Canadian capital markets will attract investment in 2012 due to the country’s relative stability, Margaret Franklin, chief executive officer of Kinsale Private Wealth Inc., said at a Bloomberg forum in Toronto.
With Europe undergoing a debt crisis, the U.S. facing its own deficit problems and political risks such as revolutions in Arab countries deterring direct investment in emerging markets, Canada is seen as a haven, she said.
“Canada actually benefits from the geopolitical circumstance,” said Franklin, whose firm oversees about C$100 million ($100 million) in Toronto. “We had our basket case moment in the ‘90s. We have all the things the world wants.”
Canada has maintained a stable AAA credit rating from all three major credit-assessment companies after emerging from the recession with a lower unemployment rate and ratio of debt to gross domestic product than most other large developed economies. In 1993, Canada had the second-highest national debt relative to the size of its economy in the Group of Seven, behind Italy’s, according to the Organization of Economic Cooperation and Development.
Progress in addressing Europe’s debt crisis won’t stem the risks in other countries, Franklin said at Bloomberg’s Conquering Volatile Markets forum late yesterday, which was conducted in partnership with the Toronto CFA Society and Women in Capital Markets.
“There’s worse to come,” she said. “Once Europe starts to have some tangible and concrete resolution the investor community can latch on to, they will quickly zip over to the U.S., which hasn’t managed to deal with any of its structural issues with regard to its deficit.”
While sovereign-debt problems aren’t going away, Canada should benefit from economic growth in its two largest trading partners, the U.S. and China, said Dawn Desjardins, assistant chief economist at Royal Bank of Canada in Toronto.
“The U.S. economy is building some momentum,” she said. “China’s economy, while it is slowing, is not headed for a hard landing. Canada’s in good shape to have an above-trend year for growth.”
Base-metals stocks are particularly attractive, said Susan Streeter, managing director for institutional equity research at Cormark Securities Inc. China and the U.S. are the world’s two biggest users of industrial metals.
“You’ve seen LME inventories come off,” she said, referring to the London Metal Exchange. “There’s been restocking in China. The valuations of the copper producers, for example, versus where they’ve been historically on a cash-flow basis have been pretty attractive.”
Teck Resources Ltd., Canada’s largest base-metals and coal producer, trades at 9.2 percent below its five-year average price relative to cash flow, according to Bloomberg data.
Raw-materials and energy producers make up 48 percent of Canadian stocks by market value, according to Bloomberg data.