Investors look for Canadian banks to catch up after Trump election win
Investors in Canadian financial stocks are poised to benefit from Donald Trump’s return to Washington with an agenda to cut taxes and regulations, analysts and strategists say.
Some of them believe Canada’s biggest banks are still undervalued, even after a 30 per cent rally in the past year, and say the shares will keep rising with help from anticipated strength in the U.S. economy.
Shares of the largest banks in the U.S., including Citigroup Inc., JPMorgan Chase & Co. and Goldman Sachs Group Inc., surged last week after Trump triumphed and his Republican allies took control of the Senate. The KBW Bank Index ended the week up 8.4 per cent, its biggest weekly jump in a year.
Canadian banks rose only two per cent last week, and they’ve badly lagged the KBW over the past year — but may be due for a catchup. “The big winner going forward is going be financials in Canada” because of the success American banks have already seen, said Brian Belski, chief investment strategist at BMO Capital Markets.
Financial shares are a major driver for Canada’s benchmark equity gauge, the S&P/TSX Composite Index. The six largest banks make up about 20 per cent of the index and other financial stocks, including Brookfield Corp., represent another 12 per cent. Financials are an even bigger weight in the benchmark than energy, mining and materials stocks, which are around 30 per cent combined.
National Bank of Canada banking analyst Gabriel Dechaine said that among Canadian banks, Bank of Montreal and Royal Bank of Canada are the biggest winners from a Trump victory.
Bank of Montreal investors will have to look past what may be another weak report in the fourth quarter, with higher provisions for credit losses and weak commercial loan growth,
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