Investors tense up as fears of post-election gridlock rise in Canada
Reuters
Published Sep 16, 2021 01:04AM ET
Updated Sep 16, 2021 08:52AM ET
By Fergal Smith
TORONTO (Reuters) - Foreign investors are growing more worried that Canada's federal election on Monday could result in a deadlock that hampers Ottawa's response to the COVID-19 pandemic and further slows the economic recovery from the crisis.
Polls show Prime Minister Justin Trudeau's center-left Liberals virtually tied with the opposition Conservatives ahead of the Sept. 20 vote, raising the prospect that no party will be able to form even a stable minority government. Adding to the uncertainty is an expected increase in mail-in voting that could delay the counting of ballots in some key electoral ridings.
Financial markets generally view Canadian elections from the vantage point of which of the big parties would be most friendly for investors, but that tendency may take a backseat this time to the desire to have a government quickly in place in a crisis.
The results of Canadian elections typically are known within hours of the polls closing. Even when no party has won a majority of the seats, it is usually clear which will form the government and what the general policy priorities will be.
An outcome "that leads to a gridlocked government is going to complicate the recovery going forward, and I think that's why you are probably going to see some (investor) hesitancy ahead of the election," said Edward Moya, senior market analyst at OANDA in New York.
"Right now, we're in the process of an economic recovery that needs everything to line up nicely."
Trudeau, who has been prime minister for six years, has relied on the backing of the New Democrats since failing to win a majority of the seats in the House of Commons in the 2019 election. Polls show the smaller left-leaning party poised to do better on Monday, with enough support perhaps to compel the Liberals to tilt to the left if they wish to remain in power.
SPENDING SPREE
Trudeau's government has spent billions of dollars to stem the fallout from the pandemic, while the Bank of Canada has cut interest rates and purchased bonds to stimulate the economy. Although the central bank has vowed to keep its key interest rate at a record low of 0.25% until economic slack is absorbed, troubling signs have appeared on the horizon.
Canada's economic growth slowed in the second quarter and annual inflation spiked in August to an 18-year high, taking some of the wind out of the sails of the Liberal leader's economic argument for reelection.
The Canadian dollar has fallen 1.1% to about 1.2650 per U.S. dollar, or 79.05 U.S. cents, since Trudeau called the election in mid-August, and speculators have turned bearish on the currency for the first time since last December.
The market's measure of expected volatility for the currency over a one-week period, a timeframe that covers the election, has climbed to an annualized rate of about 7.5% from less than 5% in August.
Get The News You Want
The Toronto Stock Exchange's S&P/TSX composite index, the country's main stock index, fell 1.7% on Tuesday to its lowest closing level in nearly three weeks, while an index showing implied volatility for the Toronto stock market hit its highest closing value since Aug. 23.
Equities investors are casting a nervous eye over some of the campaign promises made by the parties, including Trudeau's vow to raise corporate taxes on the most profitable banks and insurers to help pay for the cost of the recovery and his pledge to immediately cap oil and gas emissions.
"If it started to lean towards a Liberal majority I would begin to sell energy and banks," said Greg Taylor, a portfolio manager at Purpose Investments in Toronto.
There is also nervousness over a promise by the Conservatives, the main opposition party, to increase foreign competition in the telecommunications sector as well as a pledge by the Liberals to curb excessive profits from rental housing, which could hurt real estate investment trusts.
"There is a lot of political posturing and rhetoric," said Russil Lea, a portfolio manager at Nicola Wealth in Vancouver. "The race looks very tight and the only certainty right now is uncertainty as far as how the election will go."
Written By: Reuters
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.