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While the performance of many Canadian sectors remained tepid in 2021 as the COVID-19 pandemic persisted, some managed to buck the trend. The country’s financial services sector, for one, bounced back from the pandemic woes this year through its centrality to overall growth and policy support.
According to a report by Conference Board of Canada, the finance and insurance sector outperformed other industries in the country in the last 10 years, primarily through its contribution to the gross domestic product (GDP).
The Canadian Financial Sector’s Growth – Key Insights
Comprising banks, insurance companies, fintech firms and investment services providers, the S&P/TSX Capped Financial Index grew 5.3 per cent in the last three months and shot up by about 18.7 per cent year-to-date (YTD).
The S&P/TSX Capped Composite Index, on the other hand, registered a growth of 3.8 per cent quarter-to-date, and climbed about 11.4 per cent YTD.
These metrics suggest that the sector has outperformed the overall economic performance. This aspect is also evident from the performance of the banking sector, which is one of the key constituents of the financial services sector.
Not only did most of the banking players report robust earnings in the first quarter of 2021, its top six players clocked returns in the range of 18-31 per cent in the last six months. This growth was registered amid the resurgence of COVID-19 infections across Canada in early 2021 after the number had tapered towards the end of 2020.
The top six players in Canada’s banking sector include Bank of Nova Scotia (TSX:BNS), Toronto-Dominion Bank (TSX:TD), Royal Bank of Canada (TSX:RY), Bank of Montreal (TSX:BMO), Canadian Imperial Bank of Commerce (TSX:CM) and National Bank of Canada (TSX:NA).
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Top Performers In Canada’s Financial Sector
According to the data on TMX, the current top performers in the financial services industry include a range of players like insurance and investment companies, banks and asset management firms, among others.
The top five performers in this category clocked returns in the range of 8.6-39.9 per cent in the last 30 days, one of the highest returns earned by companies across sectors during this period, as per TMX data.
Some industry experts believe that the Canadian government’s economic revival measures, which included pushing overall liquidity in the market, came to the sector’s aid. The government relaxed capital requirements for banks, which enabled these entities to increase their lending activities.
Future of the Canadian Financial Sector
The prospects of the financial sector’s growth, which functions as the backbone of the overall economy, also look promising, considering Bank of Canada’s growth forecast of 6.5 per cent for fiscal year 2021. A faster growth means an increase in the overall financial activity, particularly the disbursement of loans to kickstart business operations.
Prime Minister Justin Trudeau also signaled towards a gradual opening up of the economy last week. Any easing of restrictions augurs well for the financial services sector.
The prime minister also reportedly suggested that the country may gradually ease its COVID-related restrictions if a majority of the population receives its first jab by summer 2021.
The above constitutes a preliminary view and any interest in stocks should be evaluated further from investment point of view.
