Most of the time, Canadian investors tend to think that investing in Canada is safer than investing in other developed markets such as the U.S. due to key stocks in existing “safer” sectors such as commodities and financials, making up a disproportionate percentage of Canada’s economy.
As it turns out, Canada’s resource-rich economy has become much higher risk in recent years than investors may have thought 10 or 15 years ago, as volatility in these sectors kicked in (on the downside) due to a sharp bear market which has continued to punish investors.
The overall consensus outlook for Canadian stocks this year is unfortunately much of the same, as expectations are that continued stimulus from central banks will drive growth stocks higher at the expense of low-correlation sectors.
This stimulus is expected to come due to overall growth which remains slower than predicted by economists pre-stimulus, suggesting global growth may be at an inflection point, something that would be very detrimental for Canadian resource stocks which are dependent on global growth.
These macro risks related to global growth generally increase the risk profile of many core Canadian stocks relative to U.S. or global stocks, making a well-diversified portfolio even more important for Canadian investors.
If global growth does pick up, Canada will likely outperform many other markets due to the relatively low valuations Canadian companies have right now and the leverage these companies have to global growth levels.
I would wait to see a real downturn before going heavy on Canadian stocks, as I do see more downside on the horizon in the near-term, meaning diversification really is the name of the game in 2020, in my opinion.
Invest wisely, my friends.
