Standard Life Plc increased investments in Canadian equities for the first time since 2009, betting that prices have plunged to levels justified only if the U.S. economy contracts, which the firm says is unlikely.
Standard Life Investments Inc., the insurer’s Canadian asset-management unit, has boosted its allocation to equities in the nation, buying shares of larger base-metals, energy and industrial companies in the past month, said Charles H. Jenkins. The unit, which oversees about C$5.7 billion ($5.6 billion), has sought stocks most-tied to economic growth.
“This is a mid-cycle slowdown, subpar growth, but we’re going to muddle through it,” said Jenkins, a senior vice president for Canadian equities at the unit. He spoke during a telephone interview yesterday. Standard Life, based in Edinburgh, is Scotland’s largest insurer.
Canadian stocks entered a bear market this month, with the Standard & Poor’s/TSX Composite Index falling more than 20 percent from its peak in April, amid concern that the U.S. economy is stalling. The index has rebounded 6.6 percent since then after European leaders said they are working toward a solution to the region’s sovereign debt crisis. Oil and metals prices have also rallied, driving up their producers in Canada.
The index’s price relative to earnings forecasts for the next 12 months dropped to the lowest level since March 2009 on Oct. 4, while the yield on Canadian 10-year government bonds declined to a record low last month. That made equities too enticing to pass up, Jenkins said.
“If you look at some of the metals stocks, they’re down 50 percent,” said Jenkins, who declined to name the stocks he bought. “Their balance sheets are pristine.”
Base-metals and coal companies in the S&P/TSX have less than one-third the debt relative to equity they had at the end of 2008, according to data compiled by Bloomberg. The stocks have tumbled 40 percent since Feb. 8.