The chief strategist of the National Bank of Canada says the S & P / TSX Composite Index is the perfect place for investors, especially those who want to hedge against inflation. And he warns that pension funds that have turned their backs on Canada could come to regret this decision.
âThe global economy, despite some uncertainties in the global supply chain, is only going forward andâ¦ you know stocks are so depleted that there will be strong demand for global industrial production for the foreseeable future. the Canadian economy and the Canadian stock market to behave well in this context, âdeclared StÃ©fane Marion, who is also the chief economist of the National Bank, in an interview on Thursday.
Marion and her team presented historical data to clients on Thursday to illustrate their view that Canada offers attractive integrated hedges against inflation. According to National Bank, the TSX generated an average annualized return of 2.3% during periods when inflation exceeded 4% for extended periods. In comparison, the S&P 500 posted a negative return of 5.9% during those same periods.
In the interview, Marion acknowledged that the Canadian stock market – and the energy sector in particular – has fallen out of favor in some circles as pressure mounts on the world’s leading institutional investors to consider ESG factors (environmental, social, governance). For him, however, Canada’s energy sector is not getting the credit it deserves.
âI understand that ESG concerns are now paramount for investment decisions,â he said. “But at the same time, it is wrong to say that the Canadian energy sector is doing nothing.”
And while there have been high-profile examples of leading international investors turning their backs on Canadian energy stocks, especially when The trillion dollar Norwegian sovereign wealth fund blacklisted names like Suncor Energy Inc. and Canadian Natural Resources Ltd. last year, it has also recently become a national phenomenon.
Last month, as part of its broader climate strategy, the Caisse de dÃ©pÃ´t et placement du QuÃ©bec announced that it would be withdrawing from its exposure to oil production by the end of next year.
“To the extent that [Canadian energy is] transition, I don’t think we should discourage them from making the transition, âsaid Marion, while pointing to the energy crisis in Europe as a case study in theâ dire scenarios âthe world faces if economies rush to give up. fossil fuels.
âI think from an investment perspective you have a responsibility to protect your losses and at the same time, yes – you can still be ESG and invest in Canadian energy, as long as you choose the right companies. I say it, I insist we have world leaders in terms of carbon capture and therefore not all energies are bad in this type of framework. “
Canadian energy stocks have taken center stage on Bay Street this year, with the TSX’s energy subgroup surging nearly 46% since the start of the year through the end of Thursday’s session. , when once again the group contributed to the gains on a day when the index entered the two closing points to a record.
And when it comes to Marion, there are more wins to come.
“We have uncertainty about monetary policy going forward, which could upset the markets; but on a relative basis, I absolutely have a firm belief that Canada is the place to be and that will also mean a stronger Canadian dollar, âsaid Marion, going to add that according to her team’s models, the loonie is undervalued by up to 10 cents.