Investors are reassessing Canada as US-centric strategies give way to broader diversification efforts
Years of US-centered investment strategies have left other markets, including Canada’s, relatively undervalued, according to BNP Paribas chief economist Isabelle Mateos y Lago, who said global investors are now reassessing those markets for diversification.
In an interview with BNN Bloomberg during a visit to Toronto, Mateos y Lago said recent volatility in the US economy is prompting investors to re-evaluate asset allocations. She said the consistent focus on US assets is being reconsidered.
“The general situation is every investor on the face of the planet has been very overweight (the) US economy, and is now going through a thought process of thinking, maybe I shouldn’t be so overweight the US economy, and I need to diversify and find alternatives,” she said.
She told BNN Bloomberg that other regions are being assessed by investors seeking different options. “So every other geography is going through a bit of a beauty contest right now in the eyes of global investors, and has an opportunity to shine, and I think Canada is one of those.”
Mateos y Lago said Canada’s recent election and steps toward addressing structural issues, such as internal trade barriers, may be contributing to investor considerations. “It’s a moment of opportunity and so I would be shocked if Canada didn’t benefit from it.”
The S&P/TSX Composite Index reached record highs this week. When asked by BNN Bloomberg, Mateos y Lago said this may reflect activity related to changing investment preferences.
She noted that years of concentrated interest in the US has resulted in lower relative valuations in other markets. These pricing differences may be one factor drawing interest from investors seeking portfolio diversification.
In terms of trade, Mateos y Lago told BNN Bloomberg that countries in Europe are also examining Canada as a partner for diversification. She said geography can be a factor in trade dynamics, but other considerations, including regulatory and cultural compatibility, may support more engagement. “There are obvious complementarities, and things that should make this easier than with some other potential trade counterparts.”
She said while free trade agreements already exist between Canada and Europe, there may be room to reduce remaining tariffs and barriers.
Mateos y Lago said next week’s G7 summit in Alberta, where Canada will host leaders from France, Germany, Italy, the UK, Japan, and the US, may provide a venue to discuss cooperative approaches on trade and global coordination.
