(Bloomberg) – As the global economy picks up pace, investors are dusting the Canadian game book.
Covid-19 vaccinations are gaining momentum, and the tax support adds to the growth prospects and increases bond yields. This is a winning set of conditions for the country’s value-driven and cyclical stock market, ahead of its US counterpart after years of declining performance in 2021.
“Canada has what you want” in the current landscape, said Mike Archibald, vice president and portfolio manager at AGF Investments, a unit of Toronto-based AGF Management Ltd., which has $ 39.8 billion in assets under management. 6 billion USD).
The S & P / TSX Composite Index outperformed the S & P 500 for nine of the last 10 calendar years, but outperformed the US benchmark in 2021 with a plus of 7.6%. This is mainly due to banks, which are making a profit jump, as well as energy and industrial companies, which are seeing economic tailwinds.
Global investors have overlooked Canada for years in favor of countries with greater selections of high-growth technology stocks, most notably the US, but valuations and earnings momentum have become attractive, Archibald said.
Canadian equity exposure is also increasing, according to analysts at the Bank of Nova Scotia. They say the valuation gap to US stocks is still “extremely big”, with the TSX offering a 23% discount on a price / earnings ratio.
“We have seen some inflows into Canadian branded equity funds / ETFs this year,” wrote strategist Hugo Ste-Marie in a statement to clients. “The bleeding of the past few years could be over if the macro landscape improves as expected.”
Canadian exchange-traded funds raised more than $ 9 billion in less than three months this year, according to data from Bloomberg Intelligence analyst James Seyffart. This is well above the pace of last year when it totaled $ 22.2 billion, or about $ 1.9 billion per month, and about $ 17.5 billion in 2019.
“The reflationary environment, with robust global growth prospects and relentless monetary policy support, should encourage sentiment over the previously battered range and lead to a re-rating of the S&P / TSX,” said Candice Bangsund, vice president and portfolio manager, Montreal. Fiera Capital Corp. said via email.
Bangsund, whose company manages approximately $ 180 billion, predicts the Toronto index will outperform the S&P 500 this year. Financial stocks make up almost a third of the benchmark; Rising interest rates and an improving economy are helping insurers like Manulife Financial Corp. and Sun Life Financial Inc. as well as banks seeing higher credit margins and lower credit losses.
The first decade of this century was better for emerging economies like Brazil and commodity-driven industrialized countries like Canada. “It could well be that the next decade is well aligned for markets outside the US,” said Craig Basinger, chief investment officer of Richardson Wealth, in an interview.
On the flip side, hiccups in efforts to reopen economies could lower growth and inflation expectations and hinder Canada’s bull fall.
“To be clear, we are not suggesting that investors” buy “Canada at the expense of US equity exposure,” Archibald said in a note.
“When a sustained cyclical rally moves out of the realm and becomes a reality, Canadian stocks could finally be something to finally get excited about.”
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