U.S. Markets closed

Meet the Other Tech Companies Propping Up Canada’s Stock Market

Divya Balji
1 / 3

Meet the Other Tech Companies Propping Up Canada’s Stock Market

(Bloomberg) -- Shopify Inc. may be hogging all the headlines but there are other tech companies keeping the rebound going on Canada’s stock market this year.

Shopify’s near 90% surge this year has put it in the No. 1 spot on the S&P/TSX Composite Index but Kinaxis Inc. and Real Matters Inc. are close behind, up 70% and 67% respectively -- making them the third and fourth largest gainers. Hydrogen fuel cell company Ballard Power Systems Inc. is second with a 75% gain.

These tech stars may not have a catchy acronym like FAANG in the U.S., BAT in Asia or even WAAAX in Australia but investors have flocked to these names due to their stronger growth outlook compared with other sectors during the coronavirus pandemic.

“There’s a view that the pandemic should actually help accelerate tech adoption in a bunch of different areas because ultimately technology is one of the only ways to mitigate some of the impact of the pandemic,” Thanos Moschopoulos, analyst at BMO Capital Markets, said by phone.

Kinaxis has become “especially topical” given its supply chain management software can help companies track global shipments amid the havoc caused by Covid-19, and to help mitigate the challenges, Moschopoulos said.

Last month, the Ottawa-based company reported a 15% increase in revenue and maintained its 2020 guidance, which included a sales forecast that’s about 10% to 12% higher than 2019.

With the bulk of its revenues coming from the U.S. mortgage industry, low interest rates are keeping things busy for Real Matters. The Markham, Ontario-based provider of network services for the mortgage and insurance industries has seen increased refinancing volumes as central banks cut rates to pump financial markets with liquidity during the global recession.

Sky-high valuations suggest things may be moving too fast, too soon. The price-to-earnings ratio for the S&P/TSX Info Tech Index is about double the five-year average, according to data compiled by Bloomberg.

“There’s an argument to be made that because interest rates are where they are, at record low levels, that dynamic justifies higher valuations. Tech on a relative basis is looking better than a lot of other sectors,” Moschopoulos said.

Still, recent price action in North American stock markets suggest investors are shifting away from tech and into more cyclical sectors as confidence in the recovery builds. Unexpectedly strong jobs data from Canada and the U.S. on Friday amplified this theme.

At about 9% of the Canadian benchmark, the tech sector’s impact is still small compared to the nation’s banks, miners and energy companies.

So while their shares have surged this year, helping offset some of the losses on the S&P/TSX Composite, the benchmark remains in the red for the year -- for now.

For more articles like this, please visit us at bloomberg.com

Subscribe now to stay ahead with the most trusted business news source.

©2020 Bloomberg L.P.