Result to provide much-needed clarity after months of uncertainty, says portfolio manager
Mark Carney has been elected Prime Minister of Canada after a whirlwind campaign that focused on addressing economic and miliary threats from US President Donald Trump along with spurring a stagnant Canadian economy.
A Liberal Party victory was unthinkable at the end of 2024, with the Conservatives holding a 24-point lead in the polls going into the New Year, but former Prime Minister Justin Trudeau’s resignation and a rejuvenated wave of patriotism saw Carney eventually pull away from Conservative leader Pierre Poilievre.
Investors and advisors should be tailoring their portfolios around the result according to Derek Benedet, who believes that investors can now look ahead with some clarity as they move past an election that went down to the wire. While he stopped short of saying that the Canadian economy is headed towards a recession, Benedet emphasizes the importance of building up defence within portfolios to shield from an economic slowdown that is already underway.
“It's one less distraction for advisors and clients. Now they can focus on getting portfolios positioned for what is probably going to be a sort of a looming economic slowdown,” said Benedet, portfolio manager at Purpose Investments. “Focusing on portfolios and making them a bit more guarded and focused on defence, is certainly the right play right now for advisors.”
The Canadian dollar first rose after the announcement of Carney’s win, then dove once it became clear that the Liberals were unlikely to achieve a majority. Benedet says the markets did not see much of a splash after the election, though says long-term ramifications are likely to be seen as Carney's minority government will be forced to work with either the Bloq Quebecois or the NDP to pass legislation.
“It's going to just put the government on a more sluggish path for policy. You're probably going to have to have more deal making with the other parties,” he said. “That's probably going to be increase official fiscal spending, which could strain the budget a bit more than what the market was expecting.”
Benedet points to what has been a relatively flat NASDAQ over the past month, suggesting that this is a prime opportunity for investors and advisors to reevaluate their portfolios before more waves of uncertainty arrive.
“Right now, investors are getting a second chance, and advisors should be focusing on rebalancing. If you were caught offside with too much risk within the portfolios, you're getting a lifeline right now,” he said.
Carney has already implemented more business-friendly policies during his short time, abandoning the consumer carbon tax and capital gains tax that his predecessor’s government had put in place. Benedet says both candidates positioned themselves as pro-business, and has been impressed with some of the policies Carney has promised along the campaign trail, though will be waiting to see if and when these promises are put in place.
He also adds that the economic benefits from any major infrastructure projects such as pipelines – which had been a main talking point from both parties throughout the campaign – will not be seen for many years.
“Regardless of who was going to win, whether it was going to be Carney or Poilievre, both were running on more of a pro-business, more capitalistic-centric policy,” he said. “He is doing the right things in terms of removing inter-provincial trade barriers, the talk about deregulation and reducing some of the red tape for big infrastructure projects is certainly a big thing. How long that takes to actually see proof of this beyond campaign promises is the big thing.”
While the reversal of controversial tax policies and reduction of red tape could soften the blow of an inevitable economic struggles, Benedet underscores that the incoming government has little control over Trump and his erratic policy decisions. He says the Bank of Canada is also hamstrung as it attempts to stimulate growth while keeping an eye on inflationary pressures from Trump’s tariffs.
“If the trade war continues and escalates from here … I don't think there's anything the Canadian government could do to avoid a recession,” he said. “It's about negotiation and striking a fair balance. At the end of the day, there's only so much fiscal spending that they're willing to do.”
During Carney’s victory speech, the former central banker detailed his intentions to develop deeper ties with global trading partners as a way of diversifying from a now-unreliable partner in the US. Benedet says this is a welcome development, and describes potential free trade agreements with Asian and European economies as “low-hanging fruit” in comparison to some of the long-term economic goals such as the construction of pipelines.
“Striking trade agreements with the UK or the European Union, that is kind of stuff that could actually have meaningful impact within a year or two,” he said. “That is the foresight that you're going to have to have so that the country is not as overly reliant on the United States as a trading partner. It's not the kind of thing that can change overnight, but I think it's absolutely an important step that the government should be taking right now.”
