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 close to 25%.
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.
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.
EWC and Canadian stocks got a boost from the production cut announced earlier this month by the Organization of Petroleum Exporting Countries. OPEC plans to diminish output to a range of 32.5 to 33.0 million barrels per day from its current estimated output of 33.24 million barrels per day. While Saudi Arabia, OPEC’s biggest producer, has agreed to reduce output, Iran, Libya and Nigeria might not follow suit.
There are other, non-energy factors to consider with EWC.
“Lots of good news coming out of Canada — increased government deficit spending and a commitment to years more of it, the only downside being that such stimulative public spending appears poised to steadily decline,” according to a Seeking Alpha analysis of the ETF. “Canada can look forward to a growing economy, booming stock market and an increasing standard of living for its citizens.”
EWC can keep soaring in 2017, particularly with help from the Canadian government.
“Canada is a buy. The government sector is net adding to the private sector, and this net add expresses itself as a growing stock market. This has clearly occurred with an over 20% gain year to date,” according to Seeking Alpha. “More importantly, the government appears aware of its role as an infrastructure and medium of exchange provider. After many years of destructive conservative austerity measures, that have shrunk the economy, the policy trend appears to have changed direction for the better.”
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).