The contrarian case for Hong Kong stocks, Rosenberg on when markets will dive, and are Canadians relying too much on savings accounts?
The runaway favourite financial move of early 2020 was to put money in a savings or chequing account.
The analysis firm Investor Economics has released data showing that $42.7-billion went into savings and chequing accounts in the first three months of 2020. Exchange-traded funds took in a net $14.9-billion, guaranteed investment certificates took in $700-million and mutual funds saw outflows of $4.7-billion.
How unusual is the strong preference for savings and chequing accounts during a period of the year that is often focused on investing for registered retirement savings plans? According to Investor Economics, the average inflow into these products from 2017 to 2019 was just $3-billion, while GICs generated $12.7-billion.
Seeking safety in an emergency situation like the pandemic is smart. But you can undo a bit of your good work by parking those savings in a bank that doesn’t pay a serious amount of interest.
Big banks are paying next to nothing in interest these days and in some cases they are offering zero. Higher teaser rates for new clients are available in some cases, but the rate when the offer is done is terrible. Investor Economics said slightly more than $32-billion of the money heading into savings and chequing accounts in the first quarter went to banks alone. That means big banks scooped up billions they’ll lend out at their usual rates while paying virtually nothing in interest.
Though a wide range of interest rates have plunged in the economic downturn caused by the pandemic, you can still get as much as 2 to 2.25 per cent interest at some alternative banks, trust companies and credit unions. As with big banks, deposit insurance is available for deposits at alternative banks through Canada Deposit Insurance Corp. Credit union-owned online banks have their own provincial plans. (Details here about Manitoba’s plan.)
Interest of 2 per cent sounds lame, but consider this. The inflation rate in April fell 0.2 per cent, which means that you’re able to keep all of your gains on an after-inflation basis. A year ago, the inflation rate was 2 per cent.
After-tax gains from savings are another matter. Interest income is taxed at your usual rate, which means you’ll lose some of your gains if they’re not held in a tax-free savings account. But at least you’ll still have something to show for the savings you handed over to a bank, trust company or credit union offering a decent interest rate. The same cannot be said if your money is sitting in a big bank.
-- Rob Carrick
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The Rundown
This is when the stock market rally is likely to unravel – and it’s not going to be pretty
If we go through the summer, and by Labour Day we don’t have a vaccine developed and ready for production and distribution for 2021, David Rosenberg believes this stock market rally is going to be in some serious trouble. The Fed may try to defend the market lows with policy stimulus, but it won’t be able to prevent a retest of the lows if we don’t get a vaccine in that period, he argues. (for subscribers only)
Value hunting? This stock market has become mouth-wateringly cheap
Hong Kong stocks have become mouth-wateringly cheap as Beijing attempts to tighten its grip on the territory and crack down on dissent, writes Ian McGugan. Value hunters with a sense of history may want to take note. One way or another, the former British colony has found ways to prosper since the middle of the 19th century. (for subscribers only)
Strategists eye a steady rally in Canadian equities, but full recovery still a long way out
Canada’s main stock index is set to extend its rebound over the coming months as well as in 2021, but will fall short of previous expectations as the global economy struggles to fully recover from the coronavirus crisis, a Reuters poll in 25 market strategists and portfolio managers found.
Also see:
Funds recommend keeping equity allocations at seven-month low despite stock rally: poll
Oil analysts see prices edging up but still capped below $40 a barrel: poll
Others (for subscribers)
The week’s most oversold and overbought stocks on the TSX
Friday’s analyst upgrades and downgrades
Thursday’s analyst upgrades and downgrades
Friday’s Insider Report: Stocks that three CEOs are trading
Number Cruncher: Seven dividend-paying private equity firms well positioned for today’s economic carnage
Number Cruncher: Fifteen TSX stocks that showed their mettle with first quarter earnings
Ackman dumps Berkshire Hathaway
What’s up in the days ahead
The revival in stock markets over the last two months has been so powerful, nearly every major Canadian listing has participated – all but one, in fact. Tim Shufelt this weekend will report on the company that’s been left behind.
Click here to see the Globe Investor earnings and economic news calendar.
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Compiled by Globe Investor Staff