After weakening in response to the plunge in oil prices, Canadian markets and related exchange traded funds are bouncing back, with the fallout in energy mostly put behind them.
For example, the Guggenheim Canadian Energy Income Fund (NYSEArca: ENY), which tracks Canadian oil and gas producers and oil sands resources categories, jumped 4.1% Wednesday, following the Energy Information Administration’s bullish inventory report and rising demand. ENY has gained 13.4% over the past month.
Meanwhile, the iShares MSCI Canada ETF (NYSEArca: EWC) also rose 2.1% Wednesday and increased 7.2% over the past month. The energy sector is the second-largest sector component in EWC, accounting for 22.9% of the ETF’s portfolio.
“It’s been a good day for crude oil, and that’s helping Canada. For the moment, it looks as though crude oil is bottoming out,” Colin Cieszynski, chief market strategist at CMC Markets, said in a Reuters article.
Moreover, the CurrencyShares Canadian Dollar Trust (NYSEArca: FXC), which tracks the Canadian dollar’s movement against the U.S. dollar, is also recovering after the Bank of Canada suggested that the damage from the sudden oil shock is beginning to dissipate. FXC was up 1.6% Wednesday and rose 2.4% over the past month. The strengthening CAD may have also contributed to higher returns in Canada stock-related ETFs Wednesday, as the funds are exposed to currency moves.
According to the Bank of Canada, the oil price shock’s effects should wane by mid-year, reports Paul Vieira for the Wall Street Journal.
“The bank’s assessment is that the impact of the oil price shock will be more front-loaded than predicted in January, but not larger,” the central bank said in a statement. “The ultimate size of this impact will need to be monitored closely.”
Nevertheless, the decline in oil prices will continue to weigh on the economy, with the Bank of Canada lowering its growth projection to 1.9% from 2.1% for the year. Looking ahead, the economy may continue to expand at a slower pace, supported by the central bank’s loose monetary policies – the BOC made a surprise rate cut in January and now keeps its lending rate at 0.75%. [Tepid Response by Canada ETFs to Surprise Rate Cut]
“The Bank of Canada already provided a tremendous stimulus jolt to the economy that won’t be felt for months or quarters down the road,” David Rosenberg, chief economist at Gluskin Sheff & Associates, said in the Bloomberg article.
iShares MSCI Canada ETF
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Max Chen contributed to this article.