Investors Tense as Fears of Post-Election Stalemate Rise in Canada

TORONTO, Sept. 16 (Reuters) – Foreign investors are increasingly concerned that Monday’s federal election in Canada could lead to a deadlock that is hampering Ottawa’s response to the COVID-19 pandemic and further slowing economic recovery after the crisis.

Polls show Prime Minister Justin Trudeau’s center-left Liberals are practically tied with opposition Tories ahead of the September 20 vote, suggesting that no party will be able to form even a government stable minority. Adding to the uncertainty is an expected increase in postal voting that could delay the counting of ballots in some key electoral districts. Read more

Financial markets generally view Canadian elections from the perspective of which major parties would be most investor friendly, but this trend may trump this time around the desire to have a government in place quickly in a crisis.

The results of Canadian elections are generally known within hours of the close of the poll. Even when no party has won a majority of seats, it is usually clear who will form the government and what the overall political priorities will be.

A result “that leads to a government stalled is going to make the recovery more difficult in the future, and I think that’s why you’re probably going to see some hesitation (from investors) ahead of the election,” said Edward Moya, market analyst senior at OANDA in New York.

“Right now, we are in the process of an economic recovery that needs everything to align well.”

Trudeau, who has been prime minister for six years, has counted on the support of the New Democrats since he failed to win a majority of seats in the House of Commons in the 2019 election. Polls show the kid left-wing party is poised to do better on Monday, with perhaps enough support to force the Liberals to lean to the left if they wish to stay in power.

FREQUENCY OF EXPENDITURE

The Trudeau government spent billions of dollars to stem the fallout from the pandemic, while the Bank of Canada cut interest rates and bought bonds to stimulate the economy. Although the central bank has pledged to keep its key rate at an all-time high of 0.25% until the economic downturn is absorbed, worrying signs are on the horizon.

Canada’s economic growth slowed in the second quarter, and annual inflation skyrocketed in August to an 18-year high, sidelining the Liberal leader’s economic argument for re-election somewhat. Read more

The Canadian dollar has fallen 1.1% to about 1.2650 to the US dollar, or 79.05 US 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 the currency’s expected volatility over a week-long period, a period that covers elections, has climbed at an annualized rate of about 7.5% from less than 5% in August.

The Toronto Stock Exchange’s S & P / TSX Composite Index (.GSPTSE), the country’s leading stock index, fell 1.7% on Tuesday to its lowest closing level in nearly three weeks, as an index showing implied volatility for the Toronto Stock Market (.VIXI) hit its highest closing value since August 23.

Equity investors are taking a nervous eye over some of the campaign promises made by parties, including Trudeau’s vow to increase corporate taxes on the most profitable banks and insurers to help pay the cost of the recovery and its promise to immediately cap oil and gas. emissions. Read more

“If it started to lean towards a liberal majority, I would start selling energy and banks,” said Greg Taylor, portfolio manager at Purpose Investments in Toronto.

There are also concerns about a promise by the Conservatives, the main opposition party, to increase foreign competition in the telecommunications sector, as well as a commitment by the Liberals to curb excessive rental housing profits, which could hurt real estate investment trusts.

“There is a lot of political posturing and rhetoric,” said Russil Lea, portfolio manager at Nicola Wealth in Vancouver. “The race promises to be very close and the only certainty for the moment is the uncertainty as to the conduct of the elections.”

Reporting by Fergal Smith Editing by Denny Thomas and Paul Simao

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