at Barclays Capital) -The central bank’s interest rate cut won’t be of much help to commercial lenders. A quarter-point cut is unlikely to entice overstretched consumers to borrow more.
Patrick Kim (partner at Georgian Capital Partners) on the other hand points out that the cut is positive for equities in general and may encourage more investors to move out of bonds and transfer their money to stocks instead. In truth, insurance companies will be the ones who will suffer the most from the low rates. This could prompt investors to shift their investments to banks instead.
Be that as it may, as long as we understand various economic changes and knows how to deal with them through various means e.g. portfolio diversification –everything’s going to be alright.