Up until Donald Trump announced his 90-day entry ban announcement on travelers and green card holders from seven Middle East and African countries, the Canadian stock market had been on a tear.
Between Jan. 1 and Jan. 27, 2016, the day the ban was announced, the S&P/TSX Composite Index was up 28 percent in U.S. dollar terms versus 14 percent for the . Year-to-date it had climbed by 3.3 percent, or nearly two percentage points higher than America's benchmark.
As well, more than $1.3 billion had been invested in the iShares MSCI Canada ETF in 2016, the most new money of any non-U.S. country fund last year.
Since the announcement, though, the market has pulled back, falling by 0.2 percent in USD terms and 1.1 percent when currency isn't factored in. While that's only a mild drop, it's the market's biggest decline in a month.
Could Trump's executive orders and other policies be impacting the country? It's possible, says Bob Sewell, CEO of Oakville's Bellwether Investment Management.
Typically, Canada's market follows America's, so if the U.S. investors are jittery, as it seems they have been since the ban was announced — the S&P 500 is down 0.6 percent since Jan. 27 — then Canadian stockholders will be, too.
"His first days in power have led people to be more uncertain," he says. "Until there's clarity around these positive growth–type aspects of his platform, we'll continue to see concern in the market."
If there's anything that could shake Canada's market, it's Trump's policies on trade. The United States is Canada's largest trading partner — it sends about 75 percent of its goods across its southern border — but with the president arguing with Australia's prime minister and talks of border taxes, it's anyone's guess as to whether this decades-old relationship will remain intact.
"You have to be mindful of the risks," says Risteard Hogan, manager of Fidelity's Canada Fund. "People are talking about this border tax, and there will be winners and losers from that. It's an issue for Canada."
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The energy sector, in particular, is getting nervous with talk of a border tax. In an interview with The Canadian Press, Tim McMillan, head of the Canadian Association of Petroleum Producers, said the tough talk is "a bit of a wake-up call that we need to strengthen our relationships on energy with other countries."
If the energy patch is impacted and it becomes more expensive for Canadian companies to ship oil and gas into America, then Canada's stock market would certainly take a hit. The energy sector makes up about 20 percent of the Canadian stock market.
Americans tend not to pay too much attention to the goings on up north, but a decline in its stocks could have an impact on a number of U.S. investors. According to Lipper Research, 48.7 percent of all U.S. domiciled equity funds hold at least some Canadian stocks.
Hogan's Fidelity Canada Fund holds the most, with a 92.4 percent allocation to the country, but several other funds, especially commodity-related funds — Canada is major commodity nation — hold a lot of Canadian stock. For instance, the EuroPac Gold Fund has a 70 percent allocation to the country, while the Invesco Gold & Precious Metals fund has a 69 percent weighting to Canada.
Investors have also continued investing in the country, with $111.6 million having gone into the iShares MSCI Canada ETF year-to-date, according to First Bridge Data.
For many Americans, Canada serves almost as an emerging markets proxy, says Hogan. Its stock market has a similar makeup to many developing nations — it's heavy in energy, materials and financials — but it comes with much less risk.
"It's a similar structure to emerging markets, but it's done quite well relative to them with lower volatility," he says. "It has a space in a risk-tolerant portfolio."
He's finding opportunities in pipeline construction companies, such as ShawCor, which could get more work under a pipeline-friendly Trump administration, and he's also keen on Stantec, an engineering and construction firm with half of its business in Canada and half in the United States. It's benefiting from increased infrastructure in Canada but could also participate in America's infrastructure plans.
Despite some short-term issues driven by Trump, uncertain energy prices and Canada's own sluggish economy, Hogan says there's a lot to like about the Great White North.
It has good demographics relative to other developed nations, it has good corporate governance, low debt-to-GDP and an attractive resource base with large reserves of oils and other minerals, says Hogan. It's also performed relatively well over the long term.
Another plus: its strong immigration policy. It accepts about 300,000 immigrants a year — about 10 percent to 15 percent of that being refugees — and it could accept more in the future if America closes its doors to people from other countries.
That could be a boon to Canadian companies and its economy, says Colin Busy, associate director of research for the C.D. Howe Institute, one of Canada's most influential think tanks.
"More and more of the world's best and brightest might now see Canada as a potentially superior option," he said. "We haven't always been the No. 1 destination for those people, but that could start to shift in our favor."
For now, though, investors will have to wait to see how Trump impacts Canada, just like they're waiting to see how he impacts the United States. If oil prices continue to stabilize and trade isn't disrupted too much, then it's still a good place to be. If NAFTA is thrown out and Canadian trade is affected, there could be choppier waters ahead.
"There are still good long-term fundamentals," says Hogan. "But there is some uncertainty as what the outcome of trade negotiations will be."
— By Bryan Borzykowski, special to CNBC.com