The Toronto stock market hasn’t been winning any popularity contests of late.
Foreigners, in fact, sold the most Canadian equities on record last year based on net outflows, according to a BMO Capital Markets note this week. Meanwhile, domestic investors are often choosing to stay clear of the risks of the stock market and parking their investment dollars in cash, which is offering up some of the most attractive yields in decades.
It’s hard to blame them: over the past 12 months, the resource-heavy and growth-light S&P/TSX Composite Index has returned a mere 5 per cent - not including dividends - while the S&P 500 index boasts returns of 27 per cent.
To find some encouragement on that domestic stock market of ours, we can turn to Brian Belski, BMO’s chief investment strategist. He almost always has a bull case to make on the TSX, and this time he’s turning to those foreign outflows themselves as the possible catalyst.
He thinks they are a strong contrarian indicator for what’s to come in 2024. Once flows rebound into Canada - or even outflow pressure just moderates - there will be a strong tailwind for the TSX.
“Troughs in net foreign investment in Canadian equities are highly correlated with troughs in S&P/TSX relative performance,” Mr. Belski says. “In fact, the TSX can post some of its strongest absolute performance after a trough in foreign equity flows and tends to post double-digit returns on average from the trough in foreign flows to the next peak.”
According to research work conducted by BMO, the Consumer Discretionary, Energy, Financials, Industrials and Technology sectors tend to outperform while foreign flows are rebounding.
Mr. Belski isn’t daring enough to say when exactly things will turn around for the Canadian stock market. But his 2024 target of 23,500 for the S&P/TSX Composite Index suggests it may not be a long wait.
-- Darcy Keith, Globe Investor
Also see: Barclays lifts S&P 500 target for 2024 year-end to 5,300 from 4,800
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Question: When I use the “compare” function on globeandmail.com’s stock-charting tool to graph two stocks, do the percentage returns include dividends?
Answer: No. As with most third-party financial websites, stock charts on globeandmail.com are based on price only, excluding dividends.
An exception are the performance charts published by mutual fund and exchange-traded fund companies that show the “growth of $10,000″ invested in their securities. These charts depict total returns, including dividends, and are after expenses. The same is true of performance tables posted by fund companies. To find total returns for individual Canadian stocks, try the free compound returns calculator at canadastockchannel.com. For U.S. stocks, check out the calculators at dqydj.com
--John Heinzl (E-mail your questions to jheinzl@globeandmail.com)
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Compiled by Globe Investor Staff