How to Play Canada's Economic and Resources Boom
Stock-Markets / Canadian Stock Market Nov 06, 2007 - 03:15 PM
Tony Sagami writes: My trip to Canada was fantastic! Sure, I took a wrong turn and temporarily found myself in British Columbia, but I came back from Alberta with a whole new view of Canada.
I knew Canada was very similar to the U.S. in some respects such as its market-oriented economic system and its living standards. But what became increasingly clear from my travels is that the country has transformed from a rural economy into one that is primarily industrial and urban.
Behind this change is impressive growth in the country's manufacturing, mining, and service sectors. And these are the very same sectors that are creating plenty of terrific investment opportunities.
More on how to invest in Canada in a moment. First, I want to tell you about another thing that I couldn't help but notice throughout my travels …
Canada's Dollar Tells You Just How Strong the Country Has Become
The Canadian dollar — also known as the loonie because of the bird pictured on the currency — has appreciated by almost 65% against the U.S. dollar over the last five years. In fact, it hit a new all-time high against the greenback during my trip.
Since then, it has surged even higher. Last Friday, for example, the loonie rose to another record high of 107.18 cents against the U.S. dollar. It's appreciated more than 25% against the greenback just this year!
This strength is great for Canadians. I talked to several shivering people who were planning vacations to sunny U.S. locations because it had become so affordable. And U.S. border towns are enjoying a steady stream of Canadians coming over to buy everything from clothes, auto parts, shoes, CDs, and electronics.
But the flipside is that the strength of the loonie hit me right in my pocketbook! Because of unfavorable exchange rates, I had to pay an extra 7% for my hotel room, meals, and gas!
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| Canadians are going "loonie" for relatively cheaper U.S. goods! |
By the way, the U.S. dollar isn't the only currency losing value against the Canadian dollar. The loonie has appreciated against the euro, the Japanese yen, the Brazilian real, and other currencies, too.
The reason for the loonie's strength is simple: The Canadian economy is very strong thanks to rising natural resource prices.
Heck, the Canadian jobless rate has dropped to a 33-year low … wages are rising … and Canada is now the only G7 country (United States, France, Canada, Italy, Japan and Germany) that is running a budget surplus.
I think Canada's economic roll can continue for decades because of the country's vast resources. I was up there to investigate tar sands, but there are plenty of other riches to be found. Here are just three of them:
- Coal: Canada holds close to 10 billion tons of coal reserves, which is more energy than all of our oil, natural gas, and oil sands combined!
- Timber: Canada has a lot of trees. In fact, the country is home to roughly 10% of the world's forests!
- Natural Gas: Canada had 57.9 trillion cubic feet of proven natural gas reserves, the second-largest reserves in the world!
Canada is also the U.S.'s largest foreign supplier of energy. It draws on everything from oil and gas to uranium to do so.
Now, I have to confess, even though I live in a state adjacent to Canada's border, I was woefully ignorant of its vibrant growth. But no longer …
My Trip Showed Me the Vast Potential of Canadian Investments
Let me start out by saying that I haven't abandoned my bullishness on Asia one bit. In fact, I see Canada as yet another way to play Asia's boom!
Reason: A lot of Canadian companies are doing big business with China.
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| China has become one of Canada's most important trading partners … |
China is now Canada's fourth-largest export market, with shipments to China tripling in just the last six years!
It shouldn't surprise you to hear that China is primarily buying natural resources, such as oil, metals, wood pulp, and fertilizer.
It is precisely these China-linked Canadian natural resource companies that I recommend you look at. I believe they will give you the best bang for your buck. And that's why I'm going to issue my #1 Canadian investment recommendation to my Asia Stock Alert subscribers this Friday!
The MSCI Canada iShares' Toronto Dominion Bank Manufacturers Life Suncor Energy Rogers Communications Royal Bank of Canada Encana Corp Bank of Montreal Research in Motion Canadian Natural Resources Canadian National |
However, if you're more of a fund-type of investor, you don't have to buy individual stocks. There are other ways to put a little Canada into your portfolio …
The MSCI Canada iShares (EWC) is one example. This exchange-traded fund broadly tracks the performance of the Canadian stock market, and it has a heavy weighting toward financial (31%) and natural resource (27%) stocks.
You can also look into a fund like Fidelity Canada (FICDX). It's been on quite a roll, returning 23% in 2004 … 27% in 2005 and 15% in 2006, and rising an impressive 32% so far this year. The fund does impose a 1.5% redemption fee on shares held less than 90 days so only longer-term investors should consider it.
Lastly, if you want a pure play on the rising loonie, there's always the Currency Shares Canadian Dollar Trust (FXC). This NYSE-listed Rydex fund is designed to track the price of the Canadian dollar.
I don't know when I'll make it back to Canada next, but I know it won't be soon enough. After all, there are big, big bucks to be made by investing in our northern neighbors.
Best wishes,
Tony
P.S. If you want to get that Canadian recommendation the minute I send it out, I urge you to subscribe to Asia Stock Alert today!
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