March 29, 2012 | In: Opinion

Is the Canadian Stock Market the Best?

The Canadian Stock Market had indeed caught the attention of the investors since 2008, being supported by an economy that was resilient to the economical downturn that started then. In fact, here are some facts about the Canadian economy:

  • Most of the jobs that were lost during the brief recession were in the automotive industry. Most of these lost jobs returned.
  • Home prices were affected in 2009, but only in the West – only to regain their previous strength back in 2010. Home prices in Atlantic Canada, Central Canada, and the Prairies kept rising throughout 2011. Now they have somehow stabilized.
  • Bank of Canada rates were kept low for the sole reason to ensure that the Canadian loonie remains at par with the US$. In fact, if the Bank of Canada increases the rate to stem the economy a bit, then the economy would fall back into recession again because Canada will no longer be able to export its products and can no longer provide services at a reasonable rates to its US neighbor because of the high loonie (by the way, Canada is the US largest trading partner, and the trade balance between the US and Canada is acceptable and fair, unlike the one between the US and China, which highly favors the latter).
  • The Canadian economy is subsidized either directly or indirectly by both the Canadian and the Provincial governments. Large Canadian companies are highly protected by the government and they are never allowed to default.
  • Canada has a very diverse economy that is balanced between services and commodities/resources. (so if one is affected, the other is there to make up for the loss)
  • Canada is one of those rare countries with a sustainable trade surplus. Canada’s expected trade surplus for 2012 is about $8 billion – $10 billion.

Now, since the Canadian stock market is directly associated with the Canadian economy, it is easy to deduce that the Canadian Stock Market is healthy, but the question is, is it the best?

Let’s see briefly discuss the most important stock markets today to answer the above question:

  • The US Stock Market: Currently recovering, but it is still very, very volatile due to the constant influx of good/bad news every single day. (Consumer confidence is good, oh no, scratch that, new house sales drop, oh no, scratch that, exports increase by 1%). If you’re into VIX, then the US stock market is the best in this day and age.
  • European markets: The worst at the moment. European markets are directly affected by what’s happening in Europe, especially the dilemma concerning the PIIGS countries, which, for the records, is still in its beginnings. Even the German market is not good to invest in because Germany will most likely end up paying the bill for all the PIIGS countries, as well as helping the rest of Europe (including its beloved France).
  • Chinese market: Has lost its momentum end of last year. No longer exciting and the economy is definitely cooling in China. China, by the way, may bring the rest of the world into recession (with the exception of the US and Canada) if it does go into recession – and many analysts are predicting that this will happen. China has grown into a superpower because of its cheap prices/labor, but now that its GDP per capita is $8,400 – China can hardly be considered as cheap. If the trend continues, then China will not be able to sustain its foreign investments that were lured by cheap labor. Most likely there will be a shift towards countries that are cheaper such as the Philippines, other Asian countries, and West African countries (where China is becoming increasingly dominant).
  • Hong Kong market: Strongly tied to China and its economy. If China does well, this market will do well. Judging from the state of things, this market will not do very well in the medium to long future.
  • Japanese market: Many Japanese companies, including Sony, Sharp, and the likes are losing tons of money every year. I hardly think of such a market as inviting. Additionally, Japan has many, many financial and demographic issues (including an increasingly aging population). Japan’s economy can only get worse. I feel sorry for Japan because I always used to love Japanese products. In fact, the laptop I’m writing this article on is a Sony Vaio laptop that is made in Japan.
  • Asian markets (with the exception of the Chinese, the Japanese, and Hong Kong markets, which are discussed above): Flourishing at the moment but lack some transparency. Might be a good place to put your money in. Asian companies, especially Malaysian and Indonesian are benefiting from a boom that was previously experienced by China and India.
  • Australian market: Has remarkable ties to China, but is also interconnected with emerging economies in South-East Asia. Has some potential, but Australia’s economy is characterized by a lack of dynamism. Maybe it’s the nice weather all year around.
  • Russian market: Very risky and certainly not the most transparent market on this planet. Additionally, by putting your money in Russian markets, you will be raising more than a few eyebrows, especially when it comes to the IRS and the FBI. I would avoid it.
  • Indian market: Not that bad but not that good either. Completely unexciting and heavily attached to the US market. India is currently losing the “call center of the world” position (which means direct loss of a lot income) to the Philippines, a country qualified by a population that is fluent in English. (The Philippines was occupied by the US for about 50 years, from 1898 until 1946, and its population was very quick at learning the American English – in fact, if you happen to reach a call center in the Philippines you won’t even know it as the person on the other line, who is potentially 10,000 miles away, has almost no accent.)
  • Middle Eastern markets: Small markets but can be lucrative. Hard to invest in as most streamline brokers do not provide their investors tools to invest in these markets. Volatility is high at the moment and there’s always a risk of losing nearly all your money in these markets because of the lack of transparency (this actually happened in the Saudi market back in 2006-2007). Immensely dependent on oil. If oil goes down sharply then all listed companies in these markets go down, and vice versa. Watch out!
  • Latin American markets: Very risky markets and lack transparency. Most Latin American markets are overvalued due to the huge hype they have. One word: Argentina.
  • Canadian market: Supported by one of the largest and the best economies in the world – as well as the soundest financial system on this planet. Has huge exposure to the US market and benefits from the increasing demand on its securities primarily from US investors, and then Russian and Chinese investors. Canada has acted as a role model to other countries (especially failed countries – for example Iceland is debating whether to adopt the loonie as its national currency) during the latest financial crisis by gracefully weathering its effects despite the strong US-Canadian ties. Some caveats: 1) An aging population, 2) Many benefits (including free healthcare, subsidized education, and a lot of other perks), and 3) many pet/useless projects.

So, is the Canadian stock market the best? Definitely! There are other markets that are also good (as you can see from the above), but none of these markets offer the balance of transparency, fluidity, and stability that the Canadian market offers. What are you waiting for? Buy some shares in Canadian companies, just avoid putting any money in RIM until it revamps itself (which may or may not happen).

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2 Responses to Is the Canadian Stock Market the Best?



May 5th, 2012 at 1:37 am

Your analysis is extremely flawed. The canadian stock market remains extremely overvalued. Here is why

TSX 60 is trading at 150% of Canadas GDP. Historically it traded around 50%.

Dividend yield is VERY low, under 2%.
Book value is dangerously high at 3x
Huge exposure to a slowdown in China through commodities.
Huge exposure to a indebted Canadian household and canadian real estate crash 40% Financials

If the Canadian stock market was such a darling, explain to me why is the TSX trading 15% lower from a year ago and at the same levels as 2006? That is 6 years of going no where. This market is ripe for a substantial decline.


Fadi El-Eter

May 9th, 2012 at 2:43 pm

Hi Jimmy,

Your points are well taken.

Overvaluation is everywhere. I didn’t say that the Canadian Stock Market is perfect or ideal, I just said that it currently is the best – take a look at the rest of the markets. There is a huge interest by foreign investors in the Canadian market, and I don’t see that demand dwindling anytime soon.

The Canadian economy is well controlled by both the Federal government and the Bank of Canada, something I cannot say about the rest of the world. The Canadian economy is also well supported by its vast natural resources. Worse comes to worse, Canada can capitalize on these resources to bail itself out, unlike some countries who will most likely be forced to sell some islands or some monuments. I wonder how much the Acropolis is worth these days.

Please note that in a year from now the Canadian market may not be the best market, but at the current time it is. If you think of a better market, then please list it here.

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