Why investors will hesitate until trade deal is finalised
The new trade tariffs and NAFTA uncertainty will add to short-term market volatility, according to an advisor, who concedes that Donald Trump has pulled off a “brilliant move”.
Rob McClelland, of the McClelland Financial Group, of Assante Capital Management Ltd, said the US president has found Canada’s weak spot by targeting the country’s biggest industries.
He believes the long-term effect of this standoff with the US will be minimal but said that the unknown nature of the final trade tariffs and NAFTA deal mean investors will shy away from Canada until it’s resolved.
He said: “It’s interesting to note, you always say markets don’t like uncertainty and if you look at it in global terms last year, it was interesting to note that in Canadian dollars, Canada and the US had the lowest returns of any of the developed countries. Now that’s Canadian dollars – the US did well but because the Canadian dollar was strong, it didn’t show up in our numbers.
“Mexico was also at the very bottom of the emerging markets and so you look at that, Canada, US and Mexico, all near the bottom in 2017. Well, what’s the commonality? It’s free trade.
“Canada has struggled over the past 10 years, the soft market has anyway, and at some point that will change but as long as free trade is on the discussion table, I think that will be delayed somewhat.”
McClelland, who said he does not see this as a buying opportunity in Canadian companies, said the uncertainty and headlines around trade are simply putting people off moving capital into the country.
He said: “People would like to know whether a deal is done. Even if it’s not in Canada’s favour, the market would probably react and go up, just based on that news alone.
“When there’s uncertainty, the market sort of goes, ah well, we are not going to invest in Canada or Mexico right now. If you’re sitting somewhere in Australia and you’re working out where to allocate your dollar, you should probably say, I’m going to let this free trade thing sort itself out.”
While McClelland is unimpressed with Trump’s values as a human being, he said the President undoubtedly has the upper hand around the negotiating table: “Trump has fired that first shot and now it’s up to Canada and Mexico to respond. The guy we have got in place [Trudeau], I don’t think he’s a brilliant negotiator. I’m not sure what he’s brilliant at, but negotiation is not his strong point. He’s going to bring a team of people and so on but it’s going to be tough going against the US and going against Donald in his wheelhouse.”