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Home bias is often considered a negative for Canadian investors, but too much Canada could be a good thing in today’s market environment.

Canada is expected to outperform many other global markets in the months ahead thanks to its concentration in energy, agriculture and other sectors that have benefited from rising inflation. In addition, market experts say that record low unemployment (5.1 per cent in May), rising wages and an open immigration policy also bode well for the country’s economic growth in the near term.

The International Monetary Fund (IMF) cut its global economic growth forecast in April, given the economic fallout of Russia’s invasion of Ukraine. However, Canada’s outlook remained relatively intact. The IMF expects the global economy to grow 3.6 per cent in both 2022 and 2023, which are decreases of 0.8 per cent and 0.2 per cent, respectively, from its January predictions. Canada’s growth forecast was trimmed by two-tenths of a percentage point to 3.9 per cent, the smallest downward revision of all advanced economies. The IMF also kept its forecast for Canada’s economy to grow by 2.8 per cent next year.

Canada is one of the few markets to see upward revisions in its outlook for economic growth as well as earnings expectations for companies listed on the S&P/TSX Composite Index, Mackenzie Investments notes its 2022 mid-year outlook, citing Bloomberg data.

“While Canada is also vulnerable to an economic slowdown, we still believe that conditions exist for better relative economic growth in Canada versus other developed world markets,” says Lesley Marks, chief investment officer of equities at Mackenzie Investments.

“Canadian stocks haven’t been a big focus for investors for a long time, as they have looked to invest globally – and in the U.S. in particular,” she says.

With the change we’re experiencing today from a low-interest-rate environment to a higher one, investors need to consider Canadian stocks again as a part of their portfolio, she adds.

Ms. Marks says investors should be overweight in Canadian equities and underweight in U.S. equities at this time given the higher concentration in high-growth sectors such as technology and consumer discretionary south of the border.

“The composition of the S&P 500 makes it more vulnerable to rising interest rates, which have a greater impact on those more expensive stocks,” she says, adding a stronger U.S. dollar is also a headwind for earnings for multinational companies on the index.

And while an economic recession would be negative for commodities and, in turn, Canada, Ms. Marks forecasts the “floor on commodities will be higher than it has been in previous downturns” because of a lack of investment in the sector over the past decade or so, which will “keep supply in check.”

Christine Poole, chief executive officer and managing director at GlobeInvest Capital Management Inc. in Toronto, adds it’s “Canada’s turn to do better” than countries such as the U.S., driven largely by our commodities focus.

However, she notes Canada has other things going for it, including a friendly immigration policy that will help to increase the labour force and fuel demand for housing and consumer goods.

Ms. Poole says her firm has always turned to Canadian-listed companies for many of their income-producing stocks in sectors such as energy and utilities. And while she’s not proactively increasing exposure to Canadian stocks in the current market, she favours Canadian banks over those in the U.S.

“Canadian banks have shown they can outperform their U.S. counterparts,” Ms. Poole says, because of the relative economic strength here at home.

- Brenda Bouw, special to the Globe and Mail

Must-reads from Globe Advisor this week

Insurance for transgender, non-binary clients still based on male and female pricing

With sex being a key variable in determining the cost of insurance, providers are struggling to calculate premiums fairly for clients who identify as either transgender or non-binary. Clients applying for life or critical illness insurance are generally required to select their birth gender for premiums and costs to be calculated regardless of whether they still identify as that gender. Jameson Berkow reports on what the insurance industry is doing to address this issue.

Dealing with a tax audit from the CRA could call for a team effort

When the Canada Revenue Agency (CRA) decides to ramp up a tax review to an audit, things can get very serious. The audit could focus on many things outside the realm of an investment advisor such as discretionary expenses like child care, moving and charitable donations. A good advisor can take the lead in mounting a defence that could require a team of financial experts. Dale Jackson looks at the role advisors can play.

What to consider when deciding to renounce U.S. citizenship for tax purposes

For Americans looking to give up their U.S. citizenship, the decision isn’t just about national identity but also how much taxes they might have to pay when leaving the country officially. The goal is to not be considered what’s known as a “covered expatriate” in order to avoid paying the exit tax – a U.S. federal tax on assets with unrealized gains at the time someone cuts ties with the U.S. Brenda Bouw digs deeper on the steps that experts say need to be taken in this process.

Inflation hits beer, wine and spirits makers as pandemic threat recedes

Canada’s publicly traded wine, beer and spirits companies were more than ready to toast the post-pandemic reopening after two rough years. But new pressures have put celebrations on hold. Inflation is raising the cost of aluminum cans, glass wine bottles and the carton boxes used for shipping. The price of fuel for farm equipment and delivery is rising as are inputs such as fertilizer and the grapes and grains needed to make their products. Adam Mayers looks at investment opportunities in this sector.

Also see:

Investment industry’s traditional culture remains a barrier for LGBTQ advisors

Pushback against ESG, claims of greenwashing have ‘some legitimacy,’ but will help improve transparency

How to share values and wealth with grandchildren effectively

What to consider in financial, tax and estate planning for members of the LGBTQ+ community

How to help clients who want to age in place for as long as possible

What you and your clients need to know

TSX dividend stocks with low levels of ESG risk

Morningstar Canada’s Ian Tam looks at Canadian companies that have outperformed the S&P/TSX Composite Index over the past 12 months and also have an ESG risk score of less than 20 using the company’s Sustainanalytics ESG risk rating. He highlights 12 dividend stocks out 709 companies based on their five-year average rate of return, earnings per share growth rate and more. Here are the top picks.

Using costly bridge mortgages becomes even more common

If you’re selling a home and not getting any bites, your blood pressure is probably rising – especially if you need the equity from that home to buy a new one. For those in such a pickle, one solution is a bridge loan. But here’s the problem. If you don’t have firm purchase and sale agreements on both your new and existing homes, mainstream lenders usually won’t offer you a bridge. Robert McLister reports on the problem for homebuyers with no other liquidity who are having to rely on nonprime lenders to bridge a new purchase.

How workers should prepare for a potential recession

Canada’s job market is still hot but headlines warn that maybe the economy is not, with talk of a looming recession leaving some workers worried about their career paths. In times like these, it’s important for workers to think carefully about a job change. However, it doesn’t necessarily mean staying put. Some sectors will feel the impact of an economic slowdown, while others may grow. Dene Moore looks at why people shouldn’t manage their careers by the headlines.

- Globe Advisor Staff