Canada snap election 2021: How a Tory win could impact stock markets

Highlights

  • Progressive Conservatives have upset the Liberal party in the Nova Scotia snap election.
  • Conservatives are promising billions of dollars in new spending and balancing the budget.
  • The Canadian stock market growth is owed to the support programs of the federal government.

The outcomes of electoral contests shape every aspect. Political parties have differing ideologies, and in some cases these ideologies can be in stark contrast.

A regime change in Afghanistan, a war-torn country, has brought with it social and economic fallouts. It is widely accepted that women will lose their hard-won rights to work and study.

On the economic front, commercial banks are out of cash. Foreign reserves of the central bank of Afghanistan have been frozen. Inflation in the coming days is likely to grip the country and plunge the residents into poverty.

Canada is a different scene. It is one of the most developed countries, with a robust economy and a liberal social landscape. A snap election is due to be held in September.

The ruling Liberals are eyeing a majority in the House of Commons, and opposition parties are looking to mount a formidable challenge.

Source: Pixabay

The question now is will there be any impact on the stock market should a change follow the snap polls? What if the Conservative party, which won 121 seats in the 2019 federal election, attain a majority by winning 170 or more seats?

Tories’ return in Nova Scotia

Election results are difficult to predict. Voters have their own set of preferences, and periods of upheaval like the pandemic can mark a shift in these preferences.

In the recently held Nova Scotia snap election, the Tim Houston-led Progressive Conservatives upset the Liberal party. The latter was eying a third straight win in the province.

The setting was somewhat similar to the House of Commons. The Liberals are in minority in the House after having won 13 fewer seats than the majority mark in 2019. In Nova Scotia too, Liberal leader Iain Rankin called a snap election to increase the earlier numbers and form a majority government in the province.

Only time will tell if the Nova Scotia snap election is indicative of what will happen in federal election.

Also read: Canada snap election 2021: How a Liberal win could impact stock markets

Conservatives release their election platform

On several occasions, Conservative party leaders have criticized spending undertaken by the Trudeau-led federal government. The party asserts that a Liberal win in the snap polls can leave generations of Canadians in debt.

Undeniably, pandemic relief measures announced by liberal Finance Minister Chrystia Freeland have soared the national debt and fiscal deficit.

This does not mean conservatives will close the taps should they come to power. The party has recently released its election platform. It includes a commitment for billions of dollars in spending to give a cushion to the ailing Canadian economy. In a surprise shift, the party has not shied away from promising large-scale cash injections.

An interesting part in the 160-page platform is the mention of a plan that involves covering up to 50 per cent of salaries of fresh employees. The conservatives have named the plan the Canada Jobs Surge Plan and it will kick in when the Liberal party-introduced emergency wage subsidy (CEWS) expires in October.

Conservatives also promise a tax break in the form of a one-month long “GST holiday.”

The Canadian housing market turned hot after the pandemic struck. Even the Bank of Canada admitted that vulnerable groups like young families were being affected by the unaffordability due to skyrocketing prices and limited inventory. The conservatives promised to ban foreign investors from the housing market for a minimum of two years.

Investor frenzy in stock market

The Canadian stock market has been a vision to behold. In June, the S&P/TSX Composite Index touched 20,000-landmark for the first time ever. In January 2021, share of retail investors in the Canadian market surged to 45 percent as compared with 35 per cent a year back. This group of investors is busy picking up stocks, and on August 19, the Composite Index was up nearly 16 per cent on a YTD basis. The one-year return of the index is a whopping 25 per cent.

According to Statistics Canada, Canadians amassed nearly C$212 billion in 2020 as compared with C$18 billion a year before.

Despite the pandemic and the job losses and business restrictions it brought, the average savings rate of Canadians surged in 2020. All this can be attributed to subsidies including wage support and rent assistance. Savings discernably went into equity investments.

Also read: 2 undervalued TSX stocks to invest in

A balanced budget is not bad

In its election platform for a snap election, the Conservative party promises that it will balance the federal budget in ten years. This balancing and cutting of the fiscal deficit cannot be expected unless wide-ranging spending cuts are introduced.

Data source: Elections Canada (Image: Copyright © Kalkine Media 2021)

 

 

There are two points to consider here. First, the party has unequivocally promised to spend billions with a view of lifting the economy out of the COVID-19-induced distress. In the short-to-medium term, it is quite unlikely that conservatives will close the taps that are flooding Canadians’ accounts with cash.

 

Second, the economy is showing enough signs of recovery. Labour Force Survey reveals 94,000 jobs were created in July, which follows 231,000 new jobs in June.

 

Also read: How are low interest rates helping Canada & US?

 

The promise to balance the budget will strike a chord with institutional investors. This group favors a more balanced budget with manageable debt. A conservative win can likely cheer the group. Retail investors in Canada have learned to embrace the stock market. A Liberal or a Conservative win will likely have a very limited impact on their sentiments.

 

Bottom line

 

The Conservative party has promised billions of dollars in new spending to lift the economy. It means Canadians may continue to receive government support until the pandemic recedes and macroeconomic indicators turn positive.

 

The Toronto Stock Exchange owes its phenomenal performance to subsidies that enabled Canadians to save more and park money in stocks. The trend is likely to continue in the event of a change in House of Commons’ numbers.

 

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