Regime shift puts Canadian equities back in global spotlight

As a global regime shift takes shape, Canada’s equity market is uniquely aligned to ride the next investment wave, says Lisa Conroy, fundamental equity product specialist with Connor, Clark & Lunn Investment Management.

Speaking on the Soundbites podcast this week, Conroy said that after a decade dominated by U.S. technology leadership, the global investment backdrop is starting to broaden.

She said Canadian equities offer attractive valuations, currency stability, differentiated sector exposure and meaningful leverage to rising demand for commodities.

“With a structurally favourable environment for active management, Canadian equities deserve renewed and potentially increased allocation within global portfolios,” she said. “I am the most excited I’ve ever been about the outlook for Canadian equities.”

Last year’s TSX performance may have offered a sneak peak of what’s ahead, she said.

“The TSX was up 33% relative to the S&P 500 in Canadian dollars. It delivered a 12% return. For Canada, that was its best return since 2009, top decile over the last 50 years,” she said.

The investment landscape is comparable to the early 2000s, when a secular demand for commodities reflected China’s growing economic power.

“We saw Canadian equities significantly outperform the U.S.,” she said. “This time, instead of China, it is global demand for power generation, for electrification, as well as AI infrastructure, providing that structural demand for many commodities that [are] well represented in the Canadian index, including uranium, natural gas, as well as copper.”

Other potential tailwinds for Canadian equities include:

• A new pro-business agenda from Ottawa designed to counter a hostile American trade agenda;
• Favourable valuations, compared to U.S. counterparts, and similar growth forecasts;
• A weakening U.S. dollar, which may be a barrier to Canadian investment in U.S. equities;

“When you put all these together, we do believe Canadian equities should continue to outperform the U.S..” she said.

The outlook for gold

Conroy said gold should continue to do well this year.

“2025 was the strongest year for gold prices since 1979,” she said. “As we look at the historical drivers of gold prices, many are still flashing green.”

Those drivers include central banks around the world continuing to diversify away from U.S. assets, expected rate cuts that should lower the opportunity cost for investors to hold gold, debasement trends, and stubborn inflation.

“We expect deglobalization, protectionist policies to put upward pressure on inflation. And gold is a store of value that typically does well in environments of elevated inflation,” she explained.

On the Canadian gold scene, she favours Kinross Gold, Agnico Eagle Mines, and Iamgold.

“Those would be some of our top picks within the space,” she said.

There are also attractive opportunities around the AI infrastructure theme in Canada — particularly companies that specialize in hardware.

“Celestica is a great example of this in the Canadian market. They manufacture and design the servers and routers that go into the data centres,” she said. “There continues to be a significant backlog of demand for these hardware items and we expect Celestica’s fundamentals to remain in place.”

In areas of national defence, she likes Kraken Robotics, which develops batteries and sonar technology that allows companies to explore the depths of the ocean.

“It very much fits into the defence spending theme,” she said. “That type of differentiated technology exposure is something in our portfolio we’re very excited about.”

Less interesting right now are IT services and software companies, both of which are being hurt by advancements in AI.

“We will likely see further pricing pressure in [those areas],” she said. “In Canada, that means we’re underweight Constellation Software, as well as CGI.”

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This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.