Canadian stocks benefit whenever Trump tweets his thoughts on China
TORONTO There’s no question about it — global stock markets are roiled when Donald Trump tweets about the U.S.-China trade negotiations. Here’s one way to hedge against all that volatility: Buy Canadian stocks.
Just like that, clients get exposure to a developed US$2 trillion market with a stable government and one more thing: a gold and silver haven. Miners have about an 11 per cent weighting on the S&P/ TSX Composite Index, while similar stocks on the U.S. benchmark have a mere 2.7 per cent weight.
That’s helpful on days like Tuesday, when Trump signalled he could wait for another year before striking a trade deal with China, sending investors fleeing risk assets and piling into havens. While the S&P 500 Index fell as much as 1.4 per cent Tuesday, the TSX slipped by only half that amount.
This is a regular occurrence for Canada stock traders, which might explain why locals are so heavily invested in their home country. Seventy-two per cent of the time when Trump tweets about “China,” or “tariffs” or “trade” and stocks slump, investors in the TSX outperform U.S. stocks, according to data compiled by Bloomberg going back to the start of 2017.
To be sure, on days where there’s positive trade news, the rally in U.S. equities tops that in Canada. And the Canadian market is generally less volatile than its southern neighbour.
While that’s partly due to the contribution of mining stocks, it’s also because banks, which make up a third of the TSX, are a bellwether of the nation’s economy and pay out dividends at ratios that are hard to find elsewhere. Utilities and REITs have also helped protect Canada’s key stock gauge from major plunges.
In early trading on Wednesday, U.S. stocks were up and bonds down on speculation the U.S. and China will reach a deal that avoids tariffs due to take hold in 11 days.
The S&P 500 Index halted a three-day slide after Bloomberg reported negotiators are getting near an agreement on the amount of tariff relief in a phase-one accord between the world’s two largest economies.
Trump said discussions with China are going very well, a day after downplaying the urgency of a deal. Treasury 10-year yields climbed, following the biggest decline since August. The U.S. dollar dropped. Oil surged.
The S&P/TSX composite index, meanwhile, was up 48.03 points at 16,940.21, led by the energy sector.