Saying Canada doesn’t get the attention from global investors that it deserves, Scotia Capital issued a report outlining reasons to “own Canada.”
“Canada's main attributes are emerging market exposure with lower volatility, cheaper valuations relative to MSCI World, stronger domestic fundamentals, Canadian dollar strength relative to the U.S. dollar and British pound, proximity to the U.S. economy and above average market capitalization in financials, materials, technology and Industrials,” portfolio strategist Vincent Delisle wrote.
The Canadian economy represents 1.9 per cent of global GDP, and its equity market capitalization is at 3.7 per cent of the MSCI world index. Mr. Delisle said the country’s “superior” risk-reward profile makes it a compelling destination for investors. In the last 10 years, the compounded annual growth rate for Canadian stocks outpaced the MSCI world index by 8.5 per cent.
“Hence, Canada offers the stability of a developed economy with an exposure to growth in developing nations through its commodity sensitivity,” he wrote. “Admittedly, Canada's marginal size doesn't initially attract attention and puts it alongside other mid-tier specialized markets such as Australia, Sweden or Norway.”
That should change, he said, since its markets are heavily weighted toward energy, mining and financial companies. Also, half of the sectors on the S&P/TSX are trading at a discount to other world markets.
“In our opinion, Canadian assets (bonds and equities) punch well above their weight and, as we believe Canadian equities remain underweight in global portfolios, global investors should heighten their focus north of the U.S. border,” he said. “We would also point out that Canadian domestic investors should temper there international endeavours and stick to a higher domestic bias in their portfolios.”
