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If you steer clear of resource stocks, it’s a great time to own a Canadian company. A weak loonie and lower fuel prices are propping up the bottom line for everyone from retailers to transport companies in Canada, economists say.
“It’s obviously very bad news for the energy sector and a few provinces, but it’s actually pretty good news for everyone else,” said Robert Kavcic, senior economist at BMO Capital Markets. “Especially in manufacturing and areas like consumer spending — you’re basically getting a tax cut across the board.”
The favourable climate for a lot of Canadian companies is easy to overlook because of how bad this year has been for resource companies, which account for a big chunk of the country’s economy.
Energy companies make up one-third of the Toronto Stock Exchange and they are reeling from a collapse in oil prices. Similarly, gold companies, a sizable portion of the important materials sector, are cutting guidance as the precious metal approaches price levels that are dangerously close to the break-even point for many miners.
The commodity price rout has weighed heavily on the TSX, which is now down 7% since its early September highs.
But that decline masks how well stocks in other Canadian sectors are performing. Materials and energy account for all of the losses by the TSX since October, while the other eight TSX sub-sectors are up.
One reason is that low oil prices are a relief to everyone except energy companies. Most of eastern Canada imports its oil due to the limited infrastructure to move Canadian oil from Alberta to other provinces.
In the past, international oil prices, which are tied to the Brent benchmark, were significantly higher than Canadian oil. But that gap has rapidly closed as Brent has fallen to more than a four-year low.
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