From a purely fundamental perspective, the big six Canadian banks have underperformed in 2018, leaving much to be desired for investors who were banking on an equity bump, considering average earnings increases across the board for all banks of 11% since 2017.
Certainly, from a past earnings perspective, Canadian banks are performing well. The future (2019 and beyond) appears to be where consensus remains grim at this point in time.
Considering the current economic makeup of the average Canadian consumer, expectations are that Canadian banks may be significantly constrained in the years to come in terms of the ability to continue to grow mortgage portfolios and other domestic lending products.
Canadians have the highest debt to household income ratio in the G7, causing concern among economist and analysts alike, with at least one analyst recently downgrading his outlook on Canada's banks for primarily these reasons.
Most Canadian banks have been looking outside of Canada for growth, with most lenders focusing on picking up small regional lenders throughout the U.S. and Central America (and some European banks as well).
The Canadian economy is one which is expected to grow slowly, if at all, and it is no wonder why Canadian banks have underperformed global counterparts this year, retaining lower valuation multiples than most global U.S. or European peers.
I expect this trend to continue, and would caution investors who are thinking about buying the dip in Canadian banks - wait until a more serious recession before picking up shares.
Invest wisely, my friends.
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