Why Canada will rule the 21st century
The Canadian economy has proven that it can withstand a volatile market and still come out strong.
Like many of you I get a little extra patriotic around Canada Day. Don't ask me why, but while enjoying the holiday I started thinking about something former Prime Minister Pierre Trudeau said years ago: The twentieth century belonged to the United States while the twenty-first century would belong to Canada. Now, into the second decade of this century, it appears that his forecast could be coming true.
Look at the evidence:
The recently concluded G20 summit gave Canada as the host a platform to be proud of. To begin with, Canada got most of what it had asked for going in — a fact Prime Minister Stephen Harper was quick to take credit for. This includes a pledge by member countries to halve their deficits by 2013 and stabilize debt burdens by 2016. Of course, Canada will be doing this well ahead of schedule — probably as early as next year.
According to the Prime Minister, Canada's fiscal and banking situation are "totally different" (i.e.: much better) than that of other developed economies. Many economists would agree. Canada's finances are in much better shape than other wealthy countries, giving us greater weight in international deliberations on financial regulation and debt handling.
Canada's banks escaped the financial crisis relatively unscathed. Our banks didn't need to be bailed out. Our closely regulated financial system was able to better withstand the torments of the global economic recession of 2008 and early 2009. In fact, the World Economic Forum continues to say Canada has the world's soundest banking system and placed Canada among the Top 10 countries on the Global Competitiveness Index for 2009-2010. Why?
Canada benefits from excellent transport and telephony infrastructure, highly efficient markets, particularly laboor and financial markets, and well-functioning and transparent institutions. In addition, the country has been successful in nurturing its human resources: It is ranked seventh in the world for health and primary education and ninth for higher education and training. This has paved the way for the country's workforce to adopt the latest technologies for productivity enhancements. Canada ranks No. 4 on financial market sophistication and is in the top five in strength of investor protection.
The real estate sector has largely skirted the problems experienced south of the border. The long-term story of growing demand for Canada's vast natural resources remains intact. Fast growing nations such as China need everything from our agricultural products to fertilizers, copper and crude oil from our oil sands. With roughly 43 per cent and 55 per cent of the world's respective energy and materials stocks found on the S&P/TSX, the index is generally regarded as the energy and mining capital of the world.
Let us not forget about our world class, free access to Medicare. Our healthcare system alleviates a major burden from companies operating in Canada, as they do not have to spend massive sums on employee health care benefits. This releases funds to be allocated to other areas of their business.
Over the past decade, the S&P TSX Composite Index has been one of the best performing in developed world markets and, measured in Canadian dollars, has outperformed stock benchmarks in the U.S., Europe, Japan, as well as the MSCI World Index. Over the past 25 years, the S&P TSX Composite Index has earned an average annual total return of 8.7 per cent. Currently it trades at 14 times the 12-month-forward earnings with a dividend yield of 2.5 per cent. The earnings yield of 6.9 per cent provides an attractive spread of 3.5 per cent over 10-year Government of Canada bonds. That being said, foreign investors have been quick to recognize the attractiveness of Canada. The year 2009 saw unprecedented foreign acquisitions of Canadian bonds and stocks to the tune of $109.4 billion.
So besides feeling incredibly proud to be Canadian on our nation's 143rd birthday, we should also take advantage of the investment potential that it offers for us. It's a beautiful country, with wonderful people, and an investment climate that can help provide all its citizens with a brighter future. Oh Canada indeed!
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