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Call it the Great White Bull if you want, but analysts are increasingly optimistic that Canadian stocks are where investors should be putting their money.
Sentiment for the beleaguered S&P/TSX Composite Index, which in 2012 was one of the worst performing in the world, has been steadily turning this year. Canadian stock bulls last week received a big boost in confidence as the index moved above 13,000 for the first time since July 2011. It closed Monday up 50.53 points or 0.38% at 13,186.53.
“The decisive move above the 13,000 level is putting the index on the expedited route toward 14,000 and higher,” said Ron Meisels, technical analyst and founder of Phases & Cycles in Montreal.
The TSX has even managed to edge the S&P 500 in the past three months, with a 3.9% return versus the latter’s 3.1%. It’s an encouraging sign for Canadian stock investors who have become accustomed to seeing U.S. stocks post much better returns.
“It’s not flashy, and Canadian stocks are still lagging sorely on a year-to-date basis, but it’s a noteworthy change from the woeful relative performance seen over much of the past two years,” said Robert Kavcic, a senior economist at BMO Capital Markets.
Canadian stocks have lagged their U.S. counterparts for a number of reasons, one of the most prominent being fears that Canada’s economy, particularly its housing market, would hit a rough patch over the coming years.
Such fears led to the Great White Short, a term used to describe how hedge funds are betting against Canadian assets. The shorts predicted Canada’s economy would stall due to high Canadian household debt, which mirrors similar levels seen in the U.S. before the financial crisis. The crushing debt would, in turn, cause a crash in the Canadian housing market, where prices in some regions routinely hit new records every month.
The bets have yet to pay off. Canadian bank stocks, which were one of the biggest short targets, have been one of the best-performing Canadian stock segments this year, up 8% as profits continue to pour in and dividends are hiked quarter after quarter.
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