Uncertainty of new Canada gov't seen weighing on C$, energy sector

By Leah Schnurr
OTTAWA, Oct 20 (Reuters) - The election of the first Liberal
Canadian government in nearly a decade will likely weigh on the
country's currency and energy stocks on Tuesday as investors
take a cautious approach to the party and its untested prime
minister.
Liberal leader Justin Trudeau rode a late campaign surge to
a stunning election victory on Monday, turfing the incumbent
Conservatives with a far more resounding victory than polls had
indicated.
Although the majority win removed some of the uncertainty
that an unstable minority government could have caused, analysts
said it will take time for markets to adjust to the new
administration.
"We've had nine years of Conservative leadership now, so for
the most part ... Canada and the international investment
community knows what to expect from a Conservative government,"
said Scott Smith, senior market analyst at Cambridge Global
Payments.
The prospect of a new government weighed on the Canadian
dollar during Monday's session. The currency extended its
weakness against the greenback in overnight trading, hitting
C$1.3048, or 76.64 U.S. cents.
One of the biggest changes the new government will bring is
its plan to run C$10 billion deficits for three years in order
to boost infrastructure spending in a bid to bolster the
economy. By contrast, the Conservatives campaigned on balanced
budgets.
"There's still questions as to whether Trudeau can
effectively run the economy in that deficit position and then
bring back a balanced budget in year four," said Smith.
Even so, government bond prices were little changed.
Infrastructure stocks, such as SNC Lavalin SNC.TO , could
get a lift from the spending plan, though some cautioned a
Liberal win was "baked into the price".
Energy shares could see pressure as markets look for clarity
on Trudeau's policy. While Trudeau opposes the Northern Gateway
oil pipeline to the Pacific Coast, he backs the Keystone XL line
to the United States.
"Moving from a Conservative government to a Liberal
government isn't necessarily negative for the energy sector, but
it definitely will add to the uncertainty because the Liberals
have been fairly wishy-washy on what their energy plans are,"
said Bryden Teich, associate portfolio manager at Avenue
Investment Management.
Still, analysts said any market weakness was unlikely to be
drastic.
"Financial markets will give the majority government a
chance, but they'll be keeping a close eye on how aggressive we
see any changes in policies," said Youssef Zohny, portfolio
manager at StennerZohny Investment Partners+ of Richardson GMP
Ltd.