For investors, Canada’s 2021 federal election carries more than the usual amount of uncertainty.
There’s been much political rhetoric from the various parties since Justin Trudeau called the election in mid-August, but it hasn’t moved markets for the most part so far as investors consider the different possible election outcomes, according to market strategists. Stock valuations, however – particularly those in regulated economic sectors such as energy, financial services, real estate and telecom – could see some significant shifts when results from Monday’s vote are clear.
“Markets rarely price in election promises,” said a report last week from Rebekah Young, Bank of Nova Scotia’s director of fiscal and provincial economics, and chief economist Jean-François Perrault. Investors have been following “a wait-and-see approach … in the context of an expected minority win.”
Heading into voting day, Bay Street strategists are modelling two scenarios – a second Liberal minority government or a Conservative minority – that imply different winners and losers in Corporate Canada. For example, natural gas producers and pipeline companies would be expected to prosper under the Conservatives, while facing increasing headwinds if the Liberals return to power.
Market analysts are also weighing what coalitions will mean for markets. “The NDP have enough of a lead over the Bloc at this point that they might be decisive in determining who forms a government,” said Avery Shenfeld, chief economist at CIBC World Markets. “So it’s worth at least a look at the NDP platform to judge what some of their top priorities might be.”
Here is how four key sectors of the Canadian economy – energy, financial services, real estate, telecom – are expected to react to a Liberal or Conservative minority government.
Bank of Nova Scotia’s 50-page report on what the election would mean for stock prices dedicated 25 per cent to the outlook for energy stocks. Every political party made dealing with climate change a central part of their platform, announcing policies that will shape the fortunes of oil and gas companies, utilities and renewable energy plays.
Scotiabank’s energy analysts said both the Liberals and Conservatives are committed to carbon pricing and net-zero initiatives. The parties split over the level of carbon tax rates and how quickly the industry is expected to curtail carbon emissions. In general, Scotiabank said, re-electing a Liberal government is a “negative” for the oil and gas industry, while “a Conservative minority would be favourable for the energy and midstream industries.”
However, analysts said new energy and environmental policies from any government – Liberal or Conservative – will be most acutely felt at oil sands producers, such as MEG Energy Corp., while boosting the outlook for natural gas-heavy producers such as Tourmaline Oil Corp. and utilities that move gas to consumers.
“The companies most exposed – good or bad – to these issues are those in oil sands, followed by integrated – which all have oil sands – conventional oil, and natural gas,” said Scotiabank’s report. “A Conservative-led government could be more supportive of natural gas, which could require additional infrastructure.” During the campaign, Conservative Leader Erin O’Toole also committed to building additional pipelines, such as Enbridge Inc.’s scrapped Northern Gateway project.
For banks and insurers, this election translates into a potential $10-billion swing in profits.
During the campaign, the Liberals announced plans to raise taxes on large financial institutions and impose new fees, which the party called the “Canada recovery dividend.” Together, the levies are expected to raise $2.5-billion annually over the next four years. At the time, Barclays director of Canadian financials research John Aiken said: “This is a significant negative development for the earnings outlook of the Canadian banks and insurance companies.”
There are no new corporate taxes in the Conservative platform. Mr. O’Toole announced consumer-friendly financial services policies, such as a review of banking fees and measures aimed at increasing competition from fintech companies for mortgages, lines of credit and credit cards.
Rising home prices – an evergreen topic of conversation at every cocktail party – and housing affordability featured prominently in the election campaign.
The Conservatives pledged that, on their watch, builders will break ground on a million homes in the next three years, a 30-per-cent increase in construction activity, according to Scotiabank real estate analyst Mario Saric, while the Liberals are targeting 100,000 new homes by 2025. If home starts rise significantly, it will boost the prospects of a variety of public companies, including builders, lumber producers and service businesses such as Real Matters Inc. and FirstService Corp.
High-rise owners, such as the $10-billion Canadian Apartment Properties Real Estate Investment Trust and several other large, publicly traded REITs, face potential tax hikes if the Liberals return to power. In a report, Mr. Saric said the Liberals turned a spotlight on real estate companies that the party says “are increasingly trying to amass large portfolios of Canadian rental housing, putting upward pressure on rents.””
The election is playing out as Rogers Communications Inc. bids to rewire the telecom landscape by acquiring Shaw Communications Inc. The $26-billion takeover prompted a rare show of unity among Canada’s major political parties, as each said the deal can only be approved if it preserves wireless competition.
Last week, Scotiabank telecom analyst Jeff Fan said: “Rogers and Shaw will likely have to present a merger remedy that includes the divestiture of Shaw Mobile/Freedom,” the country’s fourth-largest wireless carrier, with more than two million subscribers. If the next government does demand the sale of Freedom, industry players such as Quebecor Inc. and Cogeco Inc. will likely vie with private-equity funds for the prize.
Political leaders also agree there need to be new regulations to level the playing field between global tech giants and traditional domestic players in Canadian media. “The process could be long and frustrating for all sides,” said Mr. Fan. “The Conservatives’ platform calling for less regulatory burden on conventional broadcasters and lower fees and funding would be beneficial to the traditional broadcasters, such as Corus Entertainment Inc., BCE’s Bell Media, and Rogers Media.”
If elected, the Conservatives say they plan to boost competition in telecom by reducing barriers for foreign players to service Canadian customers. Mr. Fan said that policy shift could have unexpected consequences, with a national platform such as Telus Communications Inc. possibly becoming a takeover target for a far larger U.S. telecom company.
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