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FT: Invest in Canada

Tuesday 8 March, 2011

The Financial Times hosted this event FT Global Investment Series:  Focus on Canada which shed a different light on America’s still largest trading partner.  After Bernard Simon’s (Canada correspondent for FT) opening remarks, Louis Lévesque introduced Canada’s unique opportunity:

  • stable banking system
  • economic growth
  • lowest cost of doing business
  • R&D
  • top export destination for 34 US states
  • bought 4X as much from the US as China
  • IL does $35B in trade with Canada
  • emerging markets are riskier than doing business in Canada
  • Research in Motion, the Blackberry company, is based in Waterloo, ON Canada.

Dennis Gartman, Editor and Publisher of  The Gartman Letter & former Chicago Board of Trade trader, extolled the virtues of investing in Canada, where his fund has its biggest holdings.  His general thrust was, Canada offers a lot of stuff, (such as lots of mineral resources & is the #1 supplier of crude oil to the US) but Canadians need to do a better job of selling them.  Canada has a highly educated productive workforce which consists of graduates of 13 quality universities.  Ports on the Atlantic & in Vancouver support exports.  Canada’s banks are more conservative, didn’t get caught up in real estate investments, & don’t have any “liars loans”, so their banking system is in better shape & are the best capitalized in the G8.  Canada’s political pendulum is swinging right as the comically leftward-leaning mayor of Toronto is out & the separatist movement in Quebec is non-existent.  As America “protected” its ports from foreign acquisition by companies from Dubai, the government in Saskatchewan protected their mines from foreign acquirers, perhaps stifling some investment as well.  Gartman then offered some suggestions to Canadians to help them market themselves better by playing to their strengths:

  • leverage the Canadian passport that is never disdained as the world’s friend
  • focus on mining
  • produce better quality food from agriculture
  • highlight technologies like RIM’s Blackberry
  • spotlight Canada’s educational/university system

Q&A

  • Premier Harper made a bad decision to tax income trusts
  • the volatility of the silver market is scary
  • the Canada-Europe Free Trade Agreement should be done soon
  • until unemployment reaches 8-8 1/2% in Canada, there is no reason to change interest rates-the Bank of Canada does not have the same mandate of other similar central banks which are tightening monetary policy, (except for China, India, & Indonesia)
  • Gartman does not recommend investing in China because he doesn’t trust their accounting

Panel discussion with Jason Gray(JG) of SunEdison Canada, Kevin Lynch (KL) of BMO Financial Group, Mark Mullins (MM) of Veras, Inc.

  • MM-with a balanced budget, no inflation, & low taxes, Canada is set to bloom
  • KL-Canada’s nice reputation is insufficient-it’s diversified well-managed financial system is a better brand as Canada now rates ahead of the US on many economic variables
  • JG-is pleased with their growth in Canada as Ontario is doing it
  • KL-Canada’s oil sands contribute to 5% of greenhouse gases, 1/60 of coal & is the most secure energy source
  • JG-Ontario has bold pockets of innovation in green energy while the US hasn’t grabbed hold

open Q&A

  • KL-generalizations about short-selling, pump & dump schemes, & Sarbox alternatives are dangerous.  Canada’s securities industry is viable & good.  MM-it’s well-regulated with a better division of power more closely aligned with the British system
  • KL-Canada is just as concerned about security in immigration as the US & there has been no change in policy.  Like the US, future population growth will come from immigration.  MM-Is Australia’s point system model better?  Canada seeks foreign students to become “ambassadors” for Canada.
  • MM-Although Canada’s manufacturing world share is declining, they’re not feeling that pain.  The relative strength of the loonie (C$) is sustainable as its relationship with relevant currencies like the OZ$ & Kiwi$ (Australian & New Zealand) currencies stays the same. KL-As long as demand in China & India for commodities remains strong, the loonie will remain strong, but Canada still needs to focus on innovation.  JG-the strong loonie does make it a struggle to export from Canada.  Northern Canadian tigers are taking advantage of the strong loonie in deals around the world.
  • JG-Ontario is investing in green energy, with the goal of getting off coal by 2014.  MM-Green energy is still relatively small, so there’s room for growth.  He wants less subsidies because you can’t base business models on subsidies.
  • KL-the US is Canada’s largest foreign direct investor while Canada is America’s #3 FDI contributor.  MM-the most Americans outside of America are in Calgary, Alberta, who have stayed, invested, & created a dynamic business culture.  JG-Canadian’s risk appetite differs.

Prof. of finance Raghuram Rajam, Univ. of Chicago Booth Business School didn’t talk about Canada much, other than to suggest Canadians focus on their strengths, openness & low taxes.   Just read his book Fault Lines:How Hidden Fractures Still Threaten the World Economy to get his take on the rest of the world today.

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