After a challenging 2015 and a weak start to 2016, Canadian equities have rallied and now lead amongst developed stock markets with a nearly 7% gain year to date. With oil prices moving off the bottom, it appears that foreign investors are less fearful of a commodity-driven collapse and the increase of foreign flows into Canadian markets has helped drive up the TSX Composite Index.
Last year’s collapse left Canadian equities looking cheap relative to their U.S. counterparts, so the question on our minds: Has this recent run closed the gap? According to a Market Watch note from National Bank Financial Markets, if you exclude the depressed resources sector, the difference between the U.S. forward price/earnings ratios and the Canadian ones remains high compared to the historical average. Meaning, the TSX may still have more gas in the tank.
