Canada's Big Six Banks Hit Two-Decade High Valuations
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- Big Six Canadian banks trade at a forward price-to-earnings ratio of roughly 16.5, well above the two-decade average of about 11, with even Bank of Nova Scotia — the cheapest of the group — considered pricey by historical standards.
- Canada's banking oligopoly has kept churning out profits quarter after quarter despite an onslaught of fintech competition and a sluggish economy hit by tariff uncertainty.
- S&P/TSX banking index has climbed 64% over the past year on a currency-adjusted basis, roughly three times the pace of the Roundhill Magnificent Seven ETF tracking U.S. tech giants.
- The Big Six account for nearly one-quarter of the S&P/TSX Composite Index's value, making the extended rally a major driver of returns for heavily bank-weighted Canadian investors.
- A recent survey of global fund managers by Scotiabank strategist Hugo Ste-Marie found investors split: 42% had trimmed Canadian bank exposure while 58% were holding for further gains.
- Short interest on the Big Six is at its lowest level in years, exactly a decade after the 2016 peak of the 'short Canada' housing-crash trade — when the S&P/TSX banking index instead closed the year up 26% and left bearish bettors with heavy losses.
Why it matters: With the Big Six making up roughly a quarter of the S&P/TSX Composite, the roughly 50% P/E premium over the two-decade norm sits squarely on the balance sheets of domestic retirement portfolios, and the 2016 precedent — a 26% annual gain that vaporized the 'short Canada' trade — has kept skeptics sidelined despite record valuations.
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