(June 5) – Merrill Lynch Canada’s new chief Canadian economist and strategist David Rosenberg calls Canada an “outperformer”, thanks partly to recent rate hikes, and suggests that investors focus more attention on Canadian stocks.
Rosenberg says that past recessions haven’t been caused by pre-emptive central bank strikes, but by overcorrections due to slow bank action. The current round of tightenings has kept the economy on track, he suggests.
Recent rate hikes are finally beginning to bite Rosenberg says, keeping inflation subdued. This is critical to Canada as a record 84% of exports now head south and U.S. consumer spending now accounts for 20% of global GDP, more than Asia, Latin America and Eastern Europe combined. “There is also growing evidence that Canada is finally beginning to reap the productivity payoff from the double-digit business investment growth of the past two years.”
As long as rate hikes aren’t big enough to kill U.S. consumer demand things look good in Canada. The consensus is for TSE 300 operating earnings to soar 24% this year and rise 17% in 2001. “The biggest surprise is that most Canadian investors continue to allocate funds to foreign markets at a time when foreign investment into domestic equities is running at a record-setting pace.”
-James Langton