Transcript: Canadian equities well positioned for late-cycle environment
Lisa Conroy of Connor, Clark & Lunn says the U.S. election will be less influential than central bank moves and cyclical considerations
- Featuring: Lisa Conroy
- October 29, 2024 October 27, 2024
- 13:01
iStockphoto/DoraDalton
Lisa Conroy
Welcome to Soundbites, weekly insights on market trends and investment strategies, brought to you by Investment Executive and powered by Canada Life. For today’s Soundbites, we’re talking with Lisa Conroy, fundamental equity product specialist with Connor, Clark & Lunn Investment Management about Canadian equities and potential spillover effects from next week’s U.S. election. We asked about the candidates’ policy differences, and we started by asking where she sees opportunities for the Canadian equity market.
Lisa Conroy (LC): We believe we are in the later stages of this economic cycle. At this stage, we prefer to be exposed to business spend over consumer discretionary spend. And industrials is a good place for this. The Canadian industrial sector is a catch all for many unique business models that can do well across different market environments. A company like WSP Global [Montreal-based WSP Global Inc.] is an engineering and consulting company. It’s exposed to the secular themes of electrification, as well as onshoring. Commodities is another space we are excited about, given the current backdrop. We saw the U.S. Federal Reserve cut rates by 50 basis points into an economy that’s tracking at above 3% growth. In our view, this increases the risk of inflation moving higher next year. Commodities typically do well in a rising-rate and inflation environment. As we look forward, we continue to have a positive outlook for gold, predicated on the fact that, regardless of which political party gets into office, the U.S. fiscal deficit will continue to rise. And that will, in our view, continue to drive central bank buying of gold. Gold is also an excellent inflation hedge. We prefer the higher-quality gold producers such as Agnico Eagle [Toronto-based Agnico Eagle Mines Limited] and Kinross Gold [Toronto-based Kinross Gold Corporation]. Copper is also a great inflation hedge, and it’s supported by secular demand drivers. Copper is a key material needed for the data centre build out. It’s also an important material for clean energy transition, as it’s required for electrical vehicle batteries, as well as solar and thermal energy infrastructure. The most recent China stimulus is also supportive of copper. So, we value commodity exposure. And there are many copper producers within Canada to take advantage of this theme.
Potential impacts of the U.S. election on the Canadian equity market
LC: There are fairly diverse policies. In particular, the energy policy of Trump versus Harris. As we know, Trump will increase domestic drilling and reduce the investments in green energy, whereas Harris has made it very clear she wants to continue to focus on investing in clean energy sources. We also see differences on corporate tax. Trump plans to cut corporate tax to 15%, whereas Harris is looking to raise it to 28%. Tariffs have been extremely topical and, as we know, it was an important part of Trump’s 2016 presidential term. And he has indicated he wants to continue along those lines and that certainly has implications on the broader economic environment. In terms of the outcome for a Trump presidency, it will be, in our view, inflationary in nature. A Trump presidency would be bad for oil prices. He has communicated a desire to create a Ukraine resolution, as well as increase U.S. drilling. Both of those increase the oil supply, which is bad for oil prices. He has communicated a desire for less regulation on financials within the U.S. We also believe a Trump presidency would lead to a steeper yield curve. Both of these would be positive for financials, and in particular, Canadian banks who have sizable presence in the U.S., companies like BMO [Montreal-based Bank of Montreal] and Royal [Toronto-based Royal Bank of Canada]. If we move on to Harris, there are less takeaways. But she’s communicated more regulation on financials and technology, as well as higher corporate taxes. So broadly, a slight negative for those banks, for example, operating in the U.S. We also know she’ll really continue to support clean energy and electrical vehicles. That, to us, creates more demand for electricity. So, any stock or sector exposed to electrification would be positive under a Harris administration.
And finally, what’s the big takeaway on potential implications of the U.S. election?
LC: It is very challenging to predict a presidential election. It really comes down to what’s going on in the economy, where’s inflation going, where’s interest rates going, what are we going to see for growth next year? You know, there are puts and takes, and we’re paying close attention, as there could be some moves in the markets, but over the next 12 months, it’s really going to be more about the underlying economy, more about central bank behaviour as we look forward.
Well, those are today’s Soundbites, brought you by Investment Executive and powered by Canada Life. Our thanks again to Lisa Conroy of Connor, Clark & Lunn Investment Management. Visit us at investmentexecutive.com, where you can sign up for our a.m. newsletter and never miss another Soundbite. Thanks for listening.
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