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Canada sends 75% of its exports to the US

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Toronto market's materials sector up nearly 15% this year

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Canadian dollar has been hit hard by trade uncertainty

By Fergal Smith

TORONTO, Feb 13 (Reuters) - As the threat of a trade war

grows, Canadian investors are seeking protection in gold and in

shares of companies producing goods with few substitutes, such

as uranium, while looking to take advantage of a weaker loonie

and expected volatility.

U.S. President Donald Trump has threatened to implement a

25% tariff on most Canadian imports in March, with steel and

aluminum facing even stiffer levies after new orders signed by

the president on Monday.

Canada sends 75% of its exports to the United States and

tariffs are a major risk to the Canadian economy.

Financial, telecom, real estate, energy and materials shares

account for roughly two-thirds of Canada's main stock market

index, the S&P/TSX Composite, and those sectors would

likely escape the direct impact of tariffs or benefit from

carve-outs.

But analysts say there could be an indirect hit to earnings

if the Canadian economy slips into recession.

Shares of trade-sensitive companies have already fared badly

since Trump was elected on Nov. 5, with planemaker Bombardier

Inc ( BDRPF ) down about 19% along with declines for auto parts,

steel, lumber and dairy product stocks.

"All this uncertainty around trade and geopolitical tensions

has definitely gotten gold back on the front burner," said Greg

Taylor, a portfolio manager at Purpose Investments.

"Across our multi-asset funds we have been adding gold in

the real asset sleeve as an area to try and offer some

protection but also some absolute return," Taylor said.

The Toronto market's materials sector, which

includes metal mining shares, is up nearly 15% this year,

including a gain of 26.5% for the shares of heavily weighted

Agnico Eagle Mines Ltd ( AEM ), as safe-haven demand helped

drive the price of gold to a record high.

Together with strong gains for technology shares, stocks

linked to metals have helped keep the TSX within reach of the

record high it posted in January despite the tariff threats.

"Tariffs are going to hurt all parties quite a bit but if

you're going to spare some industries, you probably spare

industries that you don't have a substitute for and are

currently reliant on," said Ben Jang, a portfolio manager at

Nicola Wealth, noting U.S. dependence on Canadian oil, critical

minerals and uranium.

Major producers of uranium include TSX-listed Cameco Corp ( CCJ )

, shares of which Nicola Wealth owns. Cameco ( CCJ ) has pulled

back from an all-time high in December but has still managed to

advance roughly 46% since early September.

"The U.S has a concern over energy security and has talked

about a focus on energy independence. In our view, nuclear power

is part of that solution," Jang said.

The Canadian dollar has been hit hard by trade uncertainty,

touching a 22-year low last week of 1.4793 per U.S. dollar, or

67.60 U.S. cents.

"We had a modest TSX allocation going into this and are now

looking to increase our exposure to oil & gas and materials,"

said Victor Kuntzevitsky, a portfolio manager at Stonehaven

Private Counsel, part of Wellington-Altus Private Counsel.

"Many oil and gas and materials firms generate revenue in

USD while incurring costs in CAD, creating an inherent currency

advantage," Kuntzevitsky said.

The Bank of Canada's interest-rate cutting campaign has also

weighed on the loonie but could help support the economy.

Government spending on impacted sectors could also lend support,

analysts say.

"There's a lot of talk around this (trade war) and it's

creating some volatility, which is probably going to create some

opportunity at the end of the day," Taylor said.