“Cautious optimism” is defined as an overall feeling of confidence about something while still being ready for possible hurdles and potential failure. While this is a general feeling for practically any situation, this is largely the sentiment of investors thinking about buying the Bank of Nova Scotia stock.
For one, Scotiabank stock has not been performing impressively in the most recent trading. Based on how the stock is moving at present, Paul Bagnell of BNN Bloomberg described the stock as a “2018 laggard,” noting that as of Dec. 24, the shares are somewhat sluggish, declining at 14.7 percent with dividends at minus 11.9 percent.
Motley Fool, meanwhile, said the stock had already entered a bear market mode.
In both reports, the slowdown was largely attributed to global trade tensions and political instability.
On the other hand, this slowdown may just be a preparation for a complete pivot while rewards of two major Scotiabank acquisitions this year remain to still be simmering to its complete boiling point by 2019. Scotia bought 51 percent of Banco Cencosud in Peru in May and acquired Jarislowsky Fraser in February.
Investors eyeing Scotiabank stock, therefore, seem to have two options at present: they could either adopt a mindset that has no problem enduring what could either be short-term volatility or they could sit back a little, don’t touch the stock and observe developments at least until the end of the year.
U.S. political instability batters stocks in the emerging markets
Elsewhere in the emerging markets, across Latin America, including Peru, an overall tremble of instability could be felt due to the geopolitical situation and global trade tension.
The weekend before Christmas saw the U.S. government on a partial shut down following disagreement among the American president himself and members of his administration. The partial shutdown is expected to linger until January as reports emerged that U.S. President Donald Trump has reportedly said he plans to fire Federal Reserve Chairman Jerome Powell.
Reuters reported that emerging market stocks tumbled to a two-month low as the partial U.S. government shutdown awaken fears over an economic slowdown on a worldwide level.
The shutdown began on Dec. 21 when Trump and his officials argued over their 2019 budget plan that excluded the $5 billion allocations the president wanted to build an intended wall at the Mexican border. Due to disagreement, nine departments were closed. Closure included the departments of Agriculture, Commerce, Justice, Homeland Security, Interior, State Transportation, Treasury and Housing and Urban Development.
As of Dec. 25, Trump said his government would remain closed until he gets that budget for the wall.
“I can’t tell you when the government’s going to be open. I can tell you it’s not going to be open until we have a wall or fence, whatever they’d like to call it,” Trump was quoted as saying during a Christmas program at the White House.
Peru’s economy fluctuates on global and local stimuli
Peru is currently exhibiting unpredictable behavior as it reacts both on worldwide and domestic market conditions.
As its local currency battles global trade uncertainties, President Martin Vizcarra’s steps to expose and end corruption tied to Odebrecht have been promoting positive investors sentiments.
Odebrecht is a large Brazilian construction plant found to have paid hundreds of millions of bribes to a dozen countries to secure contracts for public projects. Top government officials, politicians, and big-wig businessmen were implicated in the case dubbed as Peru’s largest corruption scandal to date. Vizcarra is at the forefront of the fight against the construction giant and this has been making investors upbeat about the Peruvian market.
At the same time, however, there had been a 2.4 percent decline in Peru’s economic growth in the third quarter year-on-year as global tensions affect its mining sector. Peru is the world’s second-largest copper producer and a decline in international investments in its mining industry has slightly affected its economy this year, according to Hugo Perea, the country’s deputy economy minister. The slowdown was noted in October.
The ongoing U.S.-China trade war has also weighed on the country’s currency and global mineral prices, Perea said at the time.
The deputy economy minister nonetheless has remained upbeat, saying that the present economic slowdown is temporary and will recover on government spending and revenues from its fishing industry.
Should you bet on Bank of Nova Scotia stock for 2019?
Investors should remain perceptive when it comes to making decisions on the stock. For Bagnell, Scotiabank stock could put a popular market principle to a test.
“[T]here are good reasons to challenge the ‘this year’s laggard is next year’s outperformer’ thesis on Scotia,” he wrote on BNN Bloomberg.
“How successfully Scotia integrates those new businesses, and how well it drives returns higher, will be crucial to the Scotiabank story in 2019,” he added.
Bagnell described Scotiabank’s acquisition of Peru’s Banco Cencosud and Canadian investment firm Jarislowsky Fraser as “the game changers.”
Indeed, the bank seems to be betting on these acquisitions as well.
During its fourth-quarter financial report, the bank said its targeting annual earnings growth of 7 percent or more in Canada and 9 percent growth in its international earnings in 2019. Scotiabank had also reported a 13 percent increase on its net income, or $2.35 billion compared to analysts’ prediction of $2.24 billion.
Reuters reported at the time that the increase was driven primarily by the bank’s international business which earnings grew by 18 percent. The Pacific Alliance trading bloc comprised of Peru, Mexico, Chile, and Columbia propelled the growth of the bank’s business overseas. The bloc accounted for a quarter of the bank’s earnings.