Business-friendlier Ottawa bodes well for GDP growth

Canadian equities stand to benefit from the country’s relative political stability and a new pro-business federal government in Ottawa, says Dylan Fricker, vice-president and portfolio manager with Mackenzie Investments.

Fricker said despite this year’s close federal election, Canadian politicians are far less contentious or polarized than their American counterparts, and a more business-friendly administration is paving the way for increased investment.

“People want to see stability in the capital, and they want to see a path to being able to allocate large amounts of capital accordingly,” he said. “I think Canada has provided that.”

Speaking on the Soundbites podcast this week, Fricker said potential investors may be reassured by Prime Minister Mark Carney’s corporate experience.

“He has spent a lot of time in boardrooms and at Brookfield [Asset Management], obviously involved in the pipeline industry and attracting global investment. So I think he’s well qualified for the job, which bodes well as we go forward,” Fricker said.

“To be fair, I think we’ve had a government for the last few years that hasn’t been tremendously pro-business. To the extent that we can be a bit more pro-business, I think Canada’s GDP growth should improve.”

He acknowledged that the Canadian economy has been sluggish in the wake of Covid, inflation and high interest rates. But, as we enter a period of normalization, consumers are repairing their balance sheets and business investment is ramping up. Deal activity has been strong even leading into this year’s election cycle.

Among the more notable mergers and acquisitions in recent months:

• National Bank’s purchase of Edmonton-based Canadian Western Bank;
• Abu Dhabi-based Mubadala Capital’s takeover of CI Financial;
• Ohio-based Cleveland Cliff’s acquisition of Stelco;
• Switzerland-based Glencore’s purchase of the coal assets of Teck Resources Limited;
• Strathcona Resources’ proposed bid to buy MEG Energy Corp.; and
• a bid to purchase Ottawa-based InterRent Real Estate Investment Trust, led by the company’s chairman, Mike McGahan, with external funding.

“Canada is a target-rich environment,” he said.

Fricker also pointed out that conditions are favourable for a number of key Canadian business sectors. The power demands of AI, for example, augurs well for Canadian power generation companies like Edmonton-based Capital Power, and gas providers like Calgary-based AltaGas and TC Energy Corporation.

On the oil side of the energy sector, current prices and increased pipeline capacity are a powerful combination. While not historically high, oil prices of around US$65 a barrel are profitable for Canadian producers.

“That’s north of $85 Cdn a barrel. The cost of production on a lot of Canadian oil is in the $40s, maybe $30s,” he said. “So a lot of these companies are making pretty good money.”

Additionally, there’s more business discipline in the oil patch than there used to be.

“Balance sheets are in great shape, he said. “You can actually get some pretty nice dividends, even from smaller companies. So that’s a big change from what we saw 10 years ago.”

Property and casualty insurance companies are in a good position, he said, with a strong pricing environment.

“Those stocks typically trade at a premium to, say, banking or life insurance,” he said. “I didn’t see anything in the quarterly reporting that would lead me to suggest that the pricing is going to rapidly deteriorate.”

On the consumer front, he likes companies like Mount Royal, Que.-based Dollarama, Inc. and Brampton, Ont.-based Loblaw Companies Limited.

“They compete at the more-commoditized end of the spectrum, where pricing is low and consumers can save money,” he said. “Those stocks have done pretty well in the last few years.”

Fricker said tariff and geopolitical-related market turbulence will likely continue to be a factor throughout the year.

“As much as I’d like to say that volatility is going to come down, I’m not 100% convinced of that,” he said. “I think equities, generally speaking because of this trade volatility, will probably stay volatile.”

The key takeaway for investors, he said, is to rely on careful bottom-up analysis.

“Make sure you do your homework,” he cautioned.

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This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.