Manulife Financial Corp. (MFC), the largest insurer in Canada, is on pace for its biggest weekly gain since May as rising interest rates boost investment income used to pay out annuities.
Manulife rose 1.5 percent to C$16.80 at the close of trading in Toronto today, its highest since July 8, 2011. That brought the advance for Toronto-based Manulife to 7 percent this week, the most since a 7.1 percent rise the week ended May 3. Sun Life Financial Inc. (SLF), Canada’s third-biggest insurer, earlier jumped to C$31.23, its highest in more than two years before closing at C$30.87.
“Simply put, the accounting and regulatory model for lifecos mean that the higher the rates, the more likely that investors in lifecos will get dividend increases,” Tom MacKinnon, analyst at BMO Capital Markets in Toronto, said in a note to clients yesterday.
Manulife’s stock could reach C$22 by the second half of 2014 with rising rates, MacKinnon said, upgrading the stock to the equivalent of a buy.
Barclays Plc and Desjardins Securities Inc. also issued notes this week forecasting growth in Canadian benefits providers. U.S. Federal Reserve Chairman Ben S. Bernanke said yesterday the central bank may begin to phase out its $85 billion monthly bond buying program later this year as the U.S. economy stabilizes. That pushed the U.S. 10-year Treasury note to the highest since August 2011.
The “positive story for the banks has ebbed,” while “the lifecos have turned a corner and core earnings growth will return,” John Aiken, Toronto-based analyst at Barclays, said in a June 18 note to clients.
The six-company Standard & Poor’s/TSX Life and Health Insurance Index gained 4.2 percent in the week so far in its fourth straight day of gains.
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