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The Case for Going Long Canadian Stocks in Any Brexit Outcome
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Loading...Whether Britons vote to leave the European Union or agree to stay, Manulife Asset Management fund manager Steve Belisle plans to be a buyer in the Canadian stock market.
The bigger question at the moment is what he will be buying -- energy stocks in an exit or the big banks if the U.K. votes to stay.
“There’s more downside if there’s a leave at this point than upside in a remain scenario,” Belisle said in a phone interview Wednesday from Montreal. His team manages about C$3 billion ($2.4 billion). Parent Manulife Asset Management oversees about $325 billion. “We will be a buyer in a leave scenario, looking at stocks we like that overreact. If there’s a remain, we will probably buy but to a lesser extent.”
The S&P/TSX Composite Index surged 0.9 percent as global equities rallied with Britons at the polls. The Canadian benchmark has jumped 8.7 percent this year, the most among developed markets tracked by Bloomberg amid rallies in commodities producers.
Belisle has an elevated 6 percent cash position in his portfolio, and suggests investors “play defense” in preparation for the voting results. Polls close in the referendum at 10 p.m. London time. Polling before Wednesday suggested the vote is finely balanced between the two camps, while financial markets and betting odds indicate “Remain” is on course to win.
n the event of a Brexit, developed world markets could plunge as much as 8 percent over the following two trading days, Belisle said. The Canadian market meanwhile could drop 6 percent to 12 percent. If there is a correction in crude prices, Belisle will be on the hunt for Canadian energy stocks.
“It gives us an opportunity to buy lots of oil companies at cheaper prices,” he said. WSP Global Inc., an engineering services company with offices in 40 countries, is another stock to consider, he said.
If the U.K. votes to stick with the EU, Belisle will consider Canadian and U.S. banks amid “more widespread buying” as the overhang of Brexit concern fades. In such a scenario, global stocks could gain about 5 percent over several days, with the S&P/TSX having as much as 8 percent upside.
With investors paying a premium for protection against calamity in the equity market, this presents an opportunity for options investors to take advantage by buying cheap calls if Brexit fails, according to Hans Albrecht, a fund manager at Horizons ETFs Management Canada Inc.
The vote’s impact on Canada’s currency meanwhile is likely to be muted, said Shaun Osborne, chief foreign-exchange strategist at Bank of Nova Scotia.
“Our fundamental ties with the U.K. make up a small portion of the economic pie,” Osborne said in a phone interview from Toronto. The U.K. is Canada’s fifth-largest trading partner, with about $21.2 billion in total trade last year, compared with more than $540 billion for the U.S.
Osborne estimates the Canadian dollar, or loonie as it’s known locally, may strengthen to as high as C$1.2650 in the event of a “Remain” vote, or fall to C$1.34 against the U.S. dollar in an exit.
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