Canada apple of investors' eyes

Nicolas Van Praet, Financial Post • Friday, Jan. 14, 2011

While the European nation is a financial basket case that needs an estimated 20-billion ($26.42-billion) to stay afloat this year, Canada is in many ways the object of the world's desire, the popular girl with attractive assets and prudent fiscal policy everyone wants to dance with.
Barely two weeks into 2011, our frosty country has been swept up in a wave of mergers, foreign investment and international attention as the prices of commodities soar, the loonie jumps above US$1 and the economic recovery gathers steam.

Big money is moving to park in Canada. And not for the short term.

U.S. retail giant Target's announcement Thursday it will pay Hudson's Bay Co. $1.8-billion for leases so it can set up its first Canadian stores is the latest in a string of developments that has put Canada in the sights of global investors.

American mining giant Cliffs Natural Resources Inc. wants a $4.9-billion piece of Quebec's iron ore. China's $300-billion sovereign wealth fund wants to expand its Canadian holdings with a permanent presence in Toronto. U.S. bond behemoth PIMCO is expanding its reach with new funds for Canadian retail investors.

Foreign investors snapped up $97.8-billion worth of Canadian securities from January to October last year, according to the latest statistics available. That's up 10% from the previous year. Provincial government bonds are selling at record pace.

It all may be happening a bit fast, but it shouldn't be surprising.

Canada is the only one of the Group of Seven industrialized countries to have clawed back all its lost jobs and output from the recession, distinguishing it from the likes of France, the United States and Japan.
That means it has less bad baggage dragging behind it than many of its peers.

But investor interest is also being fuelled by the country's commodity exposure. We produce a lot of oil, metals and agricultural products -- things that nations like China need to fuel their economies.

Commodities have been on fire since the start of December and by some measures going all the way back to last summer, said Douglas Porter, deputy chief economist with Bank of Montreal. And while resource assets like Potash Corp. of Saskatchewan Inc. may be off-limits, the recent investment influx shows the federal government's decision to block the Potash sale to BHP Billiton Ltd. hasn't scared off foreign investors.

"What we've seen this week is pretty clear evidence that the [Potash decision] didn't completely alter the landscape," Mr. Porter said. "The government's resolve on this front will be tested again, possibly within the next 12 months."

Another element is the Canadian consumer.
Canadians never pulled back on their spending anywhere close to the level Americans did during the recession. And even now that they're burdened with record household debt, which has risen by $95-billion, or 6.7%, in the past year, they will still spend more this year, Mr. Porter contends. That's because employment is rising, borrowing costs remain low and household net wealth has rebounded.

More money coming in typically means more domestic jobs.
And the value of Canadian companies trading on the Toronto Stock Exchange increases. We have just come off the seventh year in a row in which the TSX has outperformed the S&P 500.

How long Canada's newfound glow will last depends on much more than than federal budget balancing or the price of vegetable oil seeds on spot markets. It also hinges on external events.

The world needs investment safe havens and Canada is one of them at the moment.

http://www.financialpost.com/news/Canada+apple+investors+eyes/4106810/story.html#ixzz1CQilMffk