Canada is known by many for its beautiful landscapes, unique wildlife, northern lights, ice hockey and maple syrup. However, these are not the only reasons for hundreds of thousands of investors to choose this country as their safe haven investment destination each year.
In this article, we find out what investment opportunities the Canadian stock exchanges can offer you in 2019.
The economy of Canada: between a rock and a hard place
Today, Canada is considered to be one of the soundest countries in the world, including its robust monetary policy, low budget deficit and strong natural resource base.
The Canadian economy is usually characterised as a highly developed mixed economy. According to the 2019 Index of Economic Freedom, Canada’s score is 77.7, ranking its economy the 8th freest in the world. In 2018, the country had the world’s 10th largest nominal GDP and the 17th largest GDP by purchasing power parity.
Employing about three-quarters of the citizens, the service industry dominates the economy. However, the country's vast natural resources drive its exports. Canada is a world’s leader in the production of many commodities, including potash, coal, copper, nickel, zinc, as well as platinum, gold and silver.
Moreover, the country is the world’s fourth-largest exporter of natural gas and petroleum. A number of Canada’s major companies are operating in natural resource industries. These are Barrick Gold, Encana, Cameco and Goldcorp.
All of these factors have helped Canada become one of the principal global investment destinations, especially for U.S. investors. In 2018, Canada exported US$450.7 billion in goods. About three-quarters of these exports (76.4%) were delivered to its North American trade partners, the U.S. and Mexico. In fact, trade with these countries has tripled since 1994 when the NAFTA agreement was signed.
However, strong trade bonds with the U.S. can also be viewed as one of the weak points of the country’s economy. Canada struggles to overcome a geographic handicap as it does not border any countries other than the US.
This makes the shipment of goods to other markets more expensive and makes Canada more dependent on its neighbour. This dependency is even sharper when viewed in terms of the country’s most profitable export: petroleum. And the U.S. is practically Canada’s only customer in this regard.
The oil market is oversupplied now, experiencing continuous price fluctuations. Canada has lost a significant market share in its most important trading relationship with the U.S. as other countries can offer similar goods at lower prices.
Recent trade conflicts with the U.S., including tariffs on agricultural and dairy products, only added fuel to the fire. However, it is expected that the replacement of the NAFTA agreement with the revised USMCA agreement will solve the majority of issues.
Presently, the Canadian government is focusing its attention on trade diversification, export promotion and support for domestic industries and small businesses. The transparent regulatory framework provides a strong basis for commercial activity, enabling businesses to operate more efficiently and vigorously.
Presently, the country is a member of the Asia-Pacific Economic Cooperation, G7, G20, the Organisation for Economic Co-operation and Development and the World Trade Organisation.
Speaking about the economic outlook, Canada is currently facing some issues with labour shortages, technological changes, volatile commodity prices, rising interest rates and the aftermath of trade tensions between the U.S. and China. However, it is expected that global economic growth, as well as increasing employment, exports and investments will provide the basis for the Canadian economic expansion to remain solid through the second half of 2019.
The economy of Canada has operated below full capacity over the last several years, while economic growth slowed from 3.0% in 2017 to only 1.8% in 2018. However, it is projected to reach its full capacity in 2020.
Bringing it all together, real GDP growth is expected to settle at around 1.3%-1.4% in 2019, before strengthening to 1.7% in 2020.
The current economic forecast may look quite challenging, with business stagnation risks in place. However, it is important not to develop a recession mindset and use economic challenges as a good motivator for innovation and change.
As of August 2019, Canada has 51 companies on the Forbes Global 2000 list, ranking ninth ahead of Switzerland and behind Germany.
What is the Canadian stock market?
The Canadian stock market is made up of one large and a few small exchanges.
The Toronto Stock Exchange, or TSX, is the country’s principal exchange. It is the world’s ninth-largest exchange by market capitalisation. A broad range of local and international businesses are represented on the TSX.
It lists big companies, such as the Canadian National Railway, Suncor Energy and Royal Bank of Canada. There are more mining, gas and oil-related companies listed on the TSX than on any other stock exchange in the world.
The TSX Venture Exchange, or TSXV, is another significant Canadian exchange. Headquartered in Calgary, it is a public venture capital marketplace for emerging companies. All trading on the exchange is done electronically.
There are other exchanges, but the above-mentioned two are Canada’s key markets.
It is important to note that many Canadian companies are listed on multiple exchanges. For instance, the shares of Magna International, a Canadian global automotive supplier, are traded on both the Toronto Stock Exchange and the New York Stock Exchange.
How many companies are listed on the TSX and TSXV?
As of August 2019, over 1,545 companies are listed on the Toronto Stock Exchange, and around 1,700 are listed on the TSX Venture Exchange.
What is the TMX Group?
Both the TSX stock exchange and the TSXV stock exchange are owned by the TMX Group Limited, a Canadian financial services company. It provides a multitude of services, including listings, clearing, settling and depository facilities, trading, as well as technology and information services for the international financial community.
What are the trading hours?
The TSX and TSXV's trading hours are from 9:30 a.m. to 4:00 p.m (EST), Monday to Friday. The market is closed on weekends and major public holidays.
What are the best Canadian stocks to invest in?
If you browse the Canadian stock exchanges, the chances are that you will find a plethora of attractive stocks to invest in. However, when making an investment decision, don’t forget to consider your personal preferences, trading goals, strategies and risk tolerance.
According to Stocktrades.ca, this year’s list of the top Canadian equities to invest in includes Suncor Energy (SU), Manulife Financial (MFC), Bank of Nova Scotia (BNS), Enbridge (ENB), Shopify (SHOP), TD Bank (TD) and Canadian Natural Resources (CNQ). These, among others, were primarily chosen for their superb growth potential, as well as dividend returns and overall industry outlook.
If you are interested in Canadian stocks with the highest dividend yield, based on the same source, you may want to pay attention to Canadian Pacific Railway Ltd (CP), Manulife Financial (MFC), Royal Bank of Canada (RY), Cdn Natural Resource (CNQ), Bank of Montreal (BMO), BCE Inc. (BCE), Enbridge Inc. (ENB), Bank of Nova Scotia (BNS), Canadian National Railway (CNI), Magna International (MGA), Suncor Energy Inc. (SU) and Manulife Financial (MFC).
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However, if you are not the type of person who wants to track the performance of each individual stock, you can try investing in the large stock indices. In Canada, the S&P/TSX Composite Index is a great example.
The S&P/TSX Composite is Canada's benchmark equity market index. Comprised of about 250 companies, it covers roughly 70% of the Toronto Stock Exchange’s market capitalisation. Reviewed on a quarterly basis, it includes both stocks and income trust units. This index is usually seen as a barometer of the national economic performance.
How to invest in the Canadian stock market
Like with any other stock market, there are plenty of ways to invest in Canadian equities. For example, you can purchase stocks directly through a licensed broker or buy exchange-traded funds, such as Canada Energy Income ETF, IQ Canada Small Cap ETF or MSCI Canada Index Fund.
CFD is a type of agreement made between a broker and a trader regarding the price difference between the security’s value at the start and at the end of the trade.
You don’t buy the underlying asset when trading CFDs. Instead, you deal only with the price of a given financial instrument. It is especially favourable when trading international assets, as CFDs provide you with the opportunity to go long or short without the need to deal with conventional exchanges.
However, as CFDs are a leveraged product, losses, as well as winnings, are magnified.
Browse Capital.com to learn the latest information and trade Canadian stock CFDs. Learn more about CFD trading with our comprehensive free online courses. You can also check our guide to share trading to equip yourself with all the knowledge you need.