Canada's growing popularity with foreign investors has "staying
power": CIBC World Markets Inc.
Strategic advantages over many advanced economies increasingly well
recognized
TORONTO, July 14 /CNW/ - Canada's outperformance versus many advanced
economies is creating "staying power" for the country's growing
popularity with foreign investors, notes a new report from CIBC World
Markets Inc.
"Canada is increasingly on the lips and minds of international
investors," says Warren Lovely, government strategist with CIBC's Macro
Strategy group, fresh back from meetings with investors across the U.S.
and Asia. "Those we've talked to are getting religion on Canada's
potential outperformance versus a growing list of advanced economies.
Indeed, it's hard to recall a time when the country possessed such
relative, if not absolute, strength."
In CIBC's latest Global Positioning Strategy report, Mr. Lovely
identifies a growing list of "strategic advantages" that are boosting
interest in Canada and its weighting in global investment portfolios.
Central to Canada's strong story is its fiscal advantage, says Mr.
Lovely. He points first to Canada's much smaller need for fiscal
adjustments to stabilize debt ratios. "Canada's provinces are not
feeling the same heat as some U.S. states, are less prone to severe
program cuts or increased revenue measures, and are therefore putting
their regional economies at less risk."
In addition, the revenue picture for Canada's federal and provincial
governments is also "brightening materially" with $15 billion in extra
revenue projected for the year.
Mr. Lovely says the fiscal improvement will serve to reduce borrowing
requirements and protect federal and provincial credit ratings. It also
means less bond issuance from Ottawa which will "leave plenty of room in
the long end for provincial and corporate issuers."
Other distinguishing advantages for Canada noted in the report include
the following:
- Years of fiscal outperformance and surpluses in Canada have created
budgetary room to slash corporate taxes. This result combined with
important tax reforms have given Canada a growing advantage over
competing tax jurisdictions.
- Canada has emerged as a growth leader in the developed world, with
the IMF the latest forecaster to see the country leading the G7 in
terms of average real GDP growth during 2010-11. While Canada's
growth rate is only modestly above that of the U.S., its indicators
of domestic economic health, such as employment, are substantially
brighter.
- Canada has a well-capitalized banking sector with a less dramatic
adjustment to regulation in store.
- Canadian exporters have limited direct exposure to slow-growing
Europe and at the same time have had success in increasing exports to
the faster-growing BRIC region.
- Healthy international and interprovincial migration, particularly in
western Canada has created less onerous demographic pressures which
in turn support a faster potential economic growth rate.
But Mr. Lovely also sees some challenges to Canada's continuing
outperformance. He notes that three quarters of Canada's exports go
south of the border, meaning a "U.S. slowdown will leave its mark on
Canada."
"Canadian and U.S. real GDP growth has never been more tightly
correlated than during the past five years. So the end of an American
inventory rebuilding process will sap demand for Canadian wares," adds
Mr. Lovely.
Other risks to Canada's economic prospects include the impact of a
continuing strong Canadian dollar on manufacturing, an overheated
housing market and highly indebted household sector.
"Notwithstanding these challenges, Canadian governments are courting
international investors from a position of strength, hardly beholden to
foreign capital, but happy to take full advantage of a healthy appetite
for Canadian fixed income product," says Mr. Lovely. "The message is
getting through, and there's every reason to believe that today's strong
foreign investor interest in Canada will have staying power."
The complete CIBC World Markets report is available at:
http://research.cibcwm.com/economic_public/download/gps_jul10.pdf
CIBC World Markets Inc. is the corporate and investment banking arm of
CIBC. To deliver on our mandate as a premier client-focused and
Canadian-based wholesale bank, we provide a wide range of credit,
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