Rising rates will benefit banks, BMO manager says

Canadian equity team adds to life-insurance holdings.

Diana Cawfield 22 February, 2018 | 6:00PM

There's no question that rising interest rates will be one of the biggest drivers of the Canadian equity market this year, says Lutz Zeitler, a managing director and portfolio manager at BMO Global Asset Management Inc.

"We're seeing wage growth or wage inflation right now, and that could result in a central-bank action that is much more aggressive than what the market expects," says Zeitler, who heads the Canadian fundamental equity team. "This is the strongest wage-growth data in eight years and that's what's spooked the market a little bit."

Zeitler, based in Toronto, expects that more rate hikes, aiming at controlling inflation, will drive interest rates higher. This, in turn, will determine which sectors will perform well and which won't. Typically, valuations are negatively affected by rising interest rates, says Zeitler, but there are positive aspects as well.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Bank of Nova Scotia55.63 CAD0.09
Enbridge Inc38.03 CAD-0.37
Manulife Financial Corp18.57 CAD0.70
Royal Bank of Canada96.73 CAD0.87
The Toronto-Dominion Bank59.16 CAD-0.14

About Author

Diana Cawfield

Diana Cawfield  Diana Cawfield is an award-winning writer who has been a regular Morningstar contributor since 2000. Her numerous publication credits include the Toronto StarAdvisor's Edge and Chatelaine, as well as the Canadian Securities Institute's online educational services.

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