As the global economy picks up speed, investors are dusting off the Canada playbook.
Covid-19 vaccinations are gaining momentum and fiscal support is helping the growth outlook, lifting bond yields. That’s a winning set of conditions for the nation’s value-oriented and cyclical stock market, which is outrunning its U.S. counterpart in 2021 after years of lagging performance.
“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 C$39.8 billion ($31.6 billion) in assets under management.
The S&P/TSX Composite Index has trailed the S&P 500 nine of the past 10 calendar years but is beating the U.S. benchmark in 2021 with a 7.6% gain. That’s largely because of banks, which are producing a gusher of profits, and energy and industrial companies that are riding economic tailwinds.
Not Bad, Eh?
Canada stocks set to break a five-quarter losing streak versus U.S. peers
Bloomberg
Quarterly price change. Does not include dividends
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Global investors have overlooked Canada for years in favor of countries with greater choice in high-growth technology stocks, primarily the U.S., but valuations and earnings momentum have become attractive, Archibald said.
Canadian equity exposure is also increasing, according to Bank of Nova Scotia analysts. They say the valuation gap with U.S. stocks is still “extremely wide,” with the TSX at a 23% discount on a forward price-to-earnings basis.
“We have started to notice some flows into Canadian-branded equity funds funds/ETFs this year,” strategist Hugo Ste-Marie wrote in a note to clients. “The bleeding of the past few years could be over if the macro landscape improves as we expect.”
Canadian exchange-traded funds have taken in more than $9 billion in less than three months this year, according to data compiled by Bloomberg Intelligence analyst James Seyffart. That’s well ahead of last year’s pace, which saw a total of $22.2 billion of flows, or about $1.9 billion a month, and 2019 at about $17.5 billion.
‘Re-Rating’ Market
“The reflationary environment of robust global growth prospects and unrelenting monetary policy support are likely to embolden sentiment towards the previously-battered value space and prompt a re-rating in the S&P/TSX,” Candice Bangsund, vice president and portfolio manager at Montreal-based Fiera Capital Corp., said via email.
Bangsund, whose firm manages about C$180 billion, predicts Toronto’s index will beat the S&P 500 this year. Financials are nearly one-third of the benchmark; rising rates and an improving economy help insurers such as Manulife Financial Corp. and Sun Life Financial Inc. as well as banks, which see wider lending margins and reduced loan losses.
Bay Street’s Having a Blast
Canadian financial stocks have had a strong start to 2021
Bloomberg
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The first decade of this century was better for emerging markets such as Brazil and commodities-driven developed countries including Canada. “It might well be that the next decade lines up well for non-U.S. markets,” Craig Basinger, chief investment officer of Richardson Wealth, said in an interview.
On the other hand, hiccups in the effort to reopen economies could lower growth and inflation expectations, hindering Canada’s bull case.
“To be clear, we are not suggesting investors should ‘buy Canada’ at the expense of U.S. stock exposures,” but the group is worth a closer look, Archibald said in a note.
“If a sustained cyclical rally moves out of the realm of possibility and becomes a reality, Canadian stocks might, at long last, be something to finally gloat about.”
— With assistance by Matt Turner, Divya Balji, and Claire Ballentine
TORONTO – Canada’s main stock index was essentially unchanged Friday, while U.S. markets were mixed to end the week, with the Dow ekeing out a new record high.
The S&P/TSX composite index closed up 1.28 points at 23,867.55.
In New York, the Dow Jones industrial average was up 38.17 points at 42,063.36. The S&P 500 index was down 11.09 points at 5,702.55, while the Nasdaq composite was down 65.66 points at 17,948.32.
The Canadian dollar traded for 73.72 cents UScompared with 73.73 cents US on Thursday.
The November crude oil contract was down 16 cents at US$71 per barrel and the November natural gas contract was up 12 cents at US$2.72 per mmBTU.
The December gold contract was up US$31.60 at US$2,646.20 an ounceand the December copper contract was down a penny at US$4.34 a pound.
This report by The Canadian Press was first published Sept. 20, 2024.
OTTAWA – Bank of Canada governor Tiff Macklem says there is a lot of uncertainty around how artificial intelligence could affect the economy moving forward, including the labour market and price growth.
In a speech in Toronto at the Economics of Artificial Intelligence Conference, the governor said Friday that the central bank is approaching the issue cautiously to get a better understanding of how AI could affect its job of keeping inflation low and stable.
“Be wary of anyone who claims to know where AI will take us. There is too much uncertainty to be confident,” Macklem said in prepared remarks.
“We don’t know how quickly AI will continue to advance. And we don’t know the timing and extent of its economic and social impacts.”
The governor said AI has the potential of increasing labour productivity, which would raise living standards and grow the economy without boosting inflation.
In the short-term, he said investment in AI is adding to demand and could be inflationary.
However, Macklem also highlighted more pessimistic scenarios, where AI could destroy more jobs than it creates or lead to less competition rather than more.
The governor called on academics and businesses to work together to shed more light on the potential effects of AI on the economy.
“When you enter a dark room, you don’t go charging in. You cautiously feel your way around. And you try to find the light switch. That is what we are doing. What we central bankers need is more light,” he said.
This report by The Canadian Press was first published Sept. 20, 2024.
Almost seven years since news broke of an alleged conspiracy to fix the price of packaged bread across Canada, the saga isn’t over: the Competition Bureau continues to investigate the companies that may have been involved, and two class-action lawsuits continue to work their way through the courts.
Here’s a timeline of key events in the bread price-fixing case.
Oct. 31, 2017: The Competition Bureau says it’s investigating allegations of bread price-fixing and that it was granted search warrants in the case. Several grocers confirm they are co-operating in the probe.
Dec. 19, 2017: Loblaw and George Weston say they participated in an “industry-wide price-fixing arrangement” to raise the price of packaged bread. The companies say they have been co-operating in the Competition Bureau’s investigation since March 2015, when they self-reported to the bureau upon discovering anti-competitive behaviour, and are receiving immunity from prosecution. They announce they are offering $25 gift cards to customers amid the ongoing investigation into alleged bread price-fixing.
Jan. 31, 2018: In court documents, the Competition Bureau says at least $1.50 was added to the price of a loaf of bread between about 2001 and 2016.
Dec. 20, 2019: A class-action lawsuit in a Quebec court against multiple grocers and food companies is certified against a number of companies allegedly involved in bread price-fixing, including Loblaw, George Weston, Metro, Sobeys, Walmart Canada, Canada Bread and Giant Tiger (which have all denied involvement, except for Loblaw and George Weston, which later settled with the plaintiffs).
Dec. 31, 2021: A class-action lawsuit in an Ontario court covering all Canadian residents except those in Quebec who bought packaged bread from a company named in the suit is certified against roughly the same group of companies.
June 21, 2023: Bakery giant Canada Bread Co. is fined $50 million after pleading guilty to four counts of price-fixing under the Competition Act as part of the Competition Bureau’s ongoing investigation.
Oct. 25 2023: Canada Bread files a statement of defence in the Ontario class action denying participating in the alleged conspiracy and saying any anti-competitive behaviour it participated in was at the direction and to the benefit of its then-majority owner Maple Leaf Foods, which is not a defendant in the case (neither is its current owner Grupo Bimbo). Maple Leaf calls Canada Bread’s accusations “baseless.”
Dec. 20, 2023: Metro files new documents in the Ontario class action accusing Loblaw and its parent company George Weston of conspiring to implicate it in the alleged scheme, denying involvement. Sobeys has made a similar claim. The two companies deny the allegations.
July 25, 2024: Loblaw and George Weston say they agreed to pay a combined $500 million to settle both the Ontario and Quebec class-action lawsuits. Loblaw’s share of the settlement includes a $96-million credit for the gift cards it gave out years earlier.
Sept. 12, 2024: Canada Bread files new documents in Ontario court as part of the class action, claiming Maple Leaf used it as a “shield” to avoid liability in the alleged scheme. Maple Leaf was a majority shareholder of Canada Bread until 2014, and the company claims it’s liable for any price-fixing activity. Maple Leaf refutes the claims.
This report by The Canadian Press was first published Sept. 19, 2024.
Companies in this story: (TSX:L, TSX:MFI, TSX:MRU, TSX:EMP.A, TSX:WN)
