Oil decline hasn’t hurt Canada as much as others

Oil’s precipitous price drop over the past seven months has been tough on Canadian equity investors, but the fallout has been far worse for investors in other nations that heavily rely on energy companies.

“Canadian equities have not fallen as much as other oil exporters,” said Keith Parker, an asset allocation strategist at Barclays, in a note this week. “Energy exporters with the exception of Canada have been punished.”

In particular, Mr. Parker says Canadian stocks have outperformed those trading in Brazil, Norway, Russia and Colombia since West Texas Intermediate crude prices peaked at US$100.36 on June 25.

Since then, the S&P/TSX composite index has climbed 1%, but fallen 13% in U.S dollar terms, while the Ibovespa index in Brazil has fallen 8% in local currency terms and 26% in U.S. dollars over that stretch.

In Norway, the Oslo All-Shares index is off 5% in krone and down 23% when converted to greenbacks and Colombia’s IEQC index is off 13% in pesos and 30% in U.S. dollars.

Russia’s MICEX index, meanwhile, has climbed higher when calculated in rubles, but has plummeted 30% in U.S. dollars.

“While Canada is an oil exporter, it’s not nearly as ‘oily’ as some of the others,” said Peter Buchanan, senior economist at CIBC World Markets.

He points out that oil makes up 20% to 25% of Russian and Norwegian GDP, compared with about 10% of Canada’s economy, including pipelines.

“Canada has had quite strong performances in a number of other sectors, some of which benefit from lower oil prices,” Mr. Buchanan said, noting consumer discretionary stocks are up 16.5% in the past six months, while consumer staples and industrials, which includes the airlines, are up 28% and 7%, respectively.

Of course, Russia’s poor equity performance extends well beyond oil, since the war in Ukraine and related sanctions against Moscow are crippling the country’s economy.

Canada, however, has negligible geopolitical risks and further benefits from being next door to the United States, said Colin Cieszynski, market strat- egist at CMC Market Canada.

“The U.S. economy is much stronger than the European Union right now and Canadian companies are in a better position to take advantage of that, particularly with a lower loonie,” he said.

Mr. Buchanan agrees that Canada’s fortunes are improved by its close proximity to the world’s healthiest major economy at the moment.

He points out that nearly 60% of S&P/TSX composite member revenues come from abroad, with “a good chunk of that from the U.S.”