TORONTO — A stirring of unfamiliar patriotism in response to U.S. hostility is leading many Canadians to spend money closer to home, but on the question of investing more domestically, experts say there’s less reason to shift habits.
Investing more in Canada has been a hot topic in recent years as companies and the federal government have been working to get big pension funds to allocate more capital within the country.
The argument, pushed forward by investment firm Letko Brosseau and more than 90 business leaders in an open letter last year, is that investing more in Canadian companies would help lower their borrowing costs, increase their growth prospects and generally make Canada more attractive.
“These competitive businesses deserve our support, and we must create many more. Increasing investments in Canada should be a national priority,” the group said in the letter.
Since then, Donald Trump has become U.S. President, imposed punishing tariffs and threatened annexation, which together have created tremendous economic uncertainty for Canadian businesses and the national economic outlook.
But while faced with extraordinary challenges, Canada’s businesses would benefit more from consumers buying their products than their stock, said Mackenzie Investments senior economist Jules Boudreau.
“If you think about the tariff shock coming up, that's more of a demand shock for company's product, right? There's not going be an immediate effect on their financing needs.”
He compared it with environmental, social, and corporate governance efforts, where buying habits will have a more substantial effect than minor shifts in investments.
“If you're a consumer, it's better to get rid of your car than to do ESG investments, even though both are good.”
The case for having pension funds increase their investments in Canada is stronger, said Boudreau, because they offer stable, long-term capital, and it’s easier for sophisticated investors to avoid the concentration risk that comes with broad investing in the Canadian market.
The Toronto Stock Exchange is heavily dominated by resource and financial stocks, so increasing exposure to the market can leave investors overly exposed to a few sectors, and so at higher risk of volatility.
Buying more into Canada also raises the risk that investments overlap with employment income, said Boudreau. You don't want to be a working at a gold mine and owning too much in gold stocks, because you'll take a double hit if they run into trouble.
Investing too much at home not only increases sector concentration, but also exposure to the Canadian dollar, which given the threats, could fall further, said Boudreau.
There’s also already a home bias to investments, said Ing-Haw Cheng, a finance professor at the University of Toronto’s Rotman School.
“Canadians typically already have a lot invested in Canada, relative to Canada's size in the global economy.”
A Vanguard report last year estimated Canadian stocks made up about half of domestic equity portfolios in 2023, down from almost 70 per cent a decade earlier but still above the 30 per cent it recommends.
Cheng said there could be reasons why Canadians might want to buy nationally, but that raising money isn’t a big barrier for companies.
“Global capital markets are extremely deep and money can cross borders very quickly,” he said.
He said shifting investments could have a minor effect. Even in the case of lengthy and high profile divestment campaigns on the ESG front, there’s been only modest evidence of pressure on companies.
“It might make (investors) feel more patriotic, and be more consistent with their values if they were to invest at home,” he said.
“I don't want to say that's not valid, but just from a purely financial motive, it's probably a minor effect for Canadian companies.”
He, too, said buying Canadian products would have a bigger effect.
“If Canadians all started buying Crown Royal instead of bourbon, that, in my mind, feels like a bigger deal than changing your investment portfolio.”
Instead of relying on investors to prop up stocks, or mandating pensions to, it’s important to instead create reasons for companies to want to raise more money, said University of Calgary economics professor Trevor Tombe.
“The solution is to change those fundamentals, not, you know, trying to force decisions to go into Canada.”
While boosting stock prices through increased buying could make borrowing cheaper, it would likely just lead other investors to cash out from the distorted valuations, he said.
“If we try and artificially affect stock prices, thinking about them as an end in itself rather than a reflection of economic fundamentals, then we can be led astray.”
Tombe said he doesn’t see personal investment decisions moving the needle economically, whether that's for stocks or bonds.
The federal government in the past has used Canada Savings Bonds, and going back further, Victory Bonds during wartime, to raise money at cheaper rates by tapping into patriotism.
Canada also has excellent borrowing rates, much better than the U.S. government. In fact, the gap in borrowing costs between the two has never been greater going back to records of 1870, said Tombe, because the U.S. financial situation is a mess.
“Investors are building in risk premiums just because U.S. fiscal policy is unsustainable.”
Canadians are free to invest domestically and feel a sense of patriotic well-being, but fixing the country’s economic woes will need broader solutions in areas like regulation and taxation, said Tombe.
“We shouldn't be under any illusions that would meaningfully change the macroeconomic picture within the country. To do that, we need policy to change, and that's entirely on governments, rather than individuals.”
This report by The Canadian Press was first published March 6, 2025.
Ian Bickis, The Canadian Press
