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U.S. President Donald Trump announced plans to impose a 25% tariff on most Canadian imports starting in March, with even steeper penalties targeting the steel and aluminum sectors.
The news has prompted Canadian investors to turn to gold and stocks of industries with limited alternatives, like uranium, as a hedge against potential market volatility and a weakening loonie.
The looming tariffs pose a significant threat to the Canadian economy, which sends 75% of its exports to the United States. Sectors like financial, telecom, real estate, energy, and materials, which make up approximately two-thirds of Canada’s main stock market index, the S&P/TSX Composite, are expected to avoid the direct effects of the tariffs or benefit from carve-outs.
However, the indirect impact on earnings could be substantial if the Canadian economy experiences a downturn.
Since the U.S. presidential election on November 5, shares of companies sensitive to trade have suffered, with planemaker Bombardier Inc (TSX:BBDb) experiencing a 19% drop. Auto parts, steel, lumber, and dairy product stocks have also seen declines. Despite these challenges, the Toronto market’s materials sector, which includes metal mining shares, has risen nearly 15% this year, buoyed by a surge in safe-haven demand that pushed gold prices to record highs.
Major uranium producer Cameco Corp (TSX:CCO) has seen its shares climb roughly 46% since early September, despite a pullback from its December peak. Portfolio managers like Ben Jang from Nicola Wealth, which holds shares in Cameco (NYSE:CCJ), highlight the U.S. reliance on Canadian resources like oil, critical minerals, and uranium, which are likely to be exempt from tariffs due to their irreplaceable nature and the U.S. focus on energy security.
The Canadian dollar’s recent tumble to a 22-year low has prompted portfolio managers like Victor Kuntzevitsky at Stonehaven Private Counsel to consider increasing exposure to oil & gas and materials firms.
These sectors have a natural currency advantage, generating revenue in USD while incurring costs in CAD. The Bank of Canada’s rate cuts and potential government spending on impacted sectors are also expected to provide some economic support amidst the trade uncertainty.
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