Canada has the worst-performing stock markets of all the G7 industrialized economies this year, and a new analysis suggests that the country could see its markets lag for years to come.
Canada’s stock exchanges have seen an overall decline in value of 0.42 per cent since the start of the year, Bespoke Investments reports.
In U.S. dollar terms, Canada’s stock market has fallen some three per cent this year.
That’s a far cry from the markets next door in the U.S., which have seen their overall value jump 14.91 per cent, the investment analysis group said.
Canada's markets have even lagged some countries now famous for their economic problems, like Greece and Spain.
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And a recent note from Scotiabank strategist Vincent Delisle suggests this trend could continue for a decade or more.
Delisle says there have been four periods since 1950 when Canada’s stock markets underperformed the U.S. markets, and those on average lasted 12 years.
“In our view, ongoing TSX underperformance could be the start of a fifth secular cycle,” Delisle wrote in a note, as quoted at the Globe and Mail.
So what’s behind Canada’s lacklustre market performance? The simple answer is commodities. Canada’s stock markets are heavily weighted towards the mining and energy sectors, and commodities prices have been under pressure this year.
Some economists have started worrying about this growing reliance on commodities, arguing that Canada is losing its economic diversity, which in turn could harm the country’s growth prospects in the long run.
Besides making the economy susceptible to movements in commodity prices, as the stock markets have shown this year, there is a long-term risk to Canada’s economy as fossil fuel markets dry up, replaced by green energy, the Canadian Centre for Policy Alternatives warned earlier this year.
One thing that could help out the stock market, in the near term, would be a decline in the value of the loonie, which would make Canadian investments more attractive globally.
Every one-per-cent decrease in the value of the loonie translates into a 0.5 per cent increase in the value of the TSX, Delisle said, as quoted at the Financial Post.
Some analysts have been predicting exactly that. TD Bank recently predicted the loonie would fall to around 90 cents U.S. by the end of the year. It was trading around 98 cents U.S. on Tuesday.