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If global manufacturers build it, the TSX will come

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It's one thing for investors to know that Canadian equities – as the product of an open, export-heavy economy – are sensitive to changes in global growth. It's another to see it mapped out in a chart showing domestic investor returns are prisoner to macroeconomic factors well beyond their control.

Not every Canadian-listed company is dependent on the U.S. or emerging markets for profit growth. But as a whole, Canadian equities have been moving exactly in accordance with global manufacturing activity in the post-financial crisis era (see chart).

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For this reason, Canadian investors can't afford to mimic the stereotypically tunnel-visioned Americans who can't name two Canadian provinces or the capital of France.

Investors assessing the outlook for Canadian iron ore miners or metallurgical coal producers, for instance, need to know that China has 30 per cent overcapacity in its steel industry. In the oil patch, the growth of U.S. oil production is a vital factor in investment decision-making.

Canada's resource wealth, combined with China's multi-trillion dollar infrastructure spending binge, has allowed the domestic economy skate though a period that has crippled many major countries. The price we pay, however, is devoting careful attention to economic developments outside our borders.

Scott Barlow is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here to read more of his Insights, and follow Scott on Twitter at @SBarlow_ROB.

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About the Author
Market Strategist

Scott Barlow is The Globe's in-house market strategist. He is a 20-year veteran of Canadian investment banks, including Merrill Lynch Canada, CIBC Wood Gundy and Macquarie Private Wealth (MPW). He was a highly ranked mutual fund analyst for 10 years and then, most recently, the head of a financial adviser support team at MPW. More


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