U.S. securities by and large get the lion’s share of the attention when it comes to North American equity markets. But investors shouldn’t sleep on Canada.
Canada’s deep valuation discount in comparison to the U.S. is continuing to draw attention from investors south of the border. During the most recent period there has been a heavy U.S. purchasing presence in Canadian equities.
U.S. flows have started to return to Canada since the relative underperformance of the TSX vs. the S&P500 (black line in Chart below) appears to have bottomed out.
Flow of U.S. Equity Investments Into Canada
What is one of the strongest areas taking advantage of a Canadian/U.S. disparity? The cannabis equities market. Cannabis is still illegal in the U.S. under federal law, but with the passage of legalization in Canada last year, U.S. investors are looking for ways to cash in on the prosperity of the growing market. Stocks such as Canopy and Tilray (TLRY) are particularly popular investments that have seen large M&A moves in Q1.
While investors await more sales and profits, hazards lurk . While the sector has experienced a breakthrough moment, there is much left to be settled regarding legalization, which could further impact stocks. In Canada, there are a number of issues still to be considered, from the difficulty of monitoring Canadian companies, to impaired driving limits and employer drug testing, in addition to forthcoming regulations and control of distribution and access.
Still, there is massive opportunity for innovation and investment as the industry matures and the U.S. mulls expanding various legalization policies.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
