Posthaste: It's the economy, stupid — what's really wrong with the laggard TSX
You have to wonder why Canadians are investing their money outside the country like never before.
Investment in foreign securities hit $29.4 billion in December — largest net outflow of purchases into foreign stocks and bonds on records going back to 1988.
Foreigners also have less appetite for Canadian equities, dumping a record $48.7-billion worth last year.
The easy explanation for the stampede out of Canada would be performance. Last year the S&P 500 beat the S&P/TSX composite index by nearly 13 percentage points. This year the TSX is up about 5 per cent year over year, a far cry from the near 30 per cent gains in its American counterpart.
“On the technical side, the old truth is that Canadian equity indices often just don’t have much exposure to what is working, and that couldn’t be truer today,” wrote Robert Kavcic, senior economist for the Bank of Montreal, in a note on Friday.
Most of the growth in the S&P 500 has been driven by surges of 30 to 60 per cent in technology, communications services and consumer discretionary. These three sectors make up 50 per cent of the S&P 500, but just 17 per cent of the TSX, he said.
Canada doesn’t have a Nvidia Corp, Microsoft Corp, Amazon.com Inc, Meta Platforms Inc or Apple Inc, the five companies of the so-called Magnificent Seven that alone have racked up almost half of the net 1,200 point increase in the S&P 500 over the past year, he said.
Canada’s market is also more susceptible to the pressures of higher interest rates in sectors like utilities, real estate and telecom services.
But Kavcic argues there are also fundamental forces at play. It’s not just the TSX that is underperforming, it’s Canada’s economy.
While real gross domestic product grew 3.2 per cent in the U.S.
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