RBC Capital Markets’ head of Canadian equity strategy “hopes” U.S. President Donald Trump delivers on his promise to de-regulate the U.S. economy and cut corporate taxes – and reckons that could eventually push the TSX Composite Index above another major threshold.
“Hope is not an investment strategy so I hate to use that word,” said Matthew Barasch in an interview with BNN Monday. “But we have a hope that the U.S. will cut taxes, will deregulate to some degree and this will lift U.S. growth and [that will] feed into Canada and again [create] better overall growth, better commodity demand and steeper yield curves.”
Hopes of stronger U.S. growth unleashed by Trump have already helped the TSX move substantially higher. Since the election, Canadian banks have added around $75 billion in additional market capitalization – and could still move higher, according to Barasch, who added there’s a “very good chance” the TSX will climb above 16,000 by year-end.
“The Canadian market is not well designed for a world in which monetary policy is the only driver of the global economy,” he said. “Conversely if we get a more stimulus – especially from the U.S. – we get a pick-up in growth overall.”
Those hopes for higher TSX valuation are being tempered by fears of how Trump’s anti-trade rhetoric could impact Canada, cautioned Barasch. The TSX dip last week was likely related to positive comments the U.S. president made about a proposed border adjustment tax.
The BAT would slam Canada’s economy by effectively taxing imports to the U.S. while exempting from taxation the profits made when companies export from the country. “There is a lot of nervousness out there about Trump and some of the things that he says and some of the policies he has favoured,” said Barasch.
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