Investor sentiment in Canadian banks has begun to sour ahead of earnings this week as short interest positions in the stocks have jumped and analysts have begun to get increasingly skittish about their prospects in a weakening Canadian economy. Canadian financials have been the worst performing among the 10 major sectors on the benchmark stock index year-to-date and the sector has fallen nearly 5 percent in the last three months. Some investors now fear that the banks, a major component of the financial sector, could be in for more pain.
"The Canadian banking sector is under pressure due to tight net interest margins and slowing loan growth. When you look at the amount of leverage banks have on their balance sheets, they are a bit at risk right now," said Kevin Headland, director of capital markets & strategy at Manulife Asset Management.
Canada's three largest banks Royal Bank of Canada, Toronto-Dominion Bank and Bank of Nova Scotia, are among the top 20 most shorted stocks in Canada based on the latest Toronto Stock Exchange data released mid-February. Bank of Montreal, the No 4 player, saw short positions in its stock jump significantly in the first two weeks of February.
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