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Canada's TSX Hottest Among Major Stock Markets In 2014 So Far

Look Who's Got The World's Hottest Major Stock Market
Kris Backus, manager of the TMX Broadcast Centre, checks a screen displaying TMX Group Inc. signage and stock prices in this arranged photograph at the Toronto Stock Exchange (TSX) in Toronto, Ontario, Canada, on Tuesday, Feb. 19, 2013. Canadian stocks rose for the first time in four days, led by gains among banks, after a measure showing an increase in German investor confidence added to signs of a European economic recovery. Photographer: Pawel Dwulit/Bloomberg via Getty Images
Bloomberg via Getty Images
Kris Backus, manager of the TMX Broadcast Centre, checks a screen displaying TMX Group Inc. signage and stock prices in this arranged photograph at the Toronto Stock Exchange (TSX) in Toronto, Ontario, Canada, on Tuesday, Feb. 19, 2013. Canadian stocks rose for the first time in four days, led by gains among banks, after a measure showing an increase in German investor confidence added to signs of a European economic recovery. Photographer: Pawel Dwulit/Bloomberg via Getty Images

Canada’s job numbers have been unimpressive, exports are still waiting for their big break, and the housing market’s health is a matter of considerable debate, but at least there’s one spot where the Great White North’s economy still shines.

And surprisingly, that would be the stock market.

The S&P/TSX Composite Index, the main measure of the Toronto Stock Exchange, has outperformed every other major stock index this year so far.

It was up 7.69 per cent since the start of 2014 as of Friday afternoon. Compare that to New York’s Dow Jones, which is up 0.86 per cent on the year, or the tech-heavy Nasdaq, down more than two per cent so far.

There are stock markets in smaller countries and in the developing world that have done better. Denmark's OMX Copenhagen Index is up 16 per cent this year, and Pakistan's KSE 100 is up 15 per cent. But among the major markets, Canada leads.

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Nikkei (Japan) - down 12.14%

Stock Market Indexes, 2014 So Far

We say “surprisingly” because just a few years ago, the TSX was one of the worst performers out there, dragged down by lacklustre commodity prices.

So why the big turnaround? There are at least two major factors are at play here, and the first is the rebound in energy stocks.

The TSX is heavily dominated by resource companies, so Canadian stock markets move with commodity prices.

Scotiabank’s oil and gas price index is up 25 per cent year on year (though the broader index of commodities grew at a more tepid 2.3 per cent), and a slew of energy stocks recently hit year-long highs.

The second factor is the falling Canadian dollar. Scotiabank strategist Vincent Delisle calculates that every one-per-cent drop in the loonie results in a 0.5-per-cent increase in the TSX.

A cheaper dollar means Canadian investments are more attractive to foreign investors and Canadian companies’ foreign sales are worth more in Canadian dollars, which all pushes up the stock market.

Finally, BMO economist Robert Kavcic says U.S Federal Reserve’s “taper,” the removal of fiscal stimulus that has been in place since the Great Recession, is helping Canadian stocks regain their balance relative to U.S. stocks.

The Fed’s massive stimulus program created “an environment in which U.S. equities — especially banks and consumer discretionary — were free to thrive,” Kavcic writes, but with the stimulus ending that advantage is disappearing.

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