Why betting on Trump could be Canadian investors’ best choice

Why betting on Trump could be Canadian investors’ best choice

Why betting on Trump could be Canadian investors’ best choice When the Bank of Montreal’s chief investment strategist Brian Belski forecasted that Canadian stocks would recover from 2015’s slump and soar 18% in 2016, many investors had their doubts. A lot more thought his predictions were simply wrong.
In fact, Belski was pretty much on the mark. Data released earlier this week shows that The Standard & Poor’s/TSX Composite Index ended the year at 15,287.59 points (outperforming the U.S. for the first time in six years), marginally short of Belski’s forecast of 15,300 points. With gains for 2016 of 18%, Canadian stocks were the best performing of 24 developed markets.

After being vindicated in his predictions for last year, Belski is now ready to place his bet for 2017: BMO’s chief investment strategist believes that Donald Trump’s administration will boost gains in Canadian industrial and bank stocks.

“Financials are heading into a golden period that we have not seen in decades due to regulation easing in the U.S. and U.S. growth accelerating," Belski said in a recent interview with Bloomberg. “The U.S. will lead this financial resurgence. Canadian banks and insurers will come along for the ride."

Belski believes that Trump’s policies will fuel the U.S. economy, and that the president-elect’s ambitious infrastructure spending plans will be of direct benefit to Canadian industrial companies. Belski also said there’s even scope to gain in the markets from controversial tweets sent out from Trump’s account.

If Trump is able to achieve his aims of creating 4% growth for the U.S. economy, reducing taxes and initiating an infrastructure boom, Belski sees Canadian financials getting a boost by bumping up their U.S. investment books and increasing sales of insurance policies and other products. Although the rebound in commodity prices gave Canadian stocks a much needed surge in 2016, Belski recommends Canadian portfolios to place at least 30% of their equity exposure into the country’s lenders and insurers.

Unsurprisingly, Belski’s top recommendations are those with business south of the border: Manulife Financial Corp., Bank of Montreal, and Toronto-Dominion Bank. There’s even room to benefit from the risks of a Trump presidency, Belski said. “When you see Trump say something about the liberals or something else, the media will jump all over it negatively, and the markets are down a couple points and that’s your opportunity to buy.”

Belski is also predicting that suppliers to Canadian National Railway Co. and Canadian Pacific Railway Ltd. will benefit from increased building and trade activity in the U.S. Despite “negative rhetoric" and fear around Trump’s calls to renegotiate NAFTA, Belski believes the president-elect’s actual moves will be less controversial. “President-elect Trump needs a friend, and I think his friend’s going to be Canada," Belski said. “What we know about Trump is he’s a deal-maker and he’s going to make a deal with Canada. NAFTA is going to end up being better for Canada."

Belski sees the Canadian stock index hitting 16,000 points in 2017; 4.7% higher than it closed on the last day of 2016. He advises Canadian investors to be more positive. “The majority of Canadian-centric investors last year firmly believed that number one: Canada was going into a recession; number two: the banks were going to go bankrupt; number three: that oil was going to head below $20 and stay there," Belski said. “They were leading with emotion, not fundamentals. Don’t think like a Canadian. Think like an investor.”

Related stories:
Fixed-income manager downplays Fed rate hike, Trump rally effects
How to stir the asset mix and find returns