Canada’s stock market just posted one of its biggest January returns ever. T. Rowe Price Group Inc. says there may be more gains to come. 

The asset management firm is cautious on equities this year, but Canada is likely to outperform the U.S. again, according to Sebastien Page, head of its global multiasset group. The country’s commodities-heavy market is reasonably priced and offers exposure to China’s reopening, he said. 

“If I look at Canadian stocks, I think the valuation is more interesting, cheaper,” Page said in an interview in Montreal. Agriculture, fertilizer, and oil and gas stocks all stand to benefit from China’s move away from its Covid Zero policy, he said. 

Embedded Image

Canada’s S&P/TSX Composite Index gained 7.1 per cent in January, the second-biggest rise for that month since 1990. The Canadian benchmark fell 8.7 per cent last year but beat the S&P 500 by more than 10 percentage points, thanks to strong performance from energy, consumer staples and transportation stocks.  

Baltimore-based T. Rowe Price, with US$1.3 trillion in assets under management, is managing recession risks by being underweight on stocks, neutral on bonds and long on cash. Within equities, it’s overweight to Canada, Page said. 

“A lot of pre-recession signs are there,” he said. “Now’s not the time to be a hero.”

Still, Page can’t hide his worries over the Canadian housing market, which he sees as one of the biggest threats to the country’s economy. Standard mortgages in Canada have terms of five years or less, and millions of households have variable-rate loans that reset with every Bank of Canada interest-rate hike. So the country’s homeowners feel the impact of rising interest rate far more quickly than U.S. borrowers, who can lock in 30-year fixed-rate mortgages.

“It’s a threat for both economies. It’s a bigger one for Canada,” Page said. 

T. Rowe Price isn’t the only institution making a bullish call on Canada. Strategists at Bank of America Corp. wrote this week that free cash flow yields for Canadian stocks are too compelling to ignore.