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By Geoffrey Morgan and Stephanie Hughes
Mark Carney waves to supporters at a victory party in Ottawa, Ontario, on April 29. Photographer: Dave Chan/AFP/Getty Images
Financial stocks are the likely winners in Canada after Prime Minister Mark Carney’s Liberal Party won the most seats in the country’s federal election, according to CIBC Capital Markets.
S&P/TSX 60 futures ticked slightly higher Tuesday morning following the election, rising 0.1% as of 7:51 a.m. in Toronto. The US-listed shares of Canadian banks including Royal Bank of Canada and Bank of Nova Scotia both traded higher premarket.
“We would expect a slight positive bias to Canadian equities, with financials possibly leading,” CIBC analyst Ian de Verteuil wrote in a note following the election, adding that both major parties in Canada had argued for tax cuts and more energy infrastructure development. “Surely having an ex-Central banker as Canada’s Prime Minister can’t be harmful,” he said.
While the Liberal Party won most seats, they failed to gain the majority of 172 needed in the House of Commons, meaning Carney will likely be forced to work with other parties to pass a budget and other legislation.
Still, the Liberals’ plan to add over 0.5% of gross domestic product in net new spending each year could provide “rocket fuel” for the index, according to Bloomberg Intelligence equity strategists Gillian Wolff and Gina Martin Adams in a Monday note.
They pointed out that since 1970, there have been 14 years in which the deficit widened by over 50 basis points and the S&P/TSX Composite index delivered average returns of 14% compared with 5.2% in other years.
Wolff and Martin Adams added that the Liberals’ plan to boost infrastructure investment could lead to additional gains as stronger capital formation has historically led to stronger earnings per share growth for the index.
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