Ottawa’s proposal seen eventually benefiting plays in infrastructure, retail and real estate.The Canadian Press
Real estate and consumer stocks could eventually benefit from a sharp increase in immigration levels being recommended to Canada's Finance Minister.
The Globe and Mail reported on Wednesday that an advisory committee wants to see a 50-per-cent increase in immigration to 450,000 people annually over five years. That includes making it easier for highly skilled and entrepreneurial foreigners to enter the country.
The increase could lead to a meaningful boost in spending on everyday items such as groceries, gas, clothing, furniture and housing, and in turn benefit the handful of Canadian companies that offer these products and services.
"I think it's fairly clear that, if such a proposal was adopted, it would lead to more robust growth in consumer spending," BMO Nesbitt Burns Inc. chief economist Douglas Porter says. "There would be an underlying need for housing as well."
He said the extra spending could also boost Canada's economic growth, which has been sluggish.
On Wednesday, the Bank of Canada cut its forecast for gross domestic product to 1.1 per cent in 2016 and 2 per cent in 2017, down from its July projection of 1.3 per cent and 2.2 per cent, respectively.
Mr. Porter reiterated comments that Bank of Canada governor Stephen Poloz made on Wednesday about how higher immigration could spur economic growth.
"The potential growth of the Canadian economy rests on two big buildings blocks: the available supply of labour … and productivity growth," he said. "Obviously, from an economic standpoint, [an increase in immigration] would support that."
Investors looking to make a market play on increased immigration should focus on multifamily real estate investment trusts (REITs) that would house new immigrants as well as consumer staples such as grocery and convenience stores and other general retailers.
"There aren't that many ways to play the recommendations" directly, says David Rosenberg, chief economist with Gluskin Sheff + Associates Inc.
"Indirectly, you want to trace where these people would spend their money."
Some companies that could benefit include Loblaw Cos. Ltd., with its namesake grocery stores as well as No Frills and Shoppers Drug Mart, convenience store chain Alimentation Couche-Tard Inc., discount general stores like Dollarama Inc. and furniture retailers like Sleep Country Canada Holdings Inc. and Leon's Furniture Ltd.
Still, Mr. Rosenberg suggests that investors approach the immigration investment theme with caution. "This isn't something that is going to move the needle on the Canadian stock market," he says.
Some real estate investments to consider include Canadian Apartment Properties REIT, one of Canada's largest residential landlords, as well as InterRent REIT and Boardwalk REIT, according to Desjardins Securities Inc. analyst Michael Markidis.
He covers these multifamily REITs and has a "hold" recommendation on each one.
"Immigration is widely viewed as a positive driver of demand for multifamily residential accommodation," Mr. Markidis said in a note on Wednesday.
Infrastructure could be another theme some investors may want to consider, says Norman Levine, managing director of Portfolio Management Corp.
His firm has been increasing its investments in SNC-Lavalin Group Inc. and Stantec Inc., as a result of moves by the federal government and some provinces to boost infrastructure spending.
"Part of that will have to be tailored to an influx of immigration and how we move people around," Mr. Levine says.
It's not just roads and bridges either, but pipelines and other infrastructure that may have to be built out to accommodate increased population growth.
That said, Mr. Levine isn't running out to buy more infrastructure or other stocks that may benefit long-term from increased immigration.
"There is nothing I am going to do today," he says. "So far, it's just a pie-in-the-sky proposal."