The Proportion of Canadian Exports That Go to the U.S.: 75%
Commodity prices are rising, which should be good news for Canadian stocks because in the past the two have been strongly correlated. Since the early 1990s, commodity prices can explain about two of every three price swings in Canadian stocks. And during the past 10 years, about three-fourths of all Canadian stock market shifts were driven by commodity prices. There have been exceptions. Nortel, the fallen telecommunications giant, briefly accounted for one-third of the value of the overall market during the company's peak in the late '90s, and BlackBerry maker Research In Motion accounted for almost 5 percent before the company dropped 90 percent of its value.
Photograph by Norm Betts/Bloomberg
Why It Matters
Even though commodity prices are rising, things may not be as optimistic for Canada as it would seem. While the median Bloomberg forecast for 2013 has oil rising by roughly 30 percent, natural gas by more than 40 percent and gold by more than 10 percent, the fledgling U.S. economy could put a damper on Canadian stocks. That's because Canada sends three-quarters of its exports to the U.S. In the past 15 years, Canada's increase in gross domestic product has been 70 percent correlated with U.S. GDP growth, and there's been a strong correlation80 percentbetween the Canadian stock market and the U.S. stock market.
Graphic by Charlos Gary/Bloomberg
What It Means for Your Portfolio
Canada's formidable might in natural resources notwithstanding, Canada's economic and stock market performance will likely follow whatever happens in the U.S. A recent run of weaker-than-expected U.S. economic data has brought GDP forecasts down, and the Bloomberg survey consensus view is that GDP will expand at just below 3 percent through 2014. The takeaway: Canada, while rich in natural resources, is probably not on the brink of a boom.
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