Globe editors have posted this research report with permission of Provisus Wealth Management. This should not be construed as an endorsement of the report's recommendations. For more on The Globe's disclaimers please read here. The following is excerpted from the report:
Canadian and U.S. stock markets do not move together in lockstep, it only seems that way. The primary reason is that outside of banks and resources, there are few investment opportunities in Canada. The U.S. stock market in contrast is remarkably diverse and dominated by growth oriented sectors such as consumer discretionary, pharmaceuticals and technology.
While there are a number of micro or country specific reasons at any given time that could lead to superior relative performance, there is one overriding factor: global economic growth. Specifically, the real annual Gross Domestic Product (GDP) for all the countries of the world. Over the past 45 years it has averaged 3.1 per cent per year. However, for Canadian investors interested in outperforming the U.S. stock market, the magic number is 4 per cent global GDP growth, which has occurred 14 times since 1970.
However, next year lower oil prices, monetary easing and currency depreciation finally kick in to propel global GDP growth rate to an estimated 3.8 per cent. This is very close to the level where Canadian stocks move to the forefront.
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