GROWTH WILL RETURN

A more profitable environment will help Canadian companies and, by extension, stocks

Investors in the broader Canadian market have had a lousy year, but a regime change in Ottawa could provide some relief — at least for some sectors. The election of Justin Trudeau and the Liberal Party in October brings with it a promised stimulus package amounting to roughly $60 billion over 10 years. Following the election, some infrastructure firms such as Aecon Group Inc. and SNC-Lavalin Group Inc., which could potentially benefit from the new government spending, received small market bumps. Transportation companies, renewable energy firms and marijuana companies are also on investors’ radar as those that could potentially be winners.

The full details of the stimulus package are still to be determined, so the exact winners are tough to pin down. But investors can look forward to a more profitable environment for Canadian companies. A combination of government stimulus spending and accommodative monetary policy from the Bank of Canada will certainly benefit the Canadian economy and, by extension, Canadian stocks over the next few years.

Economists at many of Canada’s major banks have already lifted their targets for gross domestic product growth over the next two years because of the expected spending. Doug Porter, chief economist at BMO Capital Markets, said the stimulus will likely lift GDP growth in 2016 by as much as 0.5 percentage points, and increased his forecast to 2.5% from 2%. Even bearish observers, such as Capital Economics’ David Madani, note the increased stimulus alongside low interest rates from the BoC will fuel more growth.

History is also on the side of Canadian investors. Data compiled by Bloomberg shows that the TSX posts better returns under Liberal governments. The index, on average, has risen 6.8% annually under the Liberals, while climbing just 2.2% under the Conservatives. Regardless of whether that proves to be the case this time around, it is clear that with stimulus and growth back on the agenda in Ottawa, Canadian companies will benefit, and, hopefully, investors as well. — John Shmuel