As the Greek debt crisis meanders toward a conclusion, one veteran investor says it has provided excellent opportunities on the Canadian equities.
“The impact of Greece on the Canadian market has two risks,” says Colum McKinley, vice-president, Canadian equities, CIBC Asset Management, and co-portfolio manager of the Renaissance Canadian Core Value Fund. “The first risk is what affect it could have on the earnings of Canadian companies, but direct exposure is de minimus, given our trading relationship.”
He points out that Greece poses a greater indirect threat, in that it could drag down the broader European economy, which would have a greater impact on Canadian investments.
“The second bigger effect that we’re seeing on Canadian equities, and I would describe this as creating opportunities for a contrarian value investor like myself, is the headline reactions to European bailouts are contributing to market volatility,” he says.
Investors have been over-reacting to the Greece story for roughly a year now, but there are signs that Canadian markets are becoming less sensitive to news from Europe.
McKinley’s portfolio is made up of what he calls the “who’s who of Canadian large cap, blue chip” stocks.
“These are all businesses that have experienced recessions and their own operational challenges; they went through the credit crisis in the United States, they’ve experienced natural disasters. All of them have been able to navigate these challenges, and come out the other side much stronger.”
The Greek debt drama will be simply another milestone for these companies, he says, and volatility is providing an opportunity to buy good companies are reasonable prices.
He says fears that Canadian banks could be sandbagged by Greek debt are overblown, and that exposure to Greece is quite low.
“Canadian banks went through the credit crisis in the United States, and that took place in our own backyard, with our biggest trading partner,” he points out. “Canadian banks were able to weather that very challenging time.”
That crisis represented a real-life stress test for the global banking sector, and Canadian institutions came out on top. As a result of that crisis, all banks around the world were mandated to hold more Tier 1 capital, and the banks now hold 50% more Tier 1 capital on their books than before the crisis.
“While the market will react to further headlines around Greece and Europe, we think the Canadian banks, over the long term, are going to continue to deliver consistent returns for shareholders.”