The Canadian equity market has rebounded strongly this year and, based on valuation, there may be room for further gains, according to a report from National Bank of Canada published on Tuesday.
The TSX composite index is outpacing the developed world’s stock markets with a 7.1% gain so far this year, the report notes. Even so, there is still room for further advances, it suggests.
Data on international securities transactions shows that foreigners are ramping up purchases of Canadian equities, “which is helping boost the index,” the report says.
The reasons for this renewed interest in Canadian equities, the report suggests, includes stronger oil prices, and the federal government’s move to supply further fiscal stimulus to boost economic growth.
“Perhaps investors expect the TSX to catch up after the Canadian stock market lagged many major bourses last year,” the report adds.
“Indeed, after last year’s collapse, Canadian equities look relatively cheap based on PE ratios,” it says.
“If one excludes the depressed resources sector, the difference between U.S. forward PE’s and Canadian ones is high by historic standards. That suggests the TSX has room to run,” the report concludes.
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