Canada’s Stock Market Poised for Boost with Conservative Government
As Canada prepares for its next federal election, investors are anticipating a shift in economic priorities that could benefit the country’s stock market. With polls indicating a strong lead for the Conservative Party, led by Pierre Poilievre, a change in government could signal a more business-friendly approach, reducing trade uncertainty with the United States.
A Shift in Economic Priorities
After nine years of Liberal Party rule under Prime Minister Justin Trudeau, a Conservative government could bring a fresh perspective to economic policies. Trudeau’s tenure has been marked by the launch of green initiatives and new social programs, but also by a surge in government borrowing and weak productivity growth. A strained relationship with Donald Trump during his first term as U.S. president has added to economic uncertainty.
Pro-Business Policies to Drive Growth
A Conservative government is expected to adopt more pro-business policies, including lower taxes, reduced red tape, and a greater focus on capital investment. This could lead to an upward reassessment of valuations on the TSX, Canada’s commodity-linked main stock market. Brian Madden, chief investment officer at First Avenue Investment Counsel, believes that a more pro-business stance could benefit the entire Canadian economy and stock market.
Reversing Unpopular Policies
Poilievre has promised to reverse a capital gains tax increase that is unpopular with investors and to scrap a proposed emissions cap on the energy sector. This could lift the multiple that investors are willing to pay for the earnings of TSX-listed companies, closing the gap with the U.S. market.
Closing the Gap with the U.S. Market
The TSX’s price to earnings ratio of 15 trails the 22 multiple for the S&P 500. A move to pro-growth policies could help close this gap, making Canadian companies more attractive to investors. Conservative legislator Jasraj Singh Hallan has stated that a Conservative government would broadly cut taxes and encourage mining and liquefied natural gas exports.
A Shift in Sentiment
Investors are already anticipating a shift in sentiment, with the expectation that a Conservative government would reverse the roadblocks put in place by Trudeau for energy companies. This could lead to a total shift in sentiment, with companies no longer facing headwinds but instead enjoying tailwinds.
Implications for the Canadian Dollar
The possible boon for corporate earnings could also help the Canadian dollar, which has tumbled to a five-year low. A Conservative government more aligned with the Republican Party in the United States could make negotiations easier, leading to a firmer currency and a boost to the market.
Leave a Reply