Canada stands at a critical crossroads as we turn the page on 2025 since it faces a collision of fiscal stress, legal uncertainty,

trade

frictions and a rapidly cooling

housing market

.

We worry that way too much confidence is being placed in the current leadership, which may lack the bench strength to steer clear of these risks. Challenges in

British Columbia

,

Alberta

and

Ontario

are already influencing capital flows and regional economies, with spillover effects that could threaten national stability.

For now, foreign investors remain calm — Canadian

government bonds

and the

loonie

have held steady — but that confidence could evaporate quickly if the ship isn’t righted soon.

Here are three risks investors should be aware of and what they mean when positioning their

portfolios

.

Economic fallout from B.C.’s legal shift

B.C. is facing one of the toughest mixes of legal, regulatory and fiscal risks in a situation entirely of its own making by becoming the only jurisdiction globally to fully integrate the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP) into its laws.

Through the Declaration on the Rights of Indigenous Peoples Act (DRIPA) in 2019 and a 2021 amendment to the Interpretation Act, every B.C. provincial law must now align with UNDRIP. For example, the B.C. Court of Appeal in December struck down the province’s mineral claim system for failing to meet UNDRIP’s consultation and consent requirements.

Premier

David Eby

has signalled that DRIPA may need amendment, expressing concern that recent court rulings could shift too much authority in determining which provincial laws remain in force to the judiciary.

UNDRIP doesn’t technically grant First Nations an outright veto, but the practical effect is that

projects affecting Indigenous lands or rights require free, prior and informed consent, giving them significant leverage over timelines and feasibility. Industry groups warn this is already chilling investment, with billions of dollars in mining and forestry projects at risk of moving to less restrictive jurisdictions.

Concerns now extend beyond resources, with Indigenous claims filed on parts of Richmond, Kamloops and even Sun Peaks Resort, raising questions about private property rights and real estate security.

Werner Stump, president of the B.C. Cattlemen’s Association, warned the ruling could make B.C. “

non-governable

” since decisions would require cooperation with more than 200 First Nations governments. First Nations leaders counter that amending DRIPA would harm reconciliation and urge companies to engage early and often under the new framework.

The bottom line is that unless clarity is restored, B.C. faces a chilling effect on investment, a hit to housing confidence and a major drag on economic growth.

Political tail risk of Alberta’s autonomy push

The “Alberta Next” initiative has accelerated a series of autonomy measures, including a possible 2026 referendum on creating an

Alberta Pension Plan

(APP) and exiting the

Canada Pension Plan

(CPP).

Government communications suggest the ballot could also include policing, immigration and other sovereignty questions. Meanwhile, Elections Alberta recently approved a citizen-led petition for a separation referendum, which requires 178,000 signatures within four months to trigger a vote.

It’s a low-probability tail-risk event, but a province-wide independence “yes” vote would be a national unity shock. Premier

Danielle Smith

continues to emphasize a “sovereign Alberta within a united Canada,” but campaign dynamics are fluid and support can quickly shift.

The fiscal argument driving this debate is powerful: Alberta’s net contribution to Ottawa was about $14.2 billion in 2022, and Albertans paid $244.6 billion more to Ottawa than they received between 2007 and 2022, according to the Fraser Institute. That trend shows no sign of reversing.

These figures are striking when translated into household terms, amounting to as much as $11,600 for a family of four per year and up to $900 per adult in annual APP savings from a contribution reduction.

We worry about the level of frustration when Albertans realize pipelines remain gridlocked by legal and permitting hurdles across provincial and Indigenous jurisdictions despite the recently drafted memorandum of understanding.

The broader risk? If Alberta moves toward autonomy or separation, it would severely damage Canada’s currency and debt rating given the province’s economic weight. It could also lead to a Parti Québécois win in the next election and embolden the province to trigger a constitutional crisis, greatly unsettling investor confidence.

Ontario’s tariff exposure and strained housing market

Ontario’s economy has a heavy dual reliance on cross-border trade with the United States and residential real estate activity, both now under severe strain from escalating

U.S. tariffs

and a sharply cooling housing cycle.

Key export sectors such as automotive, steel and softwood lumber have been massively disrupted, raising input costs, squeezing manufacturer margins, triggering paused investments and contributing to projected job losses up to hundreds of thousands while potentially slowing provincial GDP growth to as low as 0.6 per cent.

Meanwhile, the housing market, long a pillar propping up construction, related industries and speculative wealth, has dramatically cooled. There have been large price declines, delayed or cancelled projects, plunging housing starts, record unsold inventory, sharp drops in presales and launches and municipalities missing provincial housing targets by wide margins due to weak investor demand and high costs.

To stabilize mortgage funding amid this fragility, the federal government has annually purchased up to $30 billion in Canada mortgage bonds since 2024, holding nearly half of total issuance by late 2025, underscoring the systemic risks as trade shocks and housing weakness threaten broader manufacturing, construction and the economic outlook.

How to position your portfolio

In fixed income, we are staying away from Government of Canada bonds until markets begin to price in all these risks. Current complacency could quickly reverse, with credit spreads sharply widening if trade tensions escalate, housing weakness deepens, sovereignty issues worsen or fiscal pressures mount.

U.S. Treasuries offer superior returns today, alongside capital appreciation on further U.S. Federal Reserve rate cuts and natural hedging against Canadian dollar weakness.

At similar durations, relative value clearly favours U.S. Treasuries over Canadian sovereigns. For those prioritizing capital preservation, we continue to favour high-quality structured notes featuring robust downside protection (deep barriers and guaranteed principal), which we can also own in U.S. dollars if needed.

On the equity side, we recommend heightened caution toward tariff-exposed manufacturing sectors, especially Ontario-centric automotive and steel, as well as housing-related exposures across both public markets and private investments until clearer signals emerge on U.S.-Canada trade negotiations and there are signs of a meaningful recovery in the Canadian economy and housing market.

We’ve also begun reducing exposure to Canadian banks, locking in strong 2025 gains, given their heavy housing exposure and rising credit risk.

In short, resilience should guide investors’ portfolio strategy until Canada demonstrates credible and effective leadership to provide a roadmap to economic stability and national unity in these uncertain and troubling times.

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Martin Pelletier, CFA, is a senior portfolio manager at Wellington-Altus Private Counsel Inc., operating as TriVest Wealth Counsel, a private client and institutional investment firm specializing in discretionary risk-managed portfolios, investment audit/oversight and advanced tax, estate and wealth planning. The opinions expressed are not necessarily those of Wellington-Altus.

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