There’s a stark comparison when looking at Canadian versus American equities: while the U.S. markets have been on an incredible run over the past year, the Canadian scene has been relatively flat. What’s going on? A number of things, says Myles Zyblock of Dynamic Funds, but mostly, Canadian markets just can’t seem to get out of their own way.
Thanks in part to massive corporate tax cuts in the United States, the global economy is expected to grow at a healthy clip over the next two years, according to a new report from the International Monetary Fund. The IMF upped its forecast by 0.2 per cent to 3.9 per cent growth in the world economy over both 2018 and 2019, with the Trump administration’s new tax program said to figure into the raised expectations, even as worries of deepening inequality between the rich and poor persist.
“We certainly should feel encouraged by the strengthened growth,” said Christine Lagard, head of the IMF, “but we should not feel satisfied. There are still too many people who are left out of that recovery and acceleration.”
Critics have called President Trump’s tax cuts a gift to the rich, one which will result in a short-term economic bump but which will hurt the American people over the longer term. The IMF predicts that US growth will run at a 2.7 per cent rate in 2017 and at 2.5 per cent in 2018.
That news bodes well for American markets, which are starting the new year where they left off last year: red hot. After posting a 20 per cent gain in 2017, US equities are now up five per cent for the month of January alone.
Not so in Canada, where last year and the start of this year have delivered much more modest gains. That’s a sign that we’re lagging on the international stage, Zyblock says.
“We’ve got a really good global equity market going on and it seems like Canada is being left in the dust,” Zyblock says to BNN. “It’s not the fact that everything is bad in Canada, but we have new housing regulations weighing on people’s minds, the NAFTA situation, rising interest rates, leveraged household balance sheets … I think this is all keeping a lid on where the Canadian markets can go.”
On the potential for the North American Free Trade Agreement to be cancelled, Zyblock says that the move would be much less of a burden on the US than on Mexico and Canada. “65 per cent of Canada’s trade is with the US and that represents about 30 to 35 per cent of our GDP,” says Zyblock. “It’s a really big deal. There’s a lot more for Canadians to lose than Americans if they walk away.”
Canada hosts the sixth and penultimate round of the NAFTA renegotiation talks this week in Montreal, with sources saying that the US administration is displeased with Canada’s pushing for a more progressive trade agenda, including stronger consideration for issues like Indigenous and labour concerns.