Canadian auto suppliers surged after Canada and the United States reached a free-trade deal that eliminated the threat of damaging auto tariffs.
Martinrea International Inc. jumped 13 per cent at 10:10 a.m. in Toronto., the most since 2014, Magna International Inc. gained 5.1 per cent and Linamar Corp. rose nine per cent.
All three closed up for the day on the Toronto Stock Exchange. Martinrea finished up 10. 4 per cent, Magna up 2.2 per cent and Linamar 6.3 per cent.
“I think Canadian stocks in general have had this NAFTA cloud over them, that’s certainly true for the auto parts sector,” Rob Wildeboer, chairman of Martinrea, said in an interview with Bloomberg. “I expect valuations are going to increase.”
U.S. President Donald Trump repeatedly threatened to impose tariffs on Canadian light vehicles and auto parts if a NAFTA deal couldn’t be reached, pressuring the entire auto sector. The deal reached late Sunday ensures Canada won’t be affected by auto tariffs unless exports top 2.6 million units annually, well above the current level of 1.8 million. It also includes tighter rules of origin for auto production, and calls for 40 per cent of a car to come from factories where workers are paid more than US$16 an hour.
“The auto industry should be absolutely thrilled,” Jerry Dias, national president of the Unifor union, said in an interview on BNN Bloomberg TV. “Today people can rest and take a big deep breath. We really are in a situation where we can attract investment.”
Canadian auto parts stocks have languished this year, with Martinrea down 18 per cent and Linamar losing 19 per cent through the end of September.
“There appears to be good upside potential for the stocks due to their strong earnings per share growth potential and their low valuations,” Cormark Securities Inc. analyst David Tyerman wrote in a note Monday.