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Monthly Review – February 2023

PolyFinances Team

Monthly Review – February 2023

Basic Consumption

By Shawn Daswani

In Canada, the consumer staples sector experienced mixed market activity during the month of February. Companies in this sector faced challenges such as rising commodity prices and uncertainty related to the COVID-19 pandemic. Despite this, some companies experienced significant growth.

Figure 1 : Comparative chart of the performance of the S&P 500/TSX and the TTCS

We can see in the chart above that the TTCS index is well above the TSX index compared to last month when it was below.

Among the companies in this sector, Saputo Inc. experienced strong growth in its shares during the month of February. The company is a world leader in the production and distribution of dairy products and cheeses. It reported strong quarterly results that contributed to the rise in its shares. In addition, investors reacted positively to the announcement of the acquisition of the British company Dairy Crest, which will strengthen Saputo’s presence in the European market.

On the other hand, shares of Metro Inc, a Canadian retailer, declined during the month of February. The decline was mainly due to concerns about the impact of the pandemic on the company’s sales. The pandemic has resulted in increased operating costs for retailers, particularly due to the additional costs associated with health security. In addition, increased competition in the retail sector also put pressure on the company’s stock.

In conclusion, the consumer staples sector in Canada experienced mixed results during the month of February, with companies such as Saputo Inc. experiencing strong growth, while others, such as Metro Inc. experienced a decline. The COVID-19 pandemic continues to weigh on sales and operating costs for companies in this sector, but some companies have successfully navigated these challenges.



By Sophia Mounis

During the month of February, the Canadian financial sector experienced a relatively weak performance compared to the previous month.

This is illustrated in Chart 2 below.

Figure 2: Performance in February : XFN et S&P/TSX. ( 2022) 

As shown in Chart 2, the financial sector appears to have relatively underperformed this month. The XFN was up 0.34% as of February 28th and the TSX was down 2.55%.

In early February, Bank of Canada Governor Tiff Macklem announced that Canada is in a new era of monetary policy, while reminding Canadians of the eight interest rate hikes since March. In February 2023, the policy rate was 4.5% and for some time now, the Bank of Canada has been trying to reach an inflation rate target of 2%.

According to Macklem, monetary policies are having a good effect on the state of the Canadian economy. The governor expressed the fact that Canadians are aware of the increase in prices (groceries, housing, etc.), but have difficulty realizing to what extent this is reducing the inflation that the country is currently experiencing. In fact, an increase in interest rates makes loans more difficult to obtain and this results in a decrease in demand. Thus, the pressure on the supply chain weakens, giving the economy the opportunity to slow down and catch up. This resulted in a consumer price index of 6.3%, compared to 8.1% last year.

However, the decrease in demand had a huge impact on the labor force, since there was an increase in the number of jobs to be filled in the recent months. In fact, during the month of January, 150,000 jobs were created, wages increased by 4.5% and the unemployment rate remained close to 5%. Despite these numbers, Macklem says that the state of the labor market as of February remains “tight” and that this is having a significant impact on the rising inflation rate.

In short, two elements could lead the Bank of Canada to raise the key rate again in the coming months: the current state of the labor market and the recent increase in the U.S. inflation rate. According to Michel Girard, economic columnist at the Journal de Montréal, the last reason can be explained by the concern of seeing a gap between the Canadian and American dollar.



Par Maxime Bourdeau

During the month of January 2023, the TSX Composite Index rose about 4% more than the Canadian Industry Index (TTIN). However, February was more difficult for the TSX and both indices ended up with the same 4.1% gain for the first 2 months of the year. The figure below illustrates that the two Canadian indices follow the same correlation although TTIN ended February with a 2% gain while the TSX lost 2.2%.

Figure 3. Comparison of the evolution of the TSX and the industrial sub-sector index

Inflation in Canada has fallen below 6% and is at its lowest level since February 2022 (Barrel, February 21, 2023). This is encouraging for investors as borrowing costs are a huge barrier for the industrial sector.

Stantec (STN.TO) has been a big winner in the industrial sector. During the month of February, the stock rose 15% as earnings per share quadrupled on a 22.6% year-over-year increase in revenue. The growth is being driven by organic revenue growth as well as acquisition-related growth. In the last 2 years, Stantec has made a total of 8 acquisitions (Stantec, 2023).

Another big winner in the industrial sector is TransForce International (TFII.TO) with a 16.3% increase during February 2023. The board of directors approved a 30% dividend increase (Legate-Wolfe, Feb. 27, 2023). In short, this increase shows strong confidence in Canada’s largest logistics company despite the economic uncertainties on the horizon. This stock could be considered less risky than others in the same sector since the compound growth rate of the stock is 22.8% over 20 years.


Basic Materials

By Olivier Larochelle

While the month of February saw a downtrend on the Toronto Stock Exchange as a whole (orange curve), the basic materials sector underperformed even more. Indeed, as can be seen in the chart below by the blue curve representing the XMA.TO Index, the exchange traded fund targeting Canadian materials companies was down 8.2% over the period.

Figure 4 : February performance of the XMA.TO and S&P/TSX

This poor performance is first and foremost explained by the massive exposure of the Canadian materials sector to the gold market. To give you an idea, the S&P/TSX Capped Materials Index is now composed of almost 54% of companies involved in gold. This percentage is growing steadily, whereas this sector occupied 47% of the portfolio as recently as last September. This high exposure was negative during the month of February as the price of gold fell from $2595 CAD/ounce to $2492 CAD/ounce, its worst month since mid-2021. Indications that the U.S. economy is overheating prompted securities traders to bet on higher interest rates, driving up Treasury yields and the U.S. dollar. Gold bullion, which does not pay interest, becomes less attractive in this environment. Being closely linked to the price of gold, the major Canadian companies such as Franco-Nevada and Barrick Gold consequently experienced poor results on the stock market in February.

In general, as far as metals are concerned, it was not a good month. Whether it is lithium, silver, copper, aluminum or other, most companies listed on the Toronto Stock Exchange whose activities are based on these metals have experienced a downward trend. However, some sub-sectors performed better, such as paper. For example, Cascades, a company closely followed by PolyFinances, saw its stock price explode by more than 17% during the month of February.

Even so, it is not too worrisome to experience this kind of short-term downward momentum in the basic materials sector. The highly volatile and cyclical nature of the materials market can cause this kind of rapid change, whether up or down.


Information Technology

By Walther Guillaume

February was a month of many announcements and developments in the Canadian IT sector. The XIT Index fell 5.94%, trailing the TSX, which was down 2.37%, and the NDX, which was down 3.43%. This performance of the XIT Index is highly correlated to the performance of its three largest stocks: Shopify Inc A, Constellation Software Inc, and CGI Inc Class A, which together account for nearly 65% of the ETF.

Figure 5 : XIT, Shopify, Constellation and CGI’s performance during the month of February compared to the TSX and NDX

Canadian e-commerce company Shopify announced a 25% to 35% increase in the price of its packages, which had not changed since its inception in 2006. Despite investor optimism at the announcement of these changes, which are aimed at increasing the firm’s profitability, Shopify’s share price (27.7% of the XIT index) fell 18.34%.

Then, Constellation Software Inc’s (21.91% of the XIT Index) stock price fell 3.69% in February. This follows the company’s announcement that it has acquired 100% of the shares of WideOrbit Inc. WideOrbit is a U.S.-based provider of software for the media vertical. It is the system of record for more than 5,000 cable stations and networks worldwide, processing more than $35 billion in annual advertising revenue.

Finally, CGI Inc Class A (14.58% of the index) was the only one of the three stocks that did not decline in market value. In fact, the company’s share price rose 3.24% in February. This is because the company continues to deliver excellent results for its shareholders. The company announced its intention to enter into a private agreement with CDPQ to repurchase for cancellation 3.34 million shares held by CDPQ and plans to reinvest the funds in businesses in Quebec. Analysts recommend buying CGI shares and suggest 12-month price targets of $133.34 (low), $140.584 (mid) and $146.373 (high).



By Guillaume Thibault

South Africa’s energy crisis and its potential impact

South African President Cyril Ramaphosa has declared a national “state of emergency” due to crippling power shortages in the country, which he says pose a threat to its economy and society. The power crisis is due to several factors, including delays in the construction of new coal-fired power plants, corruption in coal supply contracts, criminal sabotage and regulatory barriers preventing the rapid integration of renewable energy sources. The national power utility Eskom has implemented the worst power cuts on record, disrupting manufacturing, hurting businesses and leaving homes in darkness. The power cuts are expected to reduce economic growth in Africa’s most industrialized country to 0.3 per cent this year. By declaring a state of national disaster, the government hopes to be able to respond more quickly to the crisis by implementing emergency supply procedures with fewer delays and bureaucratic constraints.

Good news for the energy transition

The U.S. plans to add 54.5 gigawatts (GW) of new electric generation capacity in 2023, with more than half (54%) coming from solar and 17% from battery storage. Battery storage capacity has also grown rapidly in recent years and is expected to more than double in 2023, with developers reporting plans to add 9.4 GW of battery storage to the existing 8.8 GW of capacity. Battery storage systems are increasingly installed with wind and solar power projects to store excess electricity from wind and solar generators for later use. In 2023, 71% of the new battery storage capacity is expected to be in California and Texas, which have significant solar and wind capacity.

Figure 6: Increased company-wide power generation capacity in the United States (2023)

Retrospective on the impact of the Russian invasion on the energy markets

We knew the Russian invasion of Ukraine would reshape global energy markets, causing some countries to rethink their energy transition strategies, and now we can see the effects. A sharp rise in oil and gas prices and the sharp drop in Russian supplies to Europe has pushed companies and governments to increase spending on fossil fuel production, prioritizing security of supply. The result is record profits for the major oil companies, which had a more than prosperous 2022, with the combined profits of the industry’s top six companies exceeding $219 billion, more than double the previous year, allowing them to increase spending on oil and gas projects and return a lot of money to shareholders in the form of record dividends and share buybacks.

Figure 7: Record profits for major oil companies

Figure 8: Profits of the shareholders of the big oil companies


Bank of Canada. (February 7th 2023). Monetary policy at work.

Bank of Canada. (February 7th 2023). Higher interest rates are working.

The Canadian Press. (February 13th 2023). Tight labour market persists as Canadaian economy adds 150,000 jobs in january.

BDC. (February 2023). The end of interest rate hikes: What does it mean?

Banque du Canada. (february 16th, 2023). Sans l’ombre d’un doute : pourquoi la Banque est déterminée à ramener l’inflation à 2%.

La Presse canadienne. (16 février 2023). Le marché de l’emploi est trop tendu, selon la Banque du Canada.

CTAQ. (Février 2023). Stats Canada – Enquête sur la population active de janvier 2023. Conseiltaq.com

Girard, M. (17 Février 2023). Faut-il s’attendre à une autre hausse des taux d’intérêt? Journaldemontreal.com

BARIL, H. (21 février 2023). Une première bonne nouvelle sur le front de l’inflation. La Presse.,%C3%A0%20la%20cible%20de%202%20%25.

LEGATE-WOLFE, A. (27 février 2023). This Growth Stock, up 25%, Just Boosted its Dividend by 30%!. The Montley Fool.

Stantec. (2023). Acquisition History.

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