Investors bet Canadian stocks have room to rally on value play
BNN Bloomberg
Canada’s stock market rallied 22% in 2021, but investors are betting on more gains as they shift from volatile growth stocks.
Canada’s stock market rallied 22 per cent in 2021, but investors are betting on more gains as they shift from volatile growth stocks.
The S&P/TSX Composite Index is trading near its cheapest level on record relative to the S&P 500 Index after getting caught up in the global stock rout. That’s emerging as a catalyst for gains, especially since looming interest-rate hikes and surging commodity prices benefit the value-heavy national equity benchmark.
Canadian stocks are below their five-year average valuation at about 14.4 times, and creeping toward levels as low as Japan’s Tokyo Stock Exchange Tokyo Price Index -- known for its low multiples. After years of soaring technology stocks, the growth-heavy S&P 500 Index, by contrast, is trading at 20.1 times forward earnings.
“Canadian equities remain a strong relative value play within global markets, with 2022 likely positioned to see expanded reopening of the economy that should result in another year of record earnings and one of the strongest dividend growth cycles in decades,” Bank of Montreal Chief Investment Strategist Brian Belski said in a note. He expects the S&P/TSX to climb to 24,000 by the end of the year, which would mark another all-time high.
Global benchmarks have tumbled in the first month of the year, but the TSX has staved off major losses. Propping up Canada’s market are value stocks, with financials and energy making up half of the index.
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