The potential consequences of the Trump administration's trade policies are sending ripples through Canadian markets as investors brace for volatility. Amid the backdrop of Chrystia Freeland's departure as finance minister, combined with Donald Trump's impending return to the political stage, economic conditions for 2025 appear considerably different than they were just one year prior.
Tu Nguyen, an economist at RSM Canada LLP, noted, "Although the impact on the financial markets has been moderate, events like this could contribute to Canada’s challenge to attract foreign investments in 2025, when the Trump administration brings trade policy uncertainty with Canada." Trump's return promises not only changing policies but also potential tariffs, which create uncertainty for investors worried about their portfolios.
“Volatility is the name of the game,” said David Rosenberg, founder and president of Rosenberg Research & Associates. He emphasized the imperative for investors to exercise caution, stating, "We have tremendous political uncertainty when itcomes to Donald Trump and his policies and what he will actually get done." Investors facing uncertain waters might opt for safer holdings and higher cash reserves.
Current predictions highlight the risk of steep tariffs—potentially as high as 25 percent—on Canadian goods, articulated by James Thorne, chief market strategist at Wellington-Altus Private Wealth. He stated, "Trump is going to implement his policies very quickly. He’s not going to get the pushback like he did in his first term." This signal suggests swift action could lead to rapid changes in cross-border trade.
Tariff tensions sparked reminiscent thoughts of prior confrontations. Revisiting their effects, Ashish Dewan from Vanguard Group recalls the previous administration's imposition of significant tariffs on Canadian steel and aluminum during Trump's first term, which resulted in retaliation and significant confusion within the trade sphere. “About two-thirds of Canada’s gross domestic product is dependent on trade and much of it is with the U.S.,” he noted, warning about the repercussions of new tariffs.
Investment strategies are reacting to these uncertainties, with experts advising Canadian investors to pivot strategies. “Right now, we’re focusing on stocks with mid-cap and small-cap valuations,” commented Maria Wagner, associate portfolio manager at Verecan Capital Management Inc. These types of investments, she argues, provide greater safety margins amid chaos.
Stephen Johnston of Omnigence Corp. is more skeptical about Canadian prospects, predicting economic stagnation for the next decade. “You’ve got a structurally weak currency, you’ve got very expensive housing, you’ve got (one of the) most indebted developed (economies) in the world,” he stated. He provided stark statistics to back his claims, noting, “Canada has the highest ratio of household debt to disposable income across the G7, with 185 percent, compared to 125 percent for the others.”
Such figures highlight the urgent need for diversification, emphasized by Dewan's viewpoint. “Being diversified is going to help you weather many storms, especially with policy changes,” he asserted. Despite internal pressures, many Canadians still allocate substantial portions of their portfolios to domestic equities. This tendency toward “home bias” could lead to considerable risk, especially as more expert opinions favor reduced reliance on Canadian markets considering the impending trade uncertainties.
Some strategists advocate for complete withdrawal from the Canadian market until the uncertainty dissipates. According to Thorne, “I do not think there is going to be any motivation for any foreign capital to come back to Canada.” His perspective reveals concerns about Canada’s competitiveness and immediate investor sentiments, especially near the anticipated 2025 election.
Adding another layer to this analysis, he forecasted, “We will see Canada falter economically, with growth slowing especially as immigration targets drop, likely driving per-capita GDP below OECD averages.” Employment trends reinforce this outlook, with Statistics Canada reporting the highest unemployment rate since early 2017 at 6.8 percent, indicating increased economic strain on the horizon.
Against this backdrop, Thorne argues Canadian investors need to adopt U.S.-style portfolio structures, emphasizing sectors with secular growth rather than those tethered to GDP performance. He suggests, “You need to be realistic about Canada’s economic position; it’s time to adopt U.S-style investment strategies.”
Yet the Canadian market offers unique opportunities. Rosenberg points to recent unique shifts back toward value stocks as indicators worth following, proclaiming, “If you believe this market can yield enough, I’d sooner be invested here than across the border.” He posits the narrative suggests technology stocks have inflated levels relative to their historical performances, and transitioning investments may bring advantageous returns as market dynamics shift.
With conflicting signals from both governmental policies and market realities, investors remain at crossroads. They need to gauge both historical lessons and forward-looking statements to seek equilibrium amid uncertainties. Looking to 2025, optimism hinges on clarity from the Trump administration's stance concerning trade tariffs, nurturing the hope for stabilized relations and favorable trade outcomes.
While caution and diversification exhibit prudent strategies, the presence of historical precedents—balancing trade tensions shaped around tariffs—requires heightened urgency for Canadian investors. Economic winds can change quickly, and the swift passage of Trump's policies could redefine investing landscapes, emphasizing the delicate balance of politics and market stability.
