When Trump Tweets on China Trade Talks, Buy Canadian Stocks

(Bloomberg) -- There’s no question about it -- global stock markets are roiled when Donald Trump tweets about the U.S.-China trade negotiations. Here’s one way to hedge against all that volatility: Buy Canadian stocks.

Just like that, clients get exposure to a developed $2 trillion market with a stable government and one more thing: a gold and silver haven. Miners have about an 11% weighting on the S&P/TSX Composite Index, while similar stocks on the U.S. benchmark have a mere 2.7% weight.

That’s helpful on days like today, when Trump signals he could wait for another year before striking a trade agreement with China, sending investors fleeing risk assets and piling into havens. While the S&P 500 Index fell as much as 1.4% Tuesday, the TSX slipped by only half that amount.

Staying Local

This is a regular occurrence for Canada stock traders, which might explain why locals are so heavily invested in their home country. Seventy-two percent of the time when Trump tweets about “China,” or “tariffs” or “trade” and stocks slump, the TSX outperforms U.S. stocks, according to data compiled by Bloomberg going back to the start of 2017.

In May, after Trump declared that the 10% tariffs on Chinese goods would rise to 25%, the S&P 500 plunged as much as 1.6%, while the TSX dropped 1%. When he said “China broke the deal,” the American benchmark fell 1.5% and its Canadian counterpart slipped 0.8%.

To be sure, on days where there’s positive trade news, the rally in U.S. equities tops that in Canada. And the market up north is generally less volatile than its southern neighbor.

While that’s partly due to the contribution of mining stocks, it’s also because banks, which make up a third of the TSX, are a bellwether of the nation’s economy and pay out dividends at ratios that are hard to find elsewhere. Utilities and REITs have also helped protect Canada’s key stock gauge from major plunges.

--With assistance from Brandon Kochkodin.

To contact the reporters on this story: Divya Balji in Toronto at dbalji1@bloomberg.net;Eddie van der Walt in London at evanderwalt@bloomberg.net

To contact the editors responsible for this story: Kyung Bok Cho at kcho7@bloomberg.net, Jacqueline Thorpe, David Scanlan

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