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Time for Canada ETF Investing?
The Bank of Canada has hiked interest rates aggressively for six times in a row, while opening the door to stopping its hiking cycle. The Bank of Canada, on Dec 7, 2012, hiked its benchmark overnight interest rate by half a percentage point to the highest level in almost 15 years to 4.25% and hinted that its aggressive tightening pace is probably near an end.
Policymakers led by Governor Tiff Macklem hiked the benchmark overnight lending rate by 50 basis points to 4.25% on Dec 7, 2012, the highest since the beginning of 2008. The move was in line with the expectations of a thin majority of economists in a Bloomberg survey.
Canada's annual inflation rate was at 6.9% in October 2022, unchanged from the prior month and in line with market expectations, as faster price growth for motor fuel and mortgages more than outweighed slower food inflation.
Consumer costs increased at a faster clip for transportation (9.5% versus 8.7% in September), amid surging gasoline prices (17.8% versus 13.2%) as output cut announcements by OPEC supported higher prices for crude oil.
Inflation “is still too high” at more than three times the bank’s 2% target, but three-month rates of change in core inflation have fallen, indicating "price pressures may be losing momentum," the bank said, as quoted on Reuters.
"The Bank of Canada delivered a somewhat dovish 50 basis point policy rate hike by softening its explicit forward guidance that interest rates will need to rise further," said Stephen Brown, senior Canada economist at Capital Economics. "We would not rule out a final 25 basis point interest rate hike in January, but the bank is very close to the end of its tightening cycle," Brown said in a note, the Reuters article quoted.
Such a hope that Canada is nearing a halt to its rate hike cycle may trigger a rally in Canada ETFs. Moreover, oil prices could again stage a rally given the reopening of the Chinese economy, falling Russian exports and OPEC production cut. Since Canada is energy-rich, the country’s GDP may benefit from a potential rally in oil prices.
The Canadian economy expanded 0.7% sequentially in Q3 of 2022, the fifth successive quarter of growth, and following a 0.8% uptick in Q2. Growth in exports, non-residential structures, and business investment in inventories were weakened by declines in housing investment and household spending.
Against this backdrop, below, we highlight a few Canada ETFs that appear to be worthy of a look.
ETFs in Focus
iShares Currency Hedged MSCI Canada ETF (HEWC - Free Report) – Down 1.6% Past Week, Up 2.9% Past Month
JPMorgan BetaBuilders Canada ETF (BBCA - Free Report) – Down 1.9% Past Week, Up 1.9% Past Month
Franklin FTSE Canada ETF (FLCA - Free Report) – Down 1.9% Past Week, Up 2.1% Past Month
iShares MSCI Canada ETF (EWC - Free Report) – Down 2.0% Past Week, Up 1.6% Past Month