Tuesday, November 14, 2017

Canadian banking stocks weigh on domestic and U.S. trends

For the bigger part of 2017, the Canadian banking stocks’ performance was unimpressive. But since the interest rate increase on September 6 and the publication of strong financial results for the third quarter, many banking stocks broke their historical records. Over September and October, the S&P/TSX Capped Financial Index grew by more than 10%. Among the biggest winners have been the stocks of TD Bank and Royal Bank of Canada which jumped by 13%-15% over that period.

One of the factors, which lifted the banking stocks, was the planned tax reform in the U.S., announced in early October. This reform includes reduction of the corporate income tax from 35% to 20% which could drive vast amounts of funds from the offshore accounts to the U.S. banks. TD Bank has the biggest exposure to the American market among Canadian banks – it has more than 1,000 offices in the U.S.

However, after the statistics came that the Canadian GDP dropped by 0.1% in August and it became clear that the Bank of Canada will hardly continue raising the interest rate soon, the Canadian banking stocks have shown signs of weakness. On the back of this weakness, some market experts have suggested that it was time to take the profits by selling the banking stocks.
At the same time, different banks have different pro’s and con’s when it comes to valuations of their stocks stemming from varying degrees of their American exposure, their capital positions, prospects for dividends and other factors. It is a good idea to turn to investment professionals while making decisions to buy or sell stocks.

Ukrainian Credit Union Limited

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