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(January 4, 2007) Canadian initial public offerings “all but stopped” in the final three months of 2006, dragging down results for the year, and the outlook for 2007 “looks very dim,” according to the latest PricewaterhouseCoopers survey.

The annual survey of Canadian IPO activity on the TSX and TSX Venture Exchange shows there were 116 new issues, worth $5.8 billion in 2006, compared to 119 new issues, worth nearly $7 billion in 2005. Just five new IPOs on the TSX came out in the final quarter of 2006, a value of $987 million, compared to 19 new corporate and income trust issues worth $1.5 billion during the same period in 2005. No income trust issues followed the October 31 federal government announcement about the new trust taxation policies.

“There is no doubt about the role of income trusts in the Canadian capital market, or about the impact of the federal government’s new policy,” says Ross Sinclair, national leader for PwC’s IPO and income trust services. “Not only has the market for new income trusts stopped in its tracks, the market for all new issues has stumbled. Without a clear view of where the market for new issues is headed, companies have shelved plans for equity financing through the capital markets.”

He says the largest corporate IPO in 2006 was the $525 million issue in the fourth quarter by Air Canada. The largest income trust IPO was the Teranet Income fund offering, worth $700 million.

“The Canadian IPO market has averaged about $6 billion in the past three years with income trusts making up about 60% of the total market,” says Sinclair. “Without any new income trusts in 2007 or any new equivalent, the 2007 IPO market could move down to less than $3 billion. Numbers aside, the reality is that many middle-market businesses will no longer have access to the Canadian IPO market for capital as a result of the federal government’s announcement.”

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CIBC calls for double-digit returns in 2007

(January 4, 2007) CIBC World Markets analysts are calling for another year of double-digit returns on the TSX in 2007, largely driven by the booming global economy. The latest Canadian Portfolio Strategy Outlook report is calling for continued strong demand for energy, gold and base metals to push the TSX composite to 14,250 by the end of the year, despite a sluggish domestic Canadian economy.

The World Markets forecast of 2.2% in Canada’s GDP marks the slowest in the country since SARS and power blackouts in Ontario dragged on growth numbers in 2003. The report points out that the TSX, however, has become a very poor reflection of the outlook for the Canadian economy.

“Motor vehicles and forestry products, for example, are two huge segments of the country’s GDP but are hardly represented in the TSX at all,” says Jeff Rubin, chief strategist and chief economist at CIBC WM. “At the same time, mining and minerals, oil and gas and financial services carry relatively high weighting in the TSX relative to their weighting in the Canadian economy — the energy sector is almost 10 times as important to the TSX than to economy; mining and minerals is about four times as important in TSX market cap than GDP; and the banks and financial services sector is about three and a half times more important to the stock market than the economy.

“While returns will likely be somewhat lower than the 17% yielded by the TSX in 2006, the market’s overall performance will be that much more notable this year in light of a weakening Canadian economy,” Rubin added. “The growing wedge between TSX performance and Canada’s overall economic performance will underscore the extent to which the TSX has far more leverage to strong world growth than weak North American growth.”

The year-end target of 14,250 provides a 12.7% total return on the TSX, roughly double what CIBC expects from the bond market. As a result, the company begins the year with a significant overweight in stocks and underweighting in bonds. “We continue to hold zero cash, freeing up additional room for our equity market overweight,” says Rubin. “Although projected equity market returns will fall short of those achieved in both 2005 and 2006, TSX performance will be all the more impressive when perceived against the backdrop of a visible deceleration in North American economic growth.”

The report recommends overweighting bank stocks: “Canadian bank stocks have historically been the biggest beneficiaries of interest rate cuts and we expect multiple Bank of Canada rate cuts over the year. Those same rate cuts will push long Canada bond yields to record lows, with long Canada yields finishing up the year around 3.5%.”

In addition to banks, the report also recommends a significant overweight in energy stocks, particularly uranium and oil sands producers.

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Global Dividend Fund completes IPO

(January 4, 2007) Fund promoter FrontierAlt Investment Management Corporation announced today that the Global Dividend Fund, managed by MFC Global Investment Management, completed its initial public offering of six million units, raising $60 million, and began trading on the Toronto Stock Exchange on Thursday.

The fund is designed to provide monthly cash distributions and global portfolio diversification by investing in large cap, international companies that are leaders in their respective sectors and countries. The portfolio is comprised primarily of common shares and equity securities of issuers that the manager believes are fundamentally sound but trading at a discount. MFC will be looking for approximately 40 to 60 issuers with strong cash flows and the ability to grow distributions.

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C.D. Howe adds professor to monetary policy council

(January4, 2007) The C.D. Howe Institute has named Thorsten Koeppl, an assistant professor of economics at Queen’s University, to its monetary policy council, which makes recommendations on the Bank of Canada’s interest rate moves.

Koeppl has degrees in management and economics from the Universities of Eichstaett/Ingolstadt and Basle, and received his Ph.D. in economics from the University of Minnesota in 2002.

Before his appointment at Queen’s in 2004, he was a research economist at the European Central Bank and a visitor in the research department at the Federal Reserve Bank of Minneapolis.

Koeppl replaces Richard Harris, a professor of economics at Simon Fraser University, who has been a member of the 12-person council since its inception.

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Brandes launches trio of new funds

(January 4, 2007) Brandes Investment Partners is adding three new funds to its family, all managed by Kim Shannon’s Sionna Investment Managers. Shannon left CI Financial to join Brandes last year.

The three new Funds are Brandes Sionna Canadian Equity, Brandes Sionna Diversified Income, and Brandes Sionna Canadian Small Cap Equity.

“We are pleased to have the new Sionna Funds available to advisors and investors. It is a great start to 2007,” said Brandes CEO Oliver Murray. “Investors who are looking for the disciplined, conservative approach to investing that Sionna has been known to deliver will be pleased with the new fund line-up.

Brandes and Sionna are hosting a series of road shows for advisors starting at the end of the month to introduce the new funds.

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(01/04/07)