Thanks in large part to rebounding oil prices, the iShares MSCI Canada ETF (NYSEArca: EWC) is turning in one of this year’s best performances among single-country developed markets exchange traded funds with a gain of 17.6%.
That is a reversal of fortune from 2015 when Canadian stocks and ETFs and tumbled due to weakening commodities prices and the slumping Canadian dollar, scenarios that triggered fears of a recession. Canada’s oil production could either lift or weigh on the economy, depending on the energy market.
Related: A Very Bullish Call for Oil ETFs
Some market observers, citing supply and demand dynamics, believe oil is rallying without strong fundamental cause. A case can be made that oil’s rally is defying still troubling supply dynamics and tepid demand. Elevated levels of production remain an issue for oil as well. OPEC has kept up production to pressure high-cost rivals, such as the developing U.S. shale oil producers. The International Energy Agency expects it will take several years before OPEC can effectively price out high-cost producers.
Canada is one of the largest non-OPEC producers in the world.
“For the first time since 2010, Canada was the top destination for U.S. investors in foreign exchange traded funds through the first half of the year. The iShares MSCI Canada exchange-traded fund saw $768.1 million in net inflows in the year to June 30, according to data compiled by Bloomberg,” reports Eric Lam for Bloomberg.[related_stories]
Other Canada ETFs include the First Trust Canada AlphaDEX Fund (NYSEArca: FCAN), SPDR MSCI Canada Quality Mix ETF (NYSEArca: QCAN) Guggenheim Canadian Energy Income Fund (NYSEArca: ENY) and the IndexIQ Canada Small Cap ETF (NYSEArca: CNDA).
“Metals and energy producers meanwhile have fueled the resurgence in Canadian equities, as top performers including First Majestic Silver Corp. and Teck Resources Ltd. saw their value more than triple in the first half. A gauge of raw-materials stocks soared 51 percent in the same period, the best year-to-date performance for the measure in at least 30 years, according to data compiled by Bloomberg,” reports the news agency.
Some oil market observers believe that oil’s recent rally is still in the early innings and that a new bull market for the commodity is being born.
“Unlike last year, when commodity markets rallied through the second quarter only to fall sharply come the third as oversupply persisted, this rally looks more sustainable as physical markets have tightened considerably,” according to a Citigroup note posted by OilPrice.com. “Global demand continues to grow at a moderate rate while the pullback in capital spending is reducing not just supply growth but total supplies across nearly all extractive industries.”
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.