(Bloomberg) --Canadian stocks are primed to keep breaking records in months to come thanks to ready-to-deploy retail cash hoards and foreign investor inflows, according to BMO Capital Markets.
“There remains a lot of room for Canadian stocks to run to continued new price highs,” Brian Belski, the bank’s chief investment strategist, wrote in a Tuesday note after the S&P/TSX Composite index hit an all-time high Monday. The benchmark touched 23,116.39 on the back of soaring gold prices.
Retail investors have solid cash positions that are ready to be unleashed, according to Belski. That’s even as institutional investors have already deployed some of their excess capital in the first half of 2024, he noted, adding that Canadian households continued to hold decade-high levels of cash in the first quarter.
“Our work shows that the TSX tends to bottom and exhibit strong returns when cash positions decline from peak levels, with peaks in money market assets under management often coinciding with troughs in TSX performance,” Belski said.
Foreign investors have been net sellers so far this year. But the pace of selling slowed over the past 12 months and Belski’s team expects that flows will eventually reverse their course.
Bank of America Corp. research also suggests more gains ahead. Its Canada cycle indicator — a measure based on data historically predicting Canadian stock outperformance against the S&P 500 Index — has turned positive for the first time since March 2023.
The TSX has outperformed the S&P 500 60% of the time when this indicator has been positive, according to BofA analyst Ohsung Kwon. “Canada could be an attractive alternative in the muddled macro environment,” he wrote Wednesday.
Ultimately, BMO’s Belski sees money moving out of cash savings, combined with foreign flows ramping up trading volumes after a sluggish 2023, portending above-average Canadian equity performance for the months ahead.
