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Further adding to the country’s debt concerns, Canada’s most populous province, Ontario, plans to return to deficit financing after balancing its books for only the first time in a decade in 2017-18. The plan has already prompted a warning from Fitch Ratings that it could pressure the province’s ratings.

Part of the under-performance of Canadian stocks can be explained by the lack of innovative companies in the country’s main S&P/TSX Composite index, which is dominated by the energy sector, commodities companies and banks, the fund managers said.

Technology Dearth

“The lack of tech and health care has held back Canada,” said Conrad Dabiet, who manages the $3.4 billion Manulife Dividend Income Fund that beat its peers in the three years ending in 2017 with a cumulative 33 per cent return. “We need to make sure we can compete globally because a lot of these businesses are global in scale and if you miss out, you don’t participate in that profit gain.”

While Canada has long heralded its corporate tax advantage over the U.S., that’s also disappeared. Including state taxes, the U.S. rate has tumbled to about 26 from about 39 per cent before Trump’s cuts, according to Jack Mintz, an economist at the University of Calgary and one of Canada’s top tax experts. That compares with about 27 per cent in Canada, including provincial levels.

Opening Gambit

To be sure, Canada’s federal budget deficit at less than 1 per cent of gross domestic product is in much better shape than the U.S. where the tax cuts will push it toward 5 per cent of GDP in fiscal 2019, according National Bank of Canada. The loss of key people including Gary Cohn and Rex Tillerson who had acted as stabilizing forces in the White House have injected more volatility into markets of late.

But even Trump’s tough line on trade doesn’t unduly worry Blackstein at Dynamic Funds, a unit of Bank of Nova Scotia, who sees it as an opening gambit aimed at leveling the playing field for U.S. companies abroad.

“This is a business-focused president; it’s a business negotiation,” said Blackstein, whose global fund has about 38 per cent of its assets in the U.S., according to data compiled by Bloomberg. “I know there’s a lot of hyperbole, I know there’s a lot of rhetoric, I know there’s some 3 a.m. tweets, but it’s not totally unhinged.”

Bloomberg.com