Analysts at CIBC (TSX:CM) Capital Markets have indicated that Canadian stocks are poised for a boost as domestic pension plans and mutual funds, two historically significant institutional buyers, are halting a 15-year shift away from the Toronto Stock Exchange and returning to the market. This comes after a period where these institutional investors have significantly shifted their holdings from Canada to the United States and international markets.
Ian de Verteuil, an analyst at CIBC, stated in a note to clients published on Monday that while they do not anticipate either trend reversing entirely, there are indications that the majority of the shift has already occurred. "Though we remain cautious on equities overall, we believe an end to the shift out of Canada should provide some support for the S&P/TSX," de Verteuil wrote.
It's important to note that domestic mutual funds and pension plans have traditionally been large buyers of Canadian stocks. However, U.S. markets have offered better exposure to popular sectors like healthcare and technology. This has led many Canadians to shift their investment dollars from Canada to Europe, Japan, or most other non-U.S. markets, which has had negative consequences.
"The long-term reality is that Canadian equities have trounced stocks in most developed markets," stated de Verteuil in his note. He also pointed out that Canadian stocks are currently trading below their historic long-term average and remain at some of the steepest discounts to U.S. equities in the past quarter-century.
This analysis suggests that Canadian stocks could see increased support and potential growth as these institutional investors return to the TSX. However, it's essential for investors to approach this cautiously given the broader uncertainties in global equity markets.
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