Welcome to Soundbites – weekly insights on market trends and investment strategies, brought to you by Investment Executive, and powered by Canada Life.

For today’s soundbites, we discuss the upcoming Canadian election with Dustin Reid, vice president of investment management at Mackenzie Investments. We talk about how the parties have positioned themselves and what investors will be watching. And we started by asking about the general economic climate the election is taking place in.

Dustin Reid (DR): Obviously, it’s been a very challenging last… in the last 18 months or so. With respect to Trudeau, some people would say he’s done an admirable job in steering the government and the vaccine side, particularly once the summer rolled around. But I would say that some people are probably just as concerned around the fiscal spend. And obviously some fiscal spend needed to happen last year or it was going to be a much worse recession. But I think budget hawks are concerned about the long-term implications of what’s happened on the government fiscal side in the last 18 months. No one really knows what this means. Like what does this look like for government balance sheets two, three, four, five years from now? A lot of economies have incurred a huge amount of debt, printed a lot of paper. How do we emerge from this? How do we balance our books? And what does it mean?

How Bay Street perceives debt and deficits

DR: There are pockets in time where market thematics mean that debt and budget deficits are important, and they drive markets. And there are times where it’s just not a big driver. We’re coming out of a period where everybody was spending, and spending large, right? And I don’t mean this makes it right, but because everybody’s doing it, it kind of takes a bit of the spotlight off of this as a driver. So how does Bay Street perceive the national debt and budget deficits? Obviously, it’s important but I don’t think it’s necessarily a huge driver. Where I think it does become a driver, is if whoever is in power has a kind of a five-year plan, and if that budget plan was seen by ratings agencies as a problem, and if we were looking at a ratings downgrade for Canada’s AAA rating, that’s when I think Bay Street would get very concerned and we would see a lot more headlines and press around that.

And finally, how party positions could spark different reactions from the financial community.

DR: This election has a couple of things going that I think could be, not necessarily massively market moving, but interesting. I think the housing affordability issue is one area where you can see a pretty interesting difference between at least the two major parties. Housing is definitely problem I think for a lot of Canadians. A lot of people are obviously getting priced out and that’s, you know, that’s challenging for many, many reasons. Whoever ends up winning the election is going to have to tackle the housing situation across the country. The Conservatives are talking about building a million homes in three years and dedicating some federal buildings to housing. You know, I’m not in construction but I think that’s challenging. The NDP also is very, very focused on this. And I believe the Liberals are in the processing of allocating money towards that in the current budget. So, the parties aren’t necessarily, massively different. Everyone recognizes it’s a problem. Everyone’s willing to throw a lot of money at the problem. Now what’s interesting, kind of tangentially on this, is immigration. The immigration story has been a big driver, not only for Canadian growth but I think it’s a big deal for the housing market. Even last year, in 2020, a massive pandemic year, we brought in 184,000 or so new immigrants into the country. And the government is targeting, I think, around 340,000 or 360,000 this year, and continuing to move higher, at least under a Liberal government. It’ll be interesting to see, if the Conservatives take power, if there is enough inclination for change in terms of the immigration policy. Because I think the immigration policy is really helping to fuel the demand for housing. And when you have that, you’ve got rising prices, no surprise. So, it’ll be interesting to see if the Conservatives, if they do take power, want to trim the amount on the immigration side. Clearly the Liberals do not, and so I think that in many ways if the Liberals are in power, then the housing story is going to continue to be challenging, in particular markets across the economy. From a global perspective, and a world economy, I think the commodity price cycle is going to be very important here. So, commodities and the housing side are going to make up a lot of how the Canadian economy fares here in the next six to 24 months. Those are definitely things that I think I’ll be watching. And I think international investors will also be watching.

Well, those are today’s Soundbites, brought to you by Investment Executive, and powered by Canada Life. Our thanks again to Dustin Reid of Mackenzie Investments.

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