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(November 11, 2008) The remainder of 2008 should pass without another major meltdown in the equity markets, according to a report from CIBC World Markets, which suggests that the market has bottomed out.

“We are cautiously optimistic that we can ride out the balance of the year without any further systemic shocks,” says Jeff Rubin, CIBC World Markets chief economist and chief strategist, in his latest monthly Canadian Portfolio Strategy Outlook Report.

Rubin cites the London interbank offered rate (LIBOR) as a source for this optimism, as the rate has been falling from the highs it set in late summer. This indicates that banks see less risk in short-term lending to each other.

The $586-billion US stimulus package announced by China on Monday is another reason for Rubin’s optimism. Beijing plans to spend much of the cash on infrastructure investments, as well as on stimulating domestic consumption. That bodes well for Canada as an exporter of resources.

The package “could add as much as 3% to that country’s growth over the next two years,” Rubin says. Better still, he predicts that the U.S. will likely follow suit with yet another stimulus package of its own.

When the markets will start to climb again, however, is still in question. He points out that there is little support for a sustained rally on the TSX, as the global economy is expected to remain sluggish.

“There is little doubt in the wake of Q3’s GDP decline and bleak manufacturing and employment data that the U.S. has now joined the Eurozone, Japan and most other OECD economies in outright recession,” he said in the report.

Historically, the TSX takes an average of three years to recover from peak-to-trough declines in excess of 20%. This time around, however, the decline has been much steeper; the downturns of 1973 and 2000 took three times longer to generate similar losses. This gives Rubin hope that the turnaround will also be accelerated.

His team predicts the S&P/TSX Composite Index will end 2008 at 9,500 and should hit 12,000 again by the end of 2009. He is adjusting the CIBC Canadian Portfolio, shifting 1% from cash to bonds. Within the equity allocation — which remains at a market weight of 53% of the portfolio — 1% is being moved out of energy into consumer staples.

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CFA Institute beefs up risk management guidelines

(November 11, 2008) The CFA Institute, which administers the Chartered Financial Analyst (CFA) designation, is seeking public comment on a proposed risk management requirement to its Asset Manager Code of Professional Conduct (AMC) .

The CFA Institute Centre for Financial Market Integrity says the proposal establishes a more detailed risk management process that identifies, monitors and analyzes the risk position and exposure of a manager. The new provision would provide asset managers with guidance to address many of the risk management concerns that have risen from the current market crisis.

According to the provision, the types of risks faced by managers include, but are not limited to, market risk, credit risk, liquidity risk, counterparty risk, operational risk and style drift. The CFA Institute says risk management that is objective and independent of the portfolio management process is imperative to controlling these types of risks.

“We can think of no more important addition to the Asset Manager Code than to expand its focus on more thorough risk analysis procedures,” said Kurt Schacht, CFA, managing director of the CFA Institute Centre. “It is easy with hindsight to say that managers should have been much more aware of counterparty and liquidity risk in our sub-prime era. At this point, investors believe that it is more important to help refocus and fix the process than to point fingers.”

Risk management will likely also be added as the seventh principle in the CFA Institute Code of Ethics and Standards of Professional Conduct. The seventh principle will state that charter holders should: “Establish a risk management process that identifies, monitors, and analyzes the risk position of manager portfolios, including the sources, nature and degree of risk exposure for both individual securities and the total portfolio.”

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Alpha sees volume near 1.7 million shares

(November 11, 2008) As of Friday, the TMX has a new competitor, as the Alpha Group launched its new alternative trading system. So far, the system offers only trading and market data of 10 listings.

By the end of the second trading day on Monday, 1,698,828 shares, worth $22,785,128, had changed hands. About 30 dealers have signed on to the new system.

“Volume and value traded are key success indicators,” CEO Jos Schmitt said on Monday, “but what struck us most today was the liquidity on Alpha ATS. Throughout the day, Alpha ATS was often showing the greatest liquidity at equivalent or better bid and ask spreads than other market places, despite the fact that many dealers are still ramping up their capabilities to trade on Alpha.

(11/11/08)