At the open, he notes, Canadian markets gapped slightly lower than their US equivalents and where the futures market had priced Canadian stocks. Resource sectors, namely gold and energy, helped to offset that selloff through the day. Aul highlights the global nature of many Canadian-listed companies’ operations as well as those resource exposures as potential insulation against what tariffs or trade tensions might do to Canada’s economy.
As we look out longer term, however, to the potential resolution of these trade issues and an eventual new deal, Aul notes that there may be an erosion of trust. Investors may not believe, anymore, that a renegotiated USMCA deal will hold.
Tim Caulfield argues that Canadian equities are not, in large part, on the immediate receiving end of proposed tariffs. Caulfield is a Portfolio Manager and Director of Canadian Equities Research at Clearbridge Investments, part of Franklin Templeton. The sectors that look most set to be impacted, such as manufacturing, are underrepresented on Canadian stock exchanges, he says.
He notes that on Monday the Canadian sectors most impacted by the looming threat of tariffs were financials and Canadian rail stocks. Those businesses won’t be paying tariffs directly, but their businesses would be significantly impacted by what would be done to their customers. While the threat of tariffs remains in place, he says, there may be significant headwinds for these downstream businesses.
“If you’re a business that’s considering pushing ahead with an ambitious project, maybe you put that on the shelf until you have more clarity,” Caulfield says. “In the parlance of a portfolio manager, the cost of capital for Canadian businesses went up and that’s likely to deter investment. While there’s some short term relief, we know we’re going to be back at the table in 30 days facing similar or incremental demands in order to just stand still. The uncertainty that comes from this is pretty devastating for Canadian businesses.”
