canada-1.jpg

Are investors getting ready to bet against Canada — again?

Do the shorts have the courage to go all in against the Canadian banks once again? After all, betting against them has never been a winning trade and the last time the shorts made such a play, they lost - big.

Investors betting against Canada isn’t new and it certainly didn’t work the final time investors felt so pessimistic concerning the country’s future. But a lot of short money is sitting on the sidelines and watching the Canadian banks following the crash in oil prices and also the resulting damage to the country’s economy.

Six reasons the world should be paying more focus on Canada

Postmedia News

North of the world\’s largest economy sits Canada, a wealthy, peaceful, nation that is often overlooked in discussions of the global economy and markets.

It\’s a country that policymakers and investors ignore in their peril. Keep reading.

Interest in shorting – borrowing shares and then selling them with the expectation that they will decline in value and could be bought back more cheaply to make a profit – has returned as new fears arise about the health of the Canadian economy.

The before around, shorts bet the housing industry was on the verge of crashing. This time around they expect a lot of the same, but now have an economic bogeyman they are able to pin their hopes on: oil’s price collapse and the resulting economic fallout.

Dismal economic data has invigorated short sellers this season. Canada’s gdp shrunk 0.2% in January and registered no growth in February. Bank of Canada Governor Stephen Poloz said he expects the first-quarter data will look \”atrocious.\”

The longer that atrocious data continues, the higher the short positions are required to grow.

There continues to be a lot of money waiting on the sidelines to short Canadian banks

\”There is still a lot of money waiting around the sidelines to short Canadian banks,\” said John Aiken, financial services analyst at Barclays Capital.

But do the shorts have the courage to go all in from the Canadian banks once more? After all, betting against them has not been a winning trade and also the last time the shorts made such a play, they lost – big.

Known as the Great White Short, hedge funds 2 yrs piled into a trade that bet bank stocks would plunge because the overheated housing industry crashed. By early 2013, short positions against the country\’s biggest banks such as Royal Bank of Canada were at record levels.

Peter J. Thompson/National Post

Unfortunately for the short sellers, a collapse home based prices never materialized, forcing these to eat huge losses. Bank stocks rallied nearly 20% in the first 1 / 2 of 2013, and short positions had evaporated by the second half of the year.

David Baskin, president and founding father of Baskin Wealth Management in Toronto, points out that since 1948, Canadian bank stocks have averaged an annual return of 10 %. And none of the big six banks have cut their dividends since National Bank of Canada halved its shareholder payout in 1992.

\”One from the great losing bets has been against Canadian banks,\” Baskin said. \”They just keep making money and giving it back to shareholders.\”

Related