Canadian financial stocks could be the place to wait out the market’s current turmoil, suggests a new report from UBS Securities Canada Inc.

UBS says that, “the abstruse nature” of the credit crunch issue “means that a definitive all-clear signal is unlikely”. Rather, markets are likely to regain their footing gradually, it says. “What are investors to do in the interim? Our answer is Canadian financials.”

The report says that while Canadian financials have not been immune to the market turmoil, “they still have a very attractive reward/risk profile relative to both the TSX and the S&P 500 financials.”

“Essentially, the credit crunch is a deflationary shock which tends to hurt resources and cyclicals more than financials,” it says. “And importantly, since confidence looks likely to be only gradually restored, the financials should also lead in the early recovery.”

Back in 1998, when markets stumbled in August and floundered throughout much of the fall, resources trailed to the end of the year, UBS recalls. “The 1998 pattern has already been borne out since the July 19 peak, and we expect the recovery phase is a good Plan A until the dimensions of the credit crunch become clearer,” it advises.