Canadian companies are posting their best profit in three years, fueling hopes that business spending will resolve the sluggish economic growth seen in recent times. Statistically, 78% of companies in the Standard & Poor’s/TSX Composite Index reported higher revenue than a year ago, as companies such as Canadian Natural Resources Ltd. and Magna International Inc. benefitted from stronger U.S. growth and a weaker Canadian dollar.
Increased capital investments from the country’s largest corporations will be advantageous for Canada’s economic recovery, which is forecast to grow 2.2% in 2014. Both the government and the Bank of Canada have called on businesses to re-invest their profits into the economy.
Federal Finance Minister Joe Oliver said at a news conference recently that he wanted to learn why companies aren’t investing cash on their balance sheets.
Canadian equities have increased by 12% ,a record this year, the second-best among major developed markets, led by gains among commodities producers and manufacturing companies on a combination of greater global demand, higher prices and a weaker loonie. The loonie has dropped 5.3% against the U.S. dollar over the past year.
Many of Canada’s oil producers and exporters operate in Canada while selling their products in U.S. dollars, benefiting from the weaker exchange rate. According to Bloomberg, 62 energy companies have reported a 21% increase in sales from a year ago. Corey Bieber, chief financial officer at Canadian Natural Resources, reported a 41% increase in revenue to $5.37 billion.
Oil prices have decreased in the past month with Brent crude sinking to a 13-month low of $103.02 a barrel after the International Energy Agency said a supply glut was shielding the market against threats in the Middle East. West Texas Intermediate crude has closed below $100 a barrel since July 31.
John Stephenson, portfolio manager and chief executive officer at Stephenson & Co. in Toronto, said prices even at current levels remain positive for oil producers and demand for crude will continue to grow in the developing world.
Source: Financial Post