Canadian stocks could bounce back after the pandemic. One sign this week is encouraging, but investors might have missed it. Some Chinese stocks trading on North American markets beat the recent selloff in equities. The contrast could be attributable to multiple causes in this turbulent month. However, this bullishness could be suggestive of an early post-pandemic recovery pattern emerging in Asian stocks.
A key to the near future of TSX stocks?
Until the uncertainties in the markets abate, the frothiness in equities will be perpetuated. By extension, though, it seems a logical conclusion that recovery similar to that being seen in some Asian stocks might be forthcoming in North American names. Of course, a lot of background volatility makes the situation somewhat opaque. But after the “perfect storm” of the pandemic and the U.S. election, relief could be forthcoming.
Consider the recent rally led by Asian stocks such as Vipshop, NIO, and IQIYI. From auto makers to e-commerce, the names that have been rising are not typical low-risk assets. This backs up the thesis that a relieved market recovering from the ravages of the pandemic will be a tide to lift all ships.
TSX investors could take this as a good omen that beaten-up stocks could recover, as Canada puts a lid on the pandemic. Indeed, a vaccine breakthrough could see some of the worst-affected sectors rising in 2021. Consider the comeback potential of such areas as insurance, hospitalities, and retail.
Don’t expect a quick stock market recovery
Names such as Manulife Financial could be slower to recover, given the likelihood for the pandemic to cast a long shadow over the insurance industry. And other areas, such as the events and entertainment industries, could also see a protracted period of rehabilitation. After all, lost profits are lost forever. But names such as Cineplex, a bellwether stock for a recovery market, could have mountains of upside.
Rallying on relief is one thing. However, the momentum generated by a post-pandemic recovery could turn out to be rather less ephemeral than the public health crisis that preceded it. Investors may want to consider the potential for a post-pandemic plateau, therefore. Take Air Canada, for example. A resumption of normal services won’t see a one-off spike in revenue. Rather, income should improve steadily.
This makes beaten-down names like Manulife and Air Canada potential growth stocks. Imagine an insurance industry, or a commercial flights industry, newly formed and not yet dominated by keystone businesses. An IPO in either sector would automatically be labeled a growth stock. This is essentially what will happen with names like Manulife and Air Canada post-pandemic.
All of the above makes the current period an ideal time to begin building a position in recovery stocks. Instead of backing up the truck, though, Canadians investing for a long-term recovery should build slowly. While shorter-term events are likely to cause brief rallies, the general trend suggests months of depressed stock prices yet to come. This gives investors time to build, however.
