Rounding Up Politics in Canada and Portugal

Editors’ Note: MarketMinder Europe is politically agnostic. We assess developments for their potential economic and market implications only.

As US stocks broadly hit correction territory (a sharp, sentiment-fuelled decline of -10% to -20%) in price-only terms Thursday, passing the -10% threshold from its 19 February high, there are a lot of things happening—and there is rather a lot of uncertainty.^[i] Global markets likely reflect some of that uncertainty, too, though they haven’t fallen by the same degree as US stocks over that time period.^[ii] Outside the major and heavy coverage of things like tariffs and US government layoffs, which have likely added to that uncertainty, there are other events ongoing in politics—spurring a few questions of their own. Canada has a new prime minister, but with an election looming, how long will he be around? And, what is next for Portugal after this week’s government collapse? Whilst uncertainty over these factors is elevated now, we think markets will gradually gain clarity on all fronts, likely helping stocks move past this rough patch.

Mark Carney Ticks Another Box on His BINGO Card

Bank of Canada Governor. Bank of England Governor. And soon, pending some formalities, Prime Minister of Canada. Yes, Mark Carney is getting ever closer to a high-profile job BINGO after winning the Liberal Party’s leadership contest and taking over for the deposed Justin Trudeau. Whilst polls showed a tight race between him and former Deputy Prime Minister Chrystia Freeland, in the end it wasn’t close: Carney took over 85% of the narrow, party-member vote (only about 156,000 people actually voted in this race). He is now going about the business of picking a cabinet, talking tough about tariffs, promising Canada will never be America’s 51^st state (a response to President Donald Trump’s favoured talking point) and deciding whether to call a snap election.^[iii] It is quite the full dance card.

And it means investors have the answer to one of the two big political uncertainties we identified hanging over Canadian stocks this year: We now know Carney will succeed Trudeau. But we don’t know how long he will be in the big chair, as a general election is due by October. The opposition Conservative Party and their leader, Pierre Poilievre, had a wide polling advantage in recent months, but it narrowed as Carney’s star rose and Canadians rallied against tariffs and the strange distraction that is annexation chatter, which appears to us to be political theatre.^[iv] Carney also has the rather tricky distinction of being a prime minister whom the people haven’t elected—he is a technocrat without a seat in Parliament. And here, again, even his landslide victory that catapulted him into office came on the back of only 129,000 votes.^[v] In 2021’s election, 17 million Canadians voted out of more than 27 million eligible.^[vi] Will he seek to capitalise on the polls and call a contest now, in hopes of winning a mandate? Will his recent support translate on a much, much bigger stage? Or will he wait a bit, in hopes scoring some tariff or economic wins bolsters his position further?

None of this is a market function, so it is impossible to know, in our view. And regardless of when the election is, we know early polls are of little use. Even with the Conservatives’ 10-ish point lead over the Liberal Party, we can’t presume Carney will be seeking his next big post by autumn.^[vii] But we will gradually get clarity. And more importantly, we think Canadian stocks will get clarity on the next government’s makeup and the likely policies it will pursue, helping businesses plan. That generally encourages risk-taking and will likely be a modest tailwind as this year unfolds.

Portugal Gets a Snap Election. Again.

This week, Portugal marked one year since March 2024’s snap election, called after former Prime Minister António Costa’s ouster over corruption allegations. And Parliament celebrated by … ousting Prime Minister Luís Montenegro over corruption allegations. His centre-right minority government lost a confidence vote Tuesday, teeing up the country’s third election in three years.

It is also a snap election that none of the major players seem to want. The opposition Socialist Party leads slightly in polls, but voters appear about as enthused with the traditional centre-left and centre-right in Portugal as they are throughout the rest of Europe. In theory, this would present an opportunity for the right-leaning populist Chega party, but they are dealing with some criminal allegations of their own, including charges that one of their members of parliament stole luggage at Lisbon’s airport. Needless to say, voters don’t appear to be cherishing the opportunity to go to the polls once again, and most political observers we follow think whatever government emerges will be about as gridlocked as its predecessors.

In a vacuum, we would generally consider this a benefit Portuguese stocks. The country has relatively fast-growing gross domestic product (GDP, a government-produced measure of economic output), and reforms made during the eurozone crises improved its competitiveness greatly according to our research.^[viii] In our view, gridlock means governments haven’t been able to undo those reforms. They have made a couple tweaks at the margins, but we have found they mostly just pass budgets and squabble, letting businesses get on with things with reasonable confidence the rules won’t change. Yet Portuguese stocks are in a bear market and haven’t participated in Europe’s big 2025 rally.^[ix]

In our view, the real lesson here is about how markets work—namely, what drives returns in countries, like Portugal, with very narrow markets. The MSCI Portugal spans all of three sectors: Energy, Consumer Staples and Utilities.^[x] The latter is about 50% of market market capitalisation, and it—like many other European Utilities—has struggled alongside higher interest rates and cost pressures.^[xi] Energy firms have struggled globally amidst weak oil prices, which pressure earnings.^[xii] According to our research, when a country has a narrow market with such high stock concentrations, the macroeconomic and overall political environment tend to matter less to returns than company-specific issues. So Portugal doesn’t disprove our general view that gridlock is good for stocks, in our view. It is just a narrow market, and one so small it exerts basically no influence over broader European markets, based on our analysis.