Chances are that the May 2 election results will lead to a period of investor-friendly legislation in Canada, with growth in the economy and a healthy Canadian stock market atmosphere. Just one example: with a Conservative majority in Parliament, for instance, we may soon see higher contribution limits for both RRSPs and Tax-Free Savings Accounts. Many Canadian stock market investors agree. Still, the Toronto market greeted the largely unexpected election result with a drop of more than 1%, even though the S&P 500 was down just 0.25% this morning. By the end of the day, Toronto was down 1.71%, while the U.S. S&P 500 was down 0.85%. My view is that this reflects a widely overlooked kinship between the Conservatives and the NDP. Both parties seem to favour small business over big, and big business carries a lot more weight than small on the TSX. For 40 years, the NDP has been campaigning against “corporate welfare bums” – big businesses that seek government subsidies, regulations that hinder the rise of new competitors, and trade rules that frustrate foreign competitors. The Conservatives are not so strident on the subject, but they do tend to favour open markets and freer competition, rather than favours for big business. Get the inside track on stocks set to gain from the election
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For instance, the Conservatives are open to allowing foreign ownership of small telecom companies. That new competition could bring down Canadian cellphone rates, which are among the highest in the world. This is the kind of minor reform that helps promote productivity and innovation, and holds down inflation. It won’t hurt big business as a whole. But it will lead to a rise in general prosperity and growth in employment. As you know, I’ve stayed positive on the long-term outlook for the Canadian stock market over the past couple of years, despite all the horrendous predictions related to the deficit. I did worry that a coalition of the Liberals, NDP and the Bloc would have led to a much bigger federal budget deficit and onerous new taxes. But now that that risk is gone, probably forever. It seems to me that a majority Conservative government with an NDP opposition was the best possible election result we could imagine. It gives investors reason to be a little more positive on the market outlook. Do you think yesterday’s election will have a big impact on Canadian investors? Please share your thoughts in the comments section below.
