Beyond Borders:

Introduction: A Timely Conversation

The global investment landscape is shifting, and Canada is at a critical juncture. With tariffs, political shifts, and economic realignments shaping the market, investors are reassessing Canada's role in their portfolios. On a recent Confluence-hosted webinar, industry experts gathered to discuss why Canada is more relevant than ever for investors—and how fund selectors, asset managers, and policymakers should navigate the evolving market dynamics.

Moderated by Mark O'Brien, Head of Sales, North America at Confluence, the panel featured Marc-André Flageole, Managing Director at Presima, and Brian Madden, Chief Investment Officer at First Avenue Investment Counsel. Despite recent uncertainty, their insights provided a compelling argument for why Canada remains an attractive investment destination.

The Trade and Tariff Dilemma

One of the dominant themes of the discussion was the potential impact of tariffs on Canadian markets. The recent implementation of a blanket 25% tariff on various goods has raised concerns for Canadian and U.S. businesses.

"A trade war is essentially a mutually assured destruction scenario. Global trade has long been seen as a win-win, yet we find ourselves in an era of heightened economic nationalism."

"If the tariffs stay in full force, Canadian households could see an additional $2,000 in costs per year, while U.S. consumers might face a $1,300 increase."

The interconnected nature of the U.S. and Canadian economies cannot be overstated. Canada is the number one customer for 34 U.S. states, meaning that trade disruptions will have ripple effects beyond the Canadian border. While uncertainty remains, experts agreed that Canada must diversify its trade partnerships and seek new opportunities beyond the U.S.

Silver Linings: A Stronger, More Independent Canada?

With every challenge comes opportunity. While tariffs pose immediate risks, they push Canada toward economic self-reliance and diversification. Panelists highlighted that Canada’s provincial trade barriers—historically an impediment to efficiency—are now being reconsidered.

"It was Winston Churchill that first said, “Never let a good crisis go to waste.” Canada is being forced to confront long-standing inefficiencies, and that could ultimately drive stronger internal economic growth."

In February, Canada announced the removal of 20 internal trade barriers between provinces, with estimates suggesting that eliminating these restrictions could add $200 billion to the economy. As a result, provinces are beginning to cooperate on economic issues in ways they hadn't before.

The current crisis may catalyze a new era of Canadian economic cooperation and expanded global trade partnerships.

Lessons from Japan: How Canada Can Turn Crisis into Opportunity

A compelling parallel can be drawn to Japan’s economic resurgence. After experiencing three "lost decades" of stagnation, Japan has quietly staged an extraordinary comeback. A mix of corporate reforms, tax incentives, and foreign investment policies has helped Japan's stock market reach record highs, breaking levels not seen since 1989.

"The Nikkei 225 just hit its highest level in history after three decades of economic reforms. Japan’s turnaround shows that undervalued markets, given the right structural changes, can unlock tremendous value. Canada is at the beginning of what could be a major turnaround—if the right steps are taken."

Japan’s focus on innovation, trade diversification, and corporate governance reforms played a key role in its resurgence. Canada could follow a similar path by streamlining regulations, attracting more capital investment, and leveraging its natural resource wealth in emerging industries like clean energy and critical minerals.

Japan’s recovery demonstrates that deep structural changes can transform an economy. Canada has a similar opportunity to break free from economic stagnation and position itself as a stronger global player.

Canadian Investment Opportunities: What’s Hot?

Investors are now evaluating which Canadian sectors are best positioned for growth in this changing environment. Two live polls were held during the webinar:

"What is the biggest factor influencing your decision to invest in Canadian markets?"

Poll Results:

• Strong banking sector stability (11%)
• Natural resource opportunities (oil, gas, mining) (28%)
• Innovation & tech sector growth (6%)
• Valuation gaps vs. global markets (33%)
• Trade agreements & international relations (22%)

"Which Canadian sector presents the most attractive investment opportunities?"

Poll Results:

• Energy & natural resources (50%)
• Financial services & banking (33%)
• Real estate & infrastructure (17%)

"Beyond oil and gas, Canada's rare earth and mining sectors are growing in importance. There’s an increasing global focus on securing supply chains for critical minerals, and Canada is well-positioned to benefit."

"Canadian equities are trading at a historic discount compared to the U.S. market. The TSX currently trades at 15x earnings, while the S&P 500 trades at 21x. That kind of valuation gap presents a clear opportunity."

The discussion also touched on Canada's evolving technology sector. While traditionally overshadowed by U.S. tech giants, Canadian incubators and universities are increasingly driving innovation and commercialization.

Canada’s resource sector, undervalued equity market, and emerging tech landscape offer attractive opportunities for investors looking to diversify.

The Role of Canadian Pension Funds

A significant portion of the discussion centered on the “Maple Eight”—Canada’s largest pension funds, which collectively manage around $3 trillion in assets. While these funds invest globally, they are increasingly pressured to allocate more capital domestically.

"Historically, 75% of pension fund investments have been outside Canada. Some business leaders are now urging them to invest more at home—not just in the stock market, but also in private equity and infrastructure."

"The debate is whether pension funds should be mandated to invest more in Canada. But a better approach would be to create an environment where capital naturally flows here because of strong economic fundamentals, rather than government mandates."

A case study was highlighted: Caisse de dépôt et placement du Québec (CDPQ), which successfully balances maximizing returns while investing in Quebec's economy.

Canadian pension funds could play a bigger role in domestic investment—if market conditions and incentives align to attract their capital.

The Role of the Canadian Bond Market

While much of the focus remains on Canada’s equity market, panelists also addressed the resilience of the Canadian bond market and its response to current economic conditions.

"Despite ongoing trade tensions, the Canadian bond market has remained relatively stable. We have not seen the volatility that one might expect given the uncertainty in trade negotiations."

Unlike in past financial crises, Canadian bond spreads have remained controlled, and the Canadian dollar has held steady. This stability reflects investor confidence in Canada's creditworthiness and fiscal policies.

The Bank of Canada's Role

Recent developments have also accelerated the Bank of Canada's monetary easing strategy as policymakers look to cushion the economy from external shocks. Interest rate adjustments could benefit sectors like real estate and infrastructure, which rely on affordable financing.

"The Bank of Canada was already expected to ease policy, but tariffs and global economic uncertainty have accelerated that process. This could create investment opportunities in sectors that benefit from lower interest rates."

Canada’s bond market remains stable, and monetary policy easing could create new opportunities in rate-sensitive sectors.

How Are Canadian Banks Positioned?

Canada’s banking sector is among the most stable in the world. Unlike the U.S., which has hundreds of regional banks, Canada’s six largest banks dominate the market. These banks have not seen a major failure in over 40 years, reinforcing their strong risk management and regulatory oversight.

"Canadian banks operate like an oligopoly. They are well-regulated, well-capitalized, and positioned to weather economic turbulence better than many of their U.S. counterparts."

However, there are risks, particularly for banks with significant U.S. exposure, such as TD Bank, which generates nearly 40% of its earnings from the U.S. market. If trade relations deteriorate further, these banks may face challenges.

Canada’s banking sector remains a pillar of stability, but firms with U.S. exposure must navigate growing risks.

Final Thoughts: The Road Ahead for Canada

The discussion ended with a big-picture question: How should investors think about Canada in the years ahead?

"This is a defining moment for Canada. We have a choice: to become more self-reliant and diversify our economy, or to continue depending on our largest trading partner and hope for the best."

"History shows that undervalued markets with structural reforms can unlock tremendous value. Canada is at the beginning of what could be a major turnaround—if the right steps are taken."

Investors should watch Canada closely. Between undervalued equities, resource-driven tailwinds, and an evolving trade landscape, Canada presents both risks and opportunities. Those who recognize the shift early may benefit the most.

Continue the Conversation

The Beyond Borders: Why Canada Matters More Than Ever webinar provided a deep dive into the forces shaping Canada’s investment landscape. Contact Confluence today to learn more about style analytics, equity valuations, or pricing and valuation services.

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