Should clients invest in Canada?

The U.S. is overshadowing Canada.

That’s mainly because the U.S. economy is on more solid footing and is growing about 1% faster, says Stephen Carlin, senior portfolio manager of Canadian equities at CIBC Asset Management. He manages the Renaissance Canadian Dividend Fund.

Read:

• North American ETF flows dip
• Canada is an emerging market

Yet, Canada’s still in good shape despite factors such as higher unemployment and weak commodities, he adds.

The latter is partially due to flat growth rates in emerging markets. China, in particular, is holding us back due to its reform-oriented government and lower projected growth rates, says Carlin. China’s more sluggish expansion (of about 7%, versus previous highs of 10% and 11%) won’t support commodity-oriented segments of market.

Further, he says, the Canadian dollar is weak and hurting the flow of foreign funds into the country.

Read:

• Canadian manufacturers struggling
• Who wins from the weak loonie?

But there’s a bright side, says Carlin. The weak dollar can also be good for export companies. As well, Canada’s overall earnings growth will remain strong throughout 2014.

Companies will generate modest growth—between mid and high single digits—and valuations will remain attractive, he adds, so there’s still “some…upside potential in the marketplace. [That’s why] I wouldn’t give up on Canada at this stage.”

Read: Advisors bullish on equities

Domestic opportunities

Investors should consider the real estate sector in the short term, says Carlin.

Though there’s been news of potential interest-rate volatility, he adds, “the interest rate environment is going to be benign because of [Canada’s] slow growth rates.” Inflation won’t be an issue in the near term.

In fact, Carlin expects the real estate sector to grow “somewhere around 2% on a year-over-year basis [in 2014] in terms of cash flows.” It will also produce strong yields and valuations have improved considerably, he adds.

Read: Canada in top 5 for real estate investors

He expects bank and energy stocks to continue to be top picks. In 2013, says Carlin, the energy sector beat the market and banks were up by 22%.

This year, he suggests, banks will produce single-digit earnings growth, along with strong capital bases, additional dividend growth and attractive yields.

For more investment tips, read:

Outlook strong for agriculture sector

Canadian banks are good buys

3 reasons to invest in real estate

Large-cap managers had strong 2013

Will energy stocks boost the Canadian market?