Chalk up another once for the good guys!
The S&P/TSX Composite Index (TSX:^OSPTX) tallied its fifth straight week of gains. As of the close on Friday, the index is sitting within 700 points of its all-time high.
However, there were a number of important corporate and economic reports for investors to digest as well. Here were the top five can’t-miss stories from the past week.
1. Pimco sees 10% to 20% decline in Canadian real estate prices
The world’s largest bond fund is predicting big declines for the country’s overheated housing market.
Ed Devlin, head of Pimco’s Canadian investing division, told on Monday that he sees housing prices declining 10% to 20% in real terms over the next three to five years. Though in nominal terms, Mr. Devlin sees prices flat to down 10%.
“I’ve been talking with clients and writing about how the housing market is overvalued,” Devlin said in an interview with the Financial Times, “the change this year would be that I actually think it starts this year.”
To be clear, Mr. Devlin is not forecasting any sort of market crash. In his view a sudden drop in housing prices would have to be accompanied by some sort of unexpected development, such as a sharp rise in unemployment or interest rates, which he thinks is unlikely.
However, Pimco joins a growing list of groups, including the Organization for Economic Co-operation and Development and Deutsche Bank, that are growing cornered about the Canada’s real estate market.
2. Has the Loonie hit bottom?
David Rosenberg, Chief Economist at Gluskin Sheff & Associates, suggested this week that the Canadian dollar “seems to have managed to find a bottom here” at just above U.S. $0.90. Mr. Rosenberg cited a few reasons to back up his case.
First, the country’s economy is ramping up. Last week’s reading of fourth-quarter economic growth was higher than expected, at 2.9% annualized. The factory sector may be “springing back,” based on the latest pick-up in the Royal Bank of Canada manufacturing purchasing managers index.
Second, Bank of Canada Governor Stephen Poloz has “stopped sounding ‘dovish” with fears of deflation easing. The bank also appears to be more comfortable with the current value of the dollar.
For all of the talk about fluctuating exchange rates, it hasn’t been a big concern for those of us at Motley Fool Canada. We have found that when it comes to investing it’s far more profitable to focus on wonderful businesses trading at reasonable prices. Over the long run, currency fluctuations tend to balance themselves out and these discussions tend to be a distraction from that main task.
3. Enbridge clearing the kinks
There was lots of good news for Alberta’s oil sands industry this week.
On Tuesday, Enbridge (TSX:ENB)(NYSE:ENB) announced a $7 billion replacement of a major oil pipeline in order to boost shipping capacity to the United States. The replacement will allow the company to skip a U.S. State Department presidential permit process that has led to long delays in decisions for TransCanada’s contentious Keystone XL pipeline.
In addition, on Friday, the National Energy Board approved the company’s plan to reverse the flow and increase the capacity of its Line 9, a pipeline that has been running between southern Ontario and Montreal for years. The new plan will allow Enbridge to ship 300,000 barrels of per day through the line to refineries in Montreal.
The bottom line: Landlocked oil sands bitumen is finding a way to access the market with or without the Keystone XL pipeline. That’s good news for producers like Suncor, Cenovus, or Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ).
4. Scotiabank hikes dividend
The company’s first-quarter earnings jumped 6.5% to $1.7-billion. After stripping out one-time items, the bank reported a profit of $1.34 per-share, roughly in line with what the street was looking for. The strong performance allowed the company to hike its quarterly dividend by 3% to $0.64 per share.
Apparently, Scotiabank didn’t get the memo from Pimco. During the first quarter, the bank’s Canadian personal and commercial banking business saw net income jump 7% year-over-year to $575 million. The key driver of this strong performance was higher demand for credit and a housing market that continues to perform well in spite of claims of being overheated an overheated housing market.
5. Canadian Natural also bumps its payout
The dividend party wasn’t limited to the banking sector. Canadian Natural Resources also hiked its payout following a sharp bump in fourth-quarter earnings.
The company posted a quarterly profit of $413-million, up 17% year-over-year. This solid performance allowed the energy giant to boost its quarterly dividend to 12.5% to $0.225 per share.
CNRL also posted a record cash flow of approximately $7.5-billion, up 24% compared to the same period in 2012, thanks to higher prices for oil sands bitumen and strong operating performance.