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Statistics Canada’s (StatsCan) Labour Force Survey for the month of April revealed that the Canadian economy shed another 2 million jobs and the unemployment rate rose by 5.2 percentage points, to 13%, the largest monthly increase on record. The cumulative impact of Covid-19-related shutdowns – when including Canadians who are either unemployed or working significantly fewer hours – is 5.5 million, or 22% of the working-age population. Encouragingly, almost all (97%) of the newly unemployed in April expect to return to their jobs once the shutdowns end.
While the outbreak has undoubtedly brought significant disruptions to Canadian businesses, the impact across sectors and industries has been uneven. For jobs where working from home is the norm and close physical contact is not required to carry out one’s responsibilities, employment losses were much less severe, according to StatsCan.
For instance, in industries such as public administration, finance, as well as professional, technical, and scientific technology, total hours worked fell between 5% and 15% since the pandemic started in February. On the flip side, the number of hours worked in the food and accommodation industry fell a massive 60% since February.
The ability to adapt to workplace disruptions and potential to benefit from changing consumer/business behaviour has made tech companies standout performers throughout the pandemic. Last week, the tech-heavy Nasdaq Index once again turned positive for the year. Similarly, Canadian tech returns have been nothing short of impressive, with the S&P/TSX Information Technology Index up 36% on a year-to-date basis, grossly outperforming any other sector (see Chart 1).
The prospect of an accelerated digital transformation and more rapid shift towards online shopping is showing up in asset prices and earnings projections. Since the start of the year, long-term (3-5 years), earnings-growth estimates have actually risen for Canadian tech stocks while falling for every other sector (see Chart 2).
Importantly, the information technology sector has risen to account for nearly 9% of the Canadian equity market, up from a mere 2.4% five years ago, and is now almost as large as industrials. This is, of course, related to one specific strong outperformer. Shopify Inc. (TSX: SHOP) recently briefly dethroned Royal Bank of Canada (TSX: RY) to become the largest publicly-traded Canadian company, making up 5.5% of the total S&P/TSX Composite Index (TSX) market cap and over 60% of the tech sector. At the same time, natural resources have dwindled in share due to the persistent underperformance of energy and industrial commodities. Financials have held relatively firm, remaining the largest sector and a consistent staple of the Canadian stock market (see Chart 3).
I
Although the domestic equity market composition has notably evolved to become less resource intensive and more tech friendly, the universe of secular-growth themes is still nascent in Canada.
Compared with the broader developed world, the Canadian equity market remains relatively concentred from both a sector (nearly 60% of the TSX is energy, materials, and financials) and single-security (as already mentioned, recent tech-sector gains have been principally driven by a single company) perspective (see Chart 4).
While many Canadian cities stand out as emerging centers for tech talent, this has not translated into the growth of domestic large-cap public companies. Lastly, exposure to healthcare companies is virtually nonexistent within the TSX, since the handful of businesses that make Canada’s small healthcare sector are focused on cannabis.
From a tactical perspective, we emphasize building resilience in portfolios at a time of high economic uncertainty and financial market volatility. Investors can achieve greater resilience by holding benchmark allocations in government bonds, a preference for the seniority of corporate credit in the capital structure over stocks, higher-quality companies within equities, and securities with best-in-class sustainability ratings. We recently upgraded our view on U.S. stocks, in part due to the heavy exposure to quality and secular-growth companies within the technology, communication services, consumer discretionary, and healthcare sectors.
Kurt Reiman, Managing Director, is BlackRock’s Chief Investment Strategist for Canada and is a member of the BlackRock Investment Institute (BII).
Daniel Donato is an Associate within BlackRock’s Toronto office.
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© 2020 by Fund Library. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited. This article first appeared in the BlackRock Blog on the BlackRock Canada website.
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This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date indicated and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any of these views will come to pass. Reliance upon information in this post is at the sole discretion of the reader.
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