- S&P/TSX among top markets this year as commodities rebound
- Economic growth could outpace euro area, Japan in 2017
Investors should look past the recent volatility in Canadian stocks and wager on America’s northern neighbor, said Bill Witherell of Cumberland Advisors Inc.
Thanks to rebounding commodity prices and an improved outlook for domestic growth, Canadian equities have been a relative bright spot in global markets this year. With shares struggling this month amid concerns over the impact from wildfires in Alberta and higher rates in the U.S., the pullback could be an “entry opportunity” for investors, said Witherell, chief global economist at Cumberland.
He predicts growth in the nation this year will be 1.6 percent, matching the rate seen among economists surveyed by Bloomberg. The pace of expansion could also pick up to 2.2 percent next year as Prime Minister Justin Trudeau’s stimulative budget takes effect, Witherell wrote in a note. “That would likely exceed the growth in the euro zone and Japan while matching growth in the U.S.,” he said.
The Canadian equity benchmark S&P/TSX Composite Index is one of the top developed markets in the world this year, trailing only New Zealand. That’s a reversal from last year, when a collapse in oil prices pushed the gauge 11 percent lower, its worst performance since the 2008 financial crisis.
For U.S.-based investors, Witherell recommends buying the iShares MSCI Canada exchange-traded fund, up 11 percent this year, or the less liquid IQ Canada Small Cap ETF, which has jumped 30 percent.
Commodities producers have led the S&P/TSX’s resurgence this year, with raw-materials companies surging as much as 43 percent for the best start in the industry in three decades. Gold prices touched a 15-month high in New York this month, and crude has jumped as much as 80 percent from a low in February, fueling rallies of more than 85 percent in producers Seven Generations Energy Ltd. and Bonavista Energy Corp.
“Continuation of the recent firming in the price of oil will contribute to this advance and should lead to a rebound in investment in the second half of 2016,” Witherell said. “As long as the U.S. and global economies remain on track, the Canadian economy should provide attractive investment opportunities.”