David Rosenberg says there’s a big problem with Canada’s ‘face-ripping rally’ in material stocks – by Eric Lam (Financial Post – May 18, 2016)


Bloomberg News – Canadian raw materials stocks are having their best start to the year in at least three decades. Some analysts say the rally is missing a fundamental underpinning — economic growth.

A gauge of the country’s largest raw-materials companies including gold, copper, lumber, and fertilizer producers soared 41 per cent through May 16, the best year-to-date performance since at least 1988, according to data compiled by Bloomberg. The rebound comes after materials stocks slumped 23 per cent in 2015, capping a record five-year decline in which the gauge lost 63 per cent of its value.

“I’ve got three words for you: Dead. Cat. Bounce,” said David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates Inc. in Toronto. His firm manages about $8.2 billion.

“There is no fundamental long-lasting recovery in the commodity space without global demand growth shifting course and accelerating, and that’s just not in the cards in the foreseeable future. It’s completely overbought at current levels and I wouldn’t draw any comparisons to the past.”

The rally in the S&P/TSX Materials Index, which includes companies such as Teck Resources Ltd. and Barrick Gold Corp., has helped drive the broader S&/TSX Composite Index up 6.8 per cent this year, the second-best performing developed market after New Zealand.

Previous Rebounds

The closest rally to the current one was a 29 per cent increase over the same time period in 1993 as the Canadian economy rebounded from recession. The index also rose 28 per cent through May 10 in 2006, the second of three straight years of economic growth above 12 per cent in China.

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