Canadian vs US Stock Markets: How do they differ?

Aside from the obvious currency difference, do you really understand the strength of each stock markets? From a population perspective, the USA is nearly 10 times bigger than Canada, you would expect the stock markets to be somewhat bigger by the same ratio. It’s nearly true with a couple of exceptions. Anecdotally, the entire population of Canada is just under the population of California alone. That alone should give you a sense of the economics at work.

  • Canadian investors should understand the need to invest in the US.
  • US investors should pay attention to the exceptions. In most cases, the companies of interest are probably trading on a US exchange already.

Currency is often the challenge but there are ways to overcome that challenge and get access to the money in an effective manner.

  • You need a bank account for each currency
  • You need to be able to transfer money around in the currency you need
  • You can do the Norbert Gambit with DLR

Stock Market Sector Comparison

By the numbers, each sector compares this way. Using the average PE per sector is a good resource by the way as it can easily tell you if an investment is within the range of the market, well below or well above.

  • Basic Materials: Canada is 1.6 times bigger
  • Capital Goods: US is 6.5 times bigger
  • Conglomerates: US is 2.4 times bigger
  • Consumer Cyclical: US is 16 times bigger
  • Consumer Non-Cyclical: US is 8 times bigger
  • Energy: US is 1.54 times bigger
  • Financial: US is 5.66 times bigger
  • Healthcare: US is 10 times bigger
  • Services: US is 8 times bigger
  • Technology: US is 11 times bigger
  • Transportation: US is 8 times bigger
  • Utilities: US is 5.4 times bigger

Strength of Canadian Market

As you can see, there are more companies trading on a stock exchange in the basic material and the number of energy companies in Canada is also an exception to the other ratios. When building a portfolio that is diversified, it’s important to understand the sectors and their strength along with the international diversification. Canadians should definitely have US holdings and your RRSP account is the best account to hold those investments.

The Canadian banks are definitely worth mentioning as a strength as none of them had major trouble from the sub-prime mortgage. The banks went on to recover and make a new high. I own all the top banks as you can see in my stock holdings.

Strength of US Market

I will have to say that Americans don’t really have to invest in Canada to have a good diversification of sectors but it’s worth understanding the companies that do a lot of business in the US. Most recently, I reviewed the big Canadian oil producers for example. The railway companies also do a lot of delivery in the US and they are really big companies worth paying attention to.

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.