IG Wealth Management, one of Canada’s biggest asset managers, is cooling on the US stock market while boosting its position on its home country as valuations sink to some of their lowest levels on record.

The Toronto-based asset manager, which oversees $111.1 billion (US$85 billion), upgraded its position on Canadian equities to slight overweight from neutral while lowering the US market to slight underweight from neutral. The move comes as some of Canada’s largest funds adjust their outlooks with markets whipsawing on rising fears of a recession.

“When you look at the Canadian market relative to the US, it’s nowhere near as expensive, and it’s substantially cheaper relative to its own history,” IG Wealth Management’s Chief Investment Strategist Philip Petursson said. “The Canadian market is already priced for the worst case scenario, whereas the US isn’t. But this also comes back to the earnings versus valuations versus how deep a recession could go.”

Shares on the S&P TSX Composite Index are trading at a price-earnings ratio of 12 times, one of their lowest levels historically, while the S&P 500 is trading at 18 times even amid the selloff over the past week, according to data compiled by Bloomberg.

Investment managers are searching for clues to make sense of the volatile markets. While Canada’s benchmark S&P/TSX Composite index has outperformed the S&P 500 this year, the US market narrowed the gap on better-than-expected earnings. Meanwhile, foreign investors are dumping Canadian stocks at the fastest pace since 2007.

Petursson expects Canada to outperform the US for the first time since 2016 as tight oil supply should keep prices elevated, boosting the country’s resource-heavy gauge. He also expects financials, which make up 32 per cent  of the S&P/TSX, to weather an economic downturn with strong loan loss provisions even as the cooling housing market takes a chunk out of mortgage lending. Some of Canada’s biggest banks report quarterly results this week. 

In early August, Toronto’s Mackenzie Investments, which is owned by the same parent company as IG Wealth Management, lowered its position on Canadian equities to neutral from overweight last week, citing concerns that efforts by policy makers around the world to stave off rising prices will drag down economic output.