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With the Liberals and Conservatives tied in the polls, the stock market has not yet priced in the impact of Canada's next government.

Aaron Vincent Elkaim/The Canadian Press

Can voters affect stock prices in Canada? Investors are about to find out.

The Conservatives and Liberals are virtually tied in the polls, which means that the Canadian stock market has not yet priced in the effects of the next majority – or minority – government in Ottawa. Yet the different approaches of the major parties on a number of key issues during the campaign could have a profound impact on certain sectors – particularly energy.

“If you think that governments have an impact on the economy through both fiscal and, perhaps indirectly, through monetary policy, then politics does matter,” Steve Foerster, a professor of finance at Ivey Business School at Western University, said in an interview.

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The past four years under the Liberal government offers some guidelines on what is at stake in Monday’s election.

Over all, the S&P/TSX Composite Index has risen 19.4 per cent (not including dividends) since the Liberals were elected with a majority in 2015. While that may sound good, the performance has lagged the 47.4-per-cent gain in the S&P 500 – where profits have been pumped up by U.S. corporate tax cuts.

The Canadian energy sector is a clear laggard. It has tumbled 12 per cent since the October, 2015, election, the victim of weak crude oil prices, but also what some critics see as a fumbling government policy response to pipeline construction and concerns over climate change.

Western Canadian Select, a benchmark price for heavy oil produced in much of Alberta, traded at just US$13.46 a barrel in mid-November, 2018, at a time when West Texas Intermediate crude (the U.S. benchmark), traded for more than US$56 a barrel. The difference, a gargantuan US$43 spread, left many Canadian oil sands producers in desperate shape.

The TSX has hardly budged in recent trading sessions, though, suggesting investors could be awaiting some political clarity next week.

“Canadian financial markets have been unusually becalmed, especially given the fact that the outcome remains up in the air,” Douglas Porter, chief economist at BMO Nesbitt Burns, said in a recent note.

What will follow the calm? Here are a few areas that investors should be watching for big moves on Oct. 22, the morning after the election.

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Let’s start with the sector that arguably reflects the starkest differences among the various political parties – and the area of the stock market that has the most to win or lose from the election.

Eric Nuttall, a senior portfolio manager at Ninepoint Partners, an investment firm, believes that sentiment in the oil patch is the worst in history, given Ottawa’s policies on carbon tax and pipeline construction. Though energy stocks are off their lows last December, the spread between U.S. and Canadian oil has been widening again, to about US$16 a barrel.

He expects sentiment could get even worse if the Liberals form a minority government backed by the NDP, leaving a Conservative victory the best hope for investors if the government can make progress on construction of the Trans Mountain pipeline expansion and eliminate the carbon tax.

“So it will come down not only to who is in power but also seat count, and whether a coalition is required or not,” Mr. Nuttall said in an interview.


Canadian telecom stocks such as BCE Inc. and Telus Corp. have been plodding along in recent months, as investors look to them for steady results and hefty dividends. But here’s a potential wrinkle: The Liberals said they will lower Canadian cellphone bills by 25 per cent if re-elected.

“The key question for investors now is – are we genuinely looking at a more interventionist regime from a policy perspective or is this largely pre-election rhetoric, especially in a tight race?” Aravinda Galappatthige, an analyst at Canaccord Genuity, said in a recent report.

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Mr. Galappatthige is generally cautious on telecom stocks, though he pointed out that the Liberal party may be simply reacting to market forces that are driving cellphone services down. As well, he pointed out that the quality of 5G networks, the next generation of cellular network technology, is probably ultimately more important than price-cutting.


Liberals and Conservatives have found common ground on housing: Both parties are floating policies that will help Canadians borrow more to buy homes – but could, in effect, drive home prices higher.

“The effects would be small but, after a decade of tightening lending restrictions, it is hardly an encouraging sign for financial stability that the main political parties want to start reversing this process,” Stephen Brown, senior Canada economist at Capital Economics, said in a note.

Over the near term, the changes could boost Canadian economic activity. And any boost to the housing market would surely reward lenders, from the Big Banks to alternative lenders such as Home Capital Group Inc. and Equitable Group Inc.

But there’s a potential downside here, too, and one that will likely raise concerns about the exposure of financial firms to an overheated housing market.

“Household debt has continued to increase and, if this election does mark the start of a pronounced shift in attitudes toward lending restrictions, it will rise further. While that could boost GDP growth in the short term, it would make the economy even more vulnerable to a negative shock,” Mr. Brown said.

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