Canadian Small-Cap Stocks Outperform amid US-China Trade Tensions
As the US-China trade war lingers, Canada's small-cap stocks have demonstrated resilience compared to their large-cap counterparts.
Following a brief trade skirmish, the S&P/TSX Small Cap Index surged 0.7%, fueled by gains in cannabis and mining stocks. In contrast, the large-cap S&P/TSX Composite Index declined 0.4%.
The performance gap widened on Monday, with the Small Cap Index rising 1.2% after President Trump announced a 25% tariff on steel and aluminum imports, primarily sourced from Canada.
Experts attribute the outperformance of small-cap stocks to a higher weighting of mining and metals stocks, which have benefited from the weaker Canadian dollar and rising gold prices.
Gold mining companies, in particular, have boosted the small-cap index, which weighs heavily in materials and gold stocks. Solaris Resources Inc., Orla Mining Ltd., and Skeena Resources Ltd. recorded double-digit gains last week.
Investors are seeking refuge in domestic gold stocks due to their cost advantage in Canadian dollars and revenue generation in US dollars.
Other sectors with a domestic focus and exposure to commodities have also performed well, according to SIA Wealth Management's Colin Cieszynski.
Despite overall market declines, the performance of commodity-linked stocks remains positive, particularly in Toronto's small-cap segment. Gold exposure can provide a hedge against inflation, making the TSX more resilient in inflationary environments.