Canadian investors are buying U.S. stocks at the fastest pace in at least six years after valuations for the benchmark Toronto Stock Exchange index rose to the highest level compared with American equities since 2002.
Money managers in Canada, overseeing a combined $227 billion U.S., bought $288.7 million U.S. more of U.S. shares than they sold in the four weeks ending March 23, the most in any comparable period since at least 2004, data compiled by Emerging Portfolio Fund Research Inc. show. Companies in the Standard & Poor’s/Toronto Stock Exchange Composite Index trade for 20.8 times earnings, 34% more than the S&P 500, data compiled by Bloomberg show.
The S&P/TSX beat the S&P 500 each year since 2003, rising almost five times as much, according to data compiled by Bloomberg. Surging demand for commodities drove up producers of oil, gold and copper and Canada avoided a banking crisis. None of the 34 managers polled by Russell Investments said in February that Canadian shares were cheap, a first for the five-year-old survey.
Thornmark increased the U.S. share of its North American equity fund to 42% from 38% over the past quarter, Bain said. Its money managers bought and sold shares based on their expectations for individual companies, not because of marketwide projections.
Canadian stocks are also relatively expensive because the nation’s currency climbed to a three-year high of $1.0497 on April 8, 33% more than its 30-year average, helped by the 145% surge in the S&P GSCI Index of 24 commodities since February 2009. Energy and materials stocks make up 51% of the value of Canadian equities by market capitalization.
The percentage of Russell survey respondents who said they were bullish on Canadian stocks fell to 68% in February from 77% in the fourth quarter. Optimism on U.S. equities rose to 64% from 54%.
The S&P/TSX has gained 19.2% compared with the S&P 500’s 18.8% since the end of 2009, even as U.S. companies posted almost twice the earnings growth, the data show. That’s driven the valuation for the Canadian equity benchmark to within 4.1% of its highest level since 2003.
