As the Bank of Canada’s key interest rate rises, Canadian Utilities fall.

Shares of utilities companies plummeted following the Bank of Canada’s third-rate hike in six months. This news is chilling investors as Canadian companies in the sector have borrowed a lot of money over the last few years for investments in infrastructure estimated at US$ 20 trillion between 2016 and 2040.

The Bank of Canada raised its rate to 1.25% on Wednesday, January 17 2018, representing a quarter-point increase. This is bad news for Utilities companies, which have taken advantage of the extremely low rates in recent years to make massive investments in their infrastructure, borrowing large sums of money. The impact of such an announcement by the Canadian financial institution has been felt in the markets in recent weeks.

In fact, the shares of the sector’s three largest Canadian companies, Fortis Inc. (TSX: FTS), Hydro One Ltd. (TSX: H) and Canadian Utilities Limited (TSX: CU) fell 4.6%, 2.2% and 3.9%, respectively, since the beginning of 2018. Unfortunately, key rates may increase further in 2018 and will likely increase to 1.75% or 2% by the end of the year, following two or three increases of a quarter point. Although they usually represent a long-term investment, it will be interesting to see how these companies’ stocks perform in the coming months.

Bibliography :

La presse. (2018). Banque du Canada: troisième hausse de taux en six mois. Tiré de : http://www.lapresse.ca/affaires/economie/canada/201801/17/01-5150341-banque-du-canada-troisieme-hausse-de-taux-en-six-mois.php

The Motley Fool. (2018). How Do Utilities Look After an Early Rate Hike? Tiré de : https://www.fool.ca/2018/01/21/how-do-utilities-look-after-an-early-rate-hike/

EY. (2018). Spotlight on Canadian power and utility megaprojects. Tiré de : http://www.ey.com/ca/en/industries/power—utilities/ey-spotlight-canadian-p-and-u-megaprojects

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