Canada: There's no place like home

Scotia Capital has published a research report discussing "reasons to own" Canada. Canadians have never really had to think about this one. Now Canadians should prepare for the onslaught of capital that will come from global investors who agree, by positioning ahead of it. Let the record show that PetroChina's largest North American investment to date, made in Canada just a few weeks ago, is early evidence of this.

When RSP (for non-Canadians, the near-cousin of the 401K) rules mandated it, we invested at home, now and then discovering ways to circumvent the rules with a clone fund or some other RSP strategy. We didn't like having Canada rammed down our throats, so we, and this country's best domestic equity fund managers, became really good at stockpicking in Canada.

When the RSP rules were loosened so that there were no longer restrictions, it came at a time when we were complacent, enjoying the benefits derived from investing in Income Trusts and the boom that ensued, and we didn't care about the repealed mandate. Then one Halloween, the axe fell, when Jim Flaherty killed income trusts, and gave us reasons to look at the global alternatives.

Finally, Canada, has universal appeal. Canada really may finally be the best, safest place in the world, for us to invest.

A strong, and perhaps the healthiest, banking system in the world, a massive natural resources and commodities-based economy, and a sound fiscal disposition, irrespective of the US- and UK-centric credit  and economic crisis.

“Canada's main attributes are emerging market exposure with lower volatility, cheaper valuations relative to MSCI World, stronger domestic fundamentals, Canadian dollar strength relative to the U.S. dollar and British pound, proximity to the U.S. economy and above average market capitalization in financials, materials, technology and Industrials,” portfolio strategist Vincent Delisle wrote.

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Mr. Delisle said the country’s “superior” risk-reward profile makes it a compelling destination for investors. In the last 10 years, the compounded annual growth rate for Canadian stocks outpaced the MSCI world index by 8.5 per cent.

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“Hence, Canada offers the stability of a developed economy with an exposure to growth in developing nations through its commodity sensitivity,” he wrote. “Admittedly, Canada's marginal size doesn't initially attract attention and puts it alongside other mid-tier specialized markets such as Australia, Sweden or Norway.”

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“In our opinion, Canadian assets (bonds and equities) punch well above their weight and, as we believe Canadian equities remain underweight in global portfolios, global investors should heighten their focus north of the U.S. border,” he said. “We would also point out that Canadian domestic investors should temper their international endeavours and stick to a higher domestic bias in their portfolios.”

Also, Macleans Magazine features “Our Big Chance,” an excellent article about our chance as a country to shine, to pull away from the rest of the western world. We have what the fastest growing countries of the world need. In fact, for this last reason, we do, perhaps, need to realize as a nation of investors, that we need to protect our greatest assets by funding them and owning them ourselves. I’m not suggesting for one second that we adopt a protectionist stance, but lets stop giving away our best businesses and resources to dragons in return for funding, and start supporting and sponsoring them ourselves. Let’s lead, not follow, foreigners into our markets.

Our big chance, Macleans Magazine, August 27, 2009

For Canada, a country that has spent the better part of 20 years nervously wringing its hands over its perceived inadequacies, the dramatic reversal over the past year has been striking. Our banks were once seen as lacking innovation; now world leaders hail the boring Big Five as being among some of the safest and most profitable banks in the world. We fretted that our economy was overly reliant on commodities; now our rocks, oil and gas are seen as a natural hedge against havoc in the manufacturing sector. We worried that Canada’s strict mortgage rules were a drag on our housing market; now we can brag that we don’t put people into homes they can’t afford. Almost any way you look at it, Canada is uniquely positioned. So as other developed nations struggle, the question is: will we squander this once-in-a-generation opportunity or take advantage of our good fortune to punch above our weight?”

H/T: G&M Market Blog, , Steve Ladurantaye, September 8, 2009

Reasons to Own Canada, PDF, Scotia Capital, September 9, 2009