A resurgence in foreign investment is propelling Canada’s stock market and this should continue unless a rise in protectionism undermines momentum, according to a new report from Lévis, Que.-based Desjardins Group.
The report points out that the S&P/TSX composite index was one of the world’s top performing stock markets in 2016, driven largely by rebounds in the energy and materials sectors.
“The Canadian stock market’s rise was also helped by renewed foreign interest,” the Desjardins report says, noting that the latest data from Statistics Canada “show very strong purchasing by foreigners in the last few months.”
Specifically, net foreign purchases of Canadian stocks over the past 12 months reached $46 billion in November, the report says: “This is similar to the cyclical peak hit in August 2014, just before the correction by commodities prices triggered negative sentiment toward Canadian securities.”
The Desjardins report adds that “the record foreign purchases of Canadian securities clearly illustrates that positive sentiment toward Canadian assets is back. In addition to supporting Canada’s stock market, these purchases have certainly played a role in the Canadian dollar’s good performance in the last few months.”
Looking ahead, this positive sentiment should hold up in the months ahead, assuming that the rebound in commodities prices remains and given expectations that the global economy will accelerate in 2017, the report says.
However, the report cautions that “the eruption of a major trade conflict with the U.S. is a major risk that could revive some concerns about Canada.”
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