Why investors should consider reducing exposure to Canadian banks

Despite a strong quarter for Canadian banks, one portfolio manager says it’s time to reconsider exposure to the sector.

Andrew Pyle, senior wealth advisor and portfolio manager for The Pyle Group, Scotia Wealth, says some bank shares are starting to look overvalued.

“We’ve come out of the depths of despair that we saw back in January. But banks at this point, just based on the fundamentals, are starting to look a little rich to me,” said Pyle.

Pyle also believes the uncertain direction of the Canadian economy could pose a threat to the Canadian banking sector.

“As we heard from the Bank of Canada last week, [the Canadian economy] is still on shaky grounds, still uncertain in terms of whether we will get back to stronger growth later this year,” he said.

The housing sector is also in the crosshairs, as household debt gets added to the books, and the growing possibility of a rate increase lingers, said Pyle.

“I think both of these pose a risk, not for a sharp decline for the banks but I think for banks to lose momentum here.”