Trump’s Policies Find an Unlikely Beneficiary: Canadian Stocks

(Bloomberg) -- Mere minutes after markets opened in Toronto on Monday, US President Donald Trump said in a social media post that he would double tariffs on Canada's automotive sector and he has proceeded to follow up with a barrage of insults targeting the US's neighbor to the north.

Rather than sparking a selloff, money continued to pour into the Canadian stock market, as it has all year.

The episode highlights a stark irony: Trump's policy choices actually have helped the Canadian market outperform the US for two straight years, even as he ratchets up his verbal attacks.

The iShares Core S&P/TSX Capped Composite Index ETF, the largest exchange traded fund listed in Toronto that tracks Canadian stocks, saw another day of net inflows on Monday as it heads for an 11th straight month of positive flows. And it's not just Canadians buying in their own market. Statistics Canada data shows net inflows into Canadian securities every month this year.

"These things have kind of lost their shock and awe value," Neil Linsdell, head of investment strategy in Canada for Raymond James Ltd. in Montreal, said of Trump's tariff threats. Linsdell is keeping his target on the S&P/TSX Composite Index at 37,000 points for the year, expecting tariffs to be both short-lived and a relatively low probability of a full-blown escalation.

Indeed, strategists across Toronto's Bay Street, including at the Bank of Nova Scotia and IG Wealth Management, encouraged investors to "stay calm" following Trump's latest tariffs and insults targeting Canada. Data shows traders didn't need the encouragement, as total trading volume on the Toronto Stock Exchange dropped below the 100-day moving average.

"We've seen this movie before, straight out of the bully/bluff playbook," said Brian Madden, chief investment officer at First Avenue Investment Counsel Inc. He said the breakdown in trade talks will have a short-term effect on investor sentiment in Canada and direct hit to trade-exposed sectors.

On the other hand, Madden said he sees a handful of other Trump administration policies providing a boost to a swath of Canadian stocks. The Iran war has lifted oil prices, benefiting the energy producers that account for a nearly 17% weighting in the S&P/TSX. Another tailwind: Gold prices have rallied amid rising US government debt and the Treasury Department's efforts to rein in bond yields, lifting the Canadian benchmark's materials sector, which weighs in at nearly 20% of the S&P/TSX.