Three Centuries of Canadian Leadership

Canada has an interesting stock market history because in addition to its stock exchanges in Montreal and Toronto, shares in Canadian companies also traded in London and New York. Canada was a British colony until 1867 when it gained its independence from the United Kingdom, and many Canadian securities were traded in London until World War I, though many of the securities listed in London were traded in Canadian Dollars, not British Pounds.

Trading in Montreal and Toronto

Brokers began trading shares at the Exchange Coffee House in Montreal in 1832 and the Montreal Stock Exchange was founded in 1874. The Toronto Stock Exchange was begun by the Association of Brokers in 1852, was formally founded in 1861 and incorporated in 1878. So, until the 1870s, Canada had no formal stock exchange. Until the 1930s, the Montreal Stock Exchange was the larger and more important of the two Canadian exchanges, but with the political problems of the 1960s and 1970s, including the adaptation of French as the official language in Quebec, more and more of the trading moved to Toronto. In the 1980s, Montreal became a derivative exchange and in 2008, the Montreal Exchange was formally acquired by the TSX Group. After World War I, Canadian companies listed on the New York Curb and shares in many of Canada’s largest companies were available on the Curb/American Stock Exchange. Until the 1930s, the Canadian Dollar and U.S. Dollar were linked at par to each other, but beginning in the 1930s, the currencies floated against one another and the prices in Montreal and Toronto differed from the prices in New York. Two Canadian companies, the Canadian Pacific Railroad and International Nickel were included in the Dow Jones Averages from the 1930s to the 1980s. There are many similarities and differences between Canadian stocks and U.S. Stocks. The market capitalization of the Canadian stock market has generally been about 10% of the size of the American Stock market. Canada has followed the American model more than the European model, and it avoided the military destruction of World War II and the wave of nationalizations that struck Europe after World War II. Canadian companies created to exploit the country’s mining and oil resources dominated the Canadian exchanges after World War II. Consequently, Canada’s market capitalization was the third largest in the world in 1950 after the U.S. and the U.K. The graph below shows how the distribution of sectors within the Canadian stock market changed over the past 200 years. As might be expected, banks have always played a prominent role in the economy. Canada has relied on a small number of national banks rather than thousands of state banks as in the United States. This is an important reason why Canada went through the 1930s without a single bank collapsing into bankruptcy while thousands of banks went under in the United States. Canada also has had a smaller number of companies dominating each sector and avoided the competitive battles that dominated industries in the United States. While American companies constantly sought growth through issuing new shares, acquiring other companies and growing through mergers and acquisitions, Canadian companies were more likely to rely upon reinvestment of capital than issuing new shares. In the graph below, the growth of transports in the1800s and its decline in the 1900s is visible, a pattern that occurred in all countries. The importance of energy and material stocks is the other defining feature of the stacked sector graph below. As in the United States, you can see the energy sector grow in the 1970s and 1980s when the price of oil went from $3 to $30, its demise in the 1990s and its resurgence after 2000 when the price of oil went exceeded $100. Material stocks grew in size in the 1930s after the price of gold and silver rose in price, then shrank back later.

Canada Market Capitalization by Sector 1828 to 2018.

But which companies represented these changes in Canadian stocks? The history of the largest companies in the Canadian stock market is provided below.

The Governor and Company of Adventurers of England Trading into Hudson Bay

This was the official title of the first joint-stock company that was established in Canadian territory. The company was established in London on May 2, 1670 to collect furs from Canada and sell them in Europe. The company issued 105 shares of stock at £100 in 1670 giving the company a market cap of £10,500 or about $50,000. A flurry of trading in the 1690s drove the price of shares up to 260, but shares declined back to par at 100 by 1700. Unfortunately, there is no data on the price of Hudson Bay shares in the 1700s. The company recapitalized in 1821 and expanded the number of outstanding shares to 4,000. Shares traded at 160 in 1823 giving the company a market cap of $80,000. The price gradually rose to 268 in 1842 and in 1863, the company reorganized with 100,000 shares outstanding. The Hudson Bay Company remained the largest company in Canada until 1850, by which time its market cap had increased to $1.27 million. Unfortunately, we lack price data for the Hudson Bay Co. in the 1850s and 1860s, and although we know that the Hudson Bay Co. was the largest company in Canada in 1863 and 1864, whether it was larger than any of the other companies in Canada in the 1850s is difficult to discern.  

Banks and Railroads

Until 1825, there weren’t any other stock companies that operated in Canada. Then in 1825, the Canada Company was established to encourage emigration to Canada. However, it was the banks and railroads which eventually became the largest companies in Canada over the next eighty years. Until the coming of the transcontinental Canadian Pacific Railroad in 1883, the title of largest company in Canada would switch from one company to another. The leaders included the Bank of British North America (1852, 1860, 1861) which was incorporated in London in 1836 and established branches throughout “British North America” as Canada was known before it became an independent country in 1867. The Bank of British North America merged into the Bank of Montreal in 1918. The Great Western Railway of Canada stretched from Buffalo to Detroit and moved up into northern Ontario. This railroad was the largest company in Canada from 1853 to 1858 and in 1862, 1865-1869, 1871, 1872, 1879 and 1880. The railway was taken over by the Grand Trunk Railway of Canada in 1882. The Grand Trunk Railway was the largest company in Canada in 1859, but its stock price declined in 1860 and it was never the largest corporation in Canada in any other year. The Grand Trunk provided a Canadian route from Boston and New York to Chicago and had its headquarters in Montreal. A northern route of the railroad went from Montreal to the shores of Michigan. The railroad crossed over into Michigan and continued to Chicago. The Grand Trunk was asked by the Canadian government to build a railroad that crossed the continent to British Columbia, but the railroad refused and the Canadian government established the Canadian Pacific in 1881 to create a Canadian transcontinental railroad. The largest bank in Canada in the 1800s was the Bank of Montreal which held the crown of largest corporation in Canada in 1870, 1873, 1878, 1881 and 1882. Once the Canadian Pacific was established, however, the bank lost control of the crown. The Bank of Montreal was established in 1817 making it Canada’s oldest bank. Today, it operates as BMO Financial Group and although it is not the largest bank in Canada today, it is one of the largest, and is listed in both Toronto and on the New York Stock Exchange.  

The Canadian Pacific

When the Grand Trunk Railway refused to build a transcontinental railway to link eastern Canada with British Columbia on the Pacific Coast (the United States had completed its transcontinental railroad in 1869 when the Central Pacific and Union Pacific linked up in Utah), the government of Canada established the Canadian Pacific in 1881 to join eastern and western Canada together. The Canadian government had promised to extend a railroad to British Columbia when the province joined Canada in 1871. The transcontinental railroad reached British Columbia in 1885. The Canadian Pacific was the largest corporation in Canada from 1883 to 1928 and was listed simultaneously in Toronto, Montreal, New York and London. The railroad become so prominent that the Canadian Pacific was part of the Dow Jones Transportation Average from 1933 until 1988. The railway reorganized itself in 1996 and in 2001 and the third incarnation of the company still trades today. The railway was instrumental in settling the great plains between eastern Canada and British Columbia and making Canada the country it is today.  

Oil and Nickel

Two companies dominated the Canadian stock market from the 1930s to the 1970s, Imperial Oil Ltd. and Inco., Ltd. (then known as International Nickel). Although Imperial Oil still trades in Canada and on the New York Stock Exchange, Inco, Ltd. was acquired by the Companhia Vale de Rio Dulce in 2007. The Imperial Oil Co., Ltd. incorporated in Canada in 1880 and is an integrated oil company that produces, refines, distributes and sells oil throughout Canada. Imperial Oil was the largest company in Canada in 1929, 1931-1934, 1948-1954, 1956-1958, 1971-1975 and in 1982. Other Oil companies that claimed the crown were TransCanada Corp. in 1975 and 1977 to 1979, Gulf Canada in 1980 and Texaco Canada in 1981. Oil was an important part of the Canadian economy during the 20th Century and will continue to be in the 21st Century. International Nickel has control over the largest nickel reserves in the world. The company changed its name to Inco Ltd. in 1976 and it was the largest company in Canada from 1935 to 1947, in 1955, from 1959 to 1970 and in 1976. Although International Nickel was a Canadian company, it was part of the Dow Jones Industrial Average from 1933 to 1987.  

Telephones and Banks

Resources and transports dominated the Canadian stock market throughout most of the 20th Century, but the telecommunications revolution that transformed the world at the end of the 1900s also impacted Canada. Two of its telephone companies, Bell Telephone of Canada and Nortel Networks claimed the title of the largest company in Canada in the 1980s and 1990s. Bell Telephone of Canada, later known as BCE, Inc. was the largest company from 1983 to 1991 and in 1993 while Nortel Networks was the largest company in 1992 and from 1996 to 2001. The only break in the rule of the telephone companies was in 1994 and 1995 when Seagram was the largest company in Canada. During the 21st Century, finance firms have taken the lead position in Canada. The Royal Bank of Canada was the largest company in Canada in 2002, 2003, 2005 and from 2014 to 2017. Toronto Dominion was the largest company between 2006 and 2013, and Manulife Financial was the largest company in 2004. The domination of the Canadian stock market by banks is likely to continue since in 2017, the top three positions were held by banks with the Bank of Nova Scotia coming in at number three.  

Into the Twenty-First Century

The sectors and companies that dominate the Canadian economy over the next twenty years are likely to come from the finance and resource sectors. Banks will remain strong while oil stocks are likely to challenge the banks whenever the next oil boom or financial decline occurs. However, historically, banks have been much more conservative in their lending and trading than their American brethren to the south. You do not have a history of banks collapsing as a result of overlending or overtrading as happened in the United States. If a bank weakens, it is absorbed by another bank. Resources and banking are likely to be the drivers of the Canadian stock market in the century to come.
Year Company Market Cap
1820 Hudson's Bay Company 0.8
1830 Hudson's Bay Company 1.37
1840 Hudson's Bay Company 1.68
1850 Hudson's Bay Company 1.27
1860 Bank of British North America 4.94
1870 Bank of Montreal 13.92
1880 Great Western Railway of Canada 21.91
1855 Great Western Railway of Canada 2.63
1890 Canadian Pacific Railway Ltd. 49.16
1900 Canadian Pacific Railway Ltd. 61.10
1910 Canadian Pacific Railway Ltd. 362.36
1920 Canadian Pacific Railway Ltd. 348.56
1930 Canadian Pacific Railway Ltd. 520.93
1940 International Nickel (Inco, Ltd.) 403.17
1950 International Nickel (Inco, Ltd.) 751.94
1960 International Nickel (Inco, Ltd.) 1712
1970 International Nickel (Inco, Ltd.) 3417
1980 Gulf Canada Ltd. (British American Oil) 5262
1990 BCE Inc. (Bell Telephone of Canada) 12073
2000 Nortel Networks Corp. 147300
2010 Toronto-Dominion Bank 129677
2017 Royal Bank of Canada 149717

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