A private mortgage insurer got its rating upgraded by CIBC World Markets after a remarkable comeback in its stock this year, driven largely by stronger oil prices that have led to a more optimistic housing outlook in Alberta.
MI Canada Inc.’s stock recovered impressively by more than 25 per cent in the first few months of 2016.
Earlier this year, the company’s shares suffered due to the weight of increased delinquencies in Alberta’s long-struggling real estate sector. Genworth shares as of Tuesday (May 2) were trading at $33.46, up by 3 per cent.
“While trends in Alberta are negative and may continue to get worse, the rally in oil prices implies that downside risks are less than they were just a few months ago,” CIBC analyst Paul Holden stated in a note to clients, as reported by the Financial Post
He advised, however, that Genworth remains a risky investment, as Canada’s red-hot housing markets might soon reach unsustainable growth levels that could lead to drastic corrections.
“Rapid price appreciation in Vancouver and Toronto are tailwinds for the business today, but as CMHC has highlighted, could represent future risks,” Holden warned.
Losses from insured mortgages in Alberta also continue to pose a threat to Genworth’s long-term stability. The firm currently holds $180 billion in insurance risk along with $3.5 billion in equity.