Stock sectors to watch after the Liberals win


“There are particular areas where the government has made proposals on a tax or regulatory front,” CIBC’s Avery Shenfeld said in an interview on Tuesday. “Because the result of this election was widely anticipated, part of this sum would have already been integrated into the actions of these specific sectors.”

Justin Trudeau’s Liberals have pledged to raise the corporate tax rate for banks and insurance companies, and those institutions would also contribute to a Canada Dividend Fund. Together, the two measures would bring in about $ 10 billion over four years.

The Liberals also campaigned to review the tax treatment of large corporations that own residential property like REITs and implement policies to “limit excessive profits.”

“I think overall the market will be waiting to see the details of some of these proposals, because when you have a minority government, the platform for the election is not exactly what will ultimately be passed,” Shenfeld said. .

In a research note released Tuesday, Bank of Montreal chief economist Douglas Porter said the new minority government could lead to higher taxes. He highlighted the liberal policy for banks and insurance companies, and the NDP’s tax promises for corporations, high incomes and the inclusion rate of capital gains.

“It seems these are areas the Liberals might be willing to go to for support,” Porter wrote. “In fact, it should be noted that tax changes are an area where the Liberals and the NDP see a lot of overlap, and one could argue that the risk of tax increases is higher in this minority mandate than in the last. “

Shenfeld said the new parliament’s “left turn” could benefit some businesses focused on tackling climate change.

“We have seen a lot of money flowing into funds that invest in green initiatives, and I suspect that trend will continue,” he said, as more governments meet climate targets and fund initiatives promoting green energy, carbon capture and storage, and electric vehicles.

“The segments of the stock market that can benefit from these expenses are yet to be watched,” he said.

While the liberal platform doesn’t include a plan to eliminate the deficit, bond markets aren’t worried, Shenfeld said, and he doesn’t expect the outcome to move yields.

“Canada is in a beauty pageant with other countries, none of which are looking particularly good in terms of fiscal results,” he said.

“And given the current low interest rates, bond markets are convinced that the federal government’s debt service burden does not appear, at this point, to be too onerous.”

Rebekah Young, director of fiscal and provincial economics at Scotiabank Economics, wrote in a research note Tuesday that “a certain degree of tax activism” had been built into Canadian sovereign bonds ahead of the vote, as the platform Conservative form was not much different in its debt plan.

In a “yield-seeking environment” where about US $ 17 trillion of sovereign bonds are trading in negative territory, Canadian spreads have remained tight and are still attractive with their positive yields, she said.

As for the currency markets, Shenfeld does not expect any drama regarding the loonie. The outcome of the election was anticipated and is unlikely to result in the kind of major changes in budget deficits or fiscal policy that alter exchange rates.

“We don’t really expect the Canadian dollar to move in response to this election result,” he said.

The loonie closed at 77.95 cents US on Monday and was trading around 78 cents by 1:30 p.m. ET.

This article is part of the AdvisorToGo program, powered by CIBC. It was written without the contribution of the sponsor.


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