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GameStop Craze Collapses and Canadian Finance Dynamics Shift


Michael Chen

March 27, 2024 - 13:29 pm


GameStop Shares Plunge as Meme-Stock Mania Fades into Financial Realities


Dismal Earnings Dishearten Investors

This morning, a grim reality has settled for supporters and investors of the once-viral GameStop as the company released its financial results post-market on Tuesday, falling short of the market's analytical projections. The retailer, renowned for its presence in the gaming industry, saw its revenue diminish by nearly 20 percent. Consequently, GameStop's stock dipped in premarket activity. As reports pour in, the trading figures reveal a stark depreciation with shares now exchanging hands at roughly US$15 each. This current valuation signifies a drastic 80 percent nosedive from its zenith in early 2021.

During this period, retail investors from forums like Reddit skyrocketed the company's valuation by embarking on a mission to outmaneuver Wall Street hedge funds in a short squeeze. However, those who invested at the peak of this phenomenon have yet to see their anticipated returns, with little solace found in the company's latest quarterly outcomes. Meanwhile, the fervor that once bolstered GameStop seems to have largely redirected towards other emergent entities such as Reddit and former President Donald Trump's Truth Social platform, both of which have recently witnessed their stocks doubling in value after going public.

Canadian Big Banks Tighten Grip On Mortgage Lending

Canada's banking landscape is undergoing a noticeable transformation, particularly in the lending practices of its major banks. According to Peter Routledge, head of the Office of the Superintendent of Financial Institutions (OSFI), Canada's banking giants are beginning to curtail the volume and value of ultra-long mortgages—a move that resonates positively with the country’s banking regulator. During a conference in Montreal, Routledge provided insights into how the pandemic era saw a considerable swell in the banks' mortgage underwriting practices, forming a "pocket of risk" that raised concerns at OSFI.

However, recent shifts have been encouraging, with present trends reflecting a reversion from the excessive lending that paired with the housing boom prior to interest rate hikes in 2021. At that time, a surge in mortgage disbursal—40 percent over the average—and the prevalence of variables rate mortgages were noted. Banks reported having $220 billion worth of housing loans with amortization periods surpassing 35 years. Though still high by historical metrics, this is a substantial decline from the stratospheric $300 billion mark witnessed at the height of the lending frenzy.

The Shifting Commercial Real Estate Paradigm

The commercial real estate sector is showing persistent strain as the pandemic's long-term impacts continue to reshape how office spaces are valued and utilized. A striking illustration of this ongoing trend is the sale of a Los Angeles office tower, once owned by TSX-listed Brookfield Asset Management—which defaulted on its loan last year—is now being brokered for a mere 50 percent of its prior borrowed value. Bloomberg has revealed that South Korea's Consus Asset Management is poised to acquire the property at 777 S Figueroa St for a sum of about US$145 million, a figure starkly contrasted with the $289 million owed by Brookfield upon defaulting.

The sale is symbolic of a greater trend of revaluation within the office building market, a side effect of the pandemic's economic disruptions. Another headline-grabbing transaction involved the Canada Pension Plan, which recently agreed to an eyebrow-raising sale of a Manhattan office tower for as low as $1.

Unprecedented Growth in Canada's Population

As the curtain rises on new demographic data, it is clear that Canada’s population growth has hit unprecedented levels. In the latest report from Statistics Canada, it is noted that the nation's populace expanded by an impressive 1.3 million over the preceding year, reaching a record-setting total of 40.8 million. This growth spurt, unique in its magnitude, is primarily fueled by immigration rather than the rate of births.

While a noteworthy 2.4 percent uptick can be attributed to net births—a notable figure for a developed country—it’s the influx of new Canadians that forms the crux of this population boom. It's as if the size of cities like Calgary were seamlessly integrated into the Canadian demographic tapestry over a single year. Yet, the landscape of immigration might be on the cusp of change. Recent regulatory amendments which include caps on the numbers of temporary residents and international students signal a potential deceleration in this burgeoning growth. How this shift will influence Canada's housing market and employment sectors remains to be closely watched.

Alberta's Pension Fund Targets Asian Expansion

Within the context of an ongoing debate about the geographical focus of Canadian pension funds, Alberta's pension fund, AIMCO, disclosed its plans to significantly expand its investment footprint in Asia. Bloomberg reports that Alberta Investment Management Corp. aims to bolster its portfolio of Asia-based assets to represent approximately 10-15 percent of its total holdings. This strategic pivot marks an increase from the current single digits and comes amidst a recent call to action from numerous chief executives for Canada's major pension plans to invest more heavily within the country’s own shores.

An open letter, underscoring the virtues of domestic capital allocation, highlighted how such strategies could simultaneously fortify both the economy and the performance of the pension plans themselves. One of the letter’s vocal proponents, Daniel Brosseau of Letko Brosseau based in Montreal, took his advocacy to the airwaves on BNN Bloomberg on Tuesday, emphasizing the potential benefits an increased Canadian investment focus could offer.

Banks reducing ultra-long mortgages, Canada watchdog says

Population gains in Canada set record, but slower growth ahead

Alberta pension fund seeks to grow Asia asset exposure to 15%

In summary, today's highlights in the business world paint a complex picture. From GameStop's waning kingdom of meme-stock dominance to the adjustments seen in Canadian mortgage lending practices, and from transformations in the commercial real estate market to the demographic waves shaping Canada's population profile, global factors are redefining the economic narrative. Add to this the strategic investment trends of Canadian pension funds, which indicate a broadening horizon of opportunities beyond domestic borders, particularly in the burgeoning markets of Asia. Each of these facets contributes to a multilayered economic tale—an interplay of cautionary downturns, policy-driven changes, and venturesome growth strategies, all unfolding as integral strands of the macroeconomic tapestry of our time.