Invest in Canada

Why I would choose to invest in Canada vs USA

by investor on 29/03/09 at 11:06 pm

REASON #1 — THE CANADIAN MARKET IS LESS WACKY

On the days I watch the market, I observe both US and Canadian movements. Without question I can tell you that the movements in the north are more logical than movements in the south. For instance, in the USA often bad news on financials comes out overnight and then financials soar. This kind of thing doesn’t seem to happen in Canada as often.

REASON #2 — HEDGE FUNDS DON’T PLAY IN CANADA

I have a number of friends who work at investment banks and hedge funds. They have told me that the spreads aren’t tight enough, and there isn’t enough liquidity and volume to gamble in Canada. The USA is the home to all the craziest leveraged speculation and program trading, because it has the volume and the tight spreads to make it happen.

Here is a dramatic effect that I have personally observed. Just like Reason #1 above, sometimes there are stocks that have wild daily movements as part of a sector. But on the TSX (Canada) it’s only the dual American listed stocks that have these movements. Other, single listed canadian stocks don’t exhibit those movements. I will bet that if you plotted volatility versus single or dual listed stocks, you’d find much higher volatility in the dual listed stocks.

REASON #3 — THE CANADIAN GOVERNMENT IS SOLVENT

Even if our dollar is weak temporarily, the nation is solvent and in the best financial shape of any western country. I work in bonds, and can barely find canadian government bonds when I need them in a portfolio. The nation does not aggressively issue debt.

Oh and the Canadian dollar has better long term prospects than the US dollar. Nobody is talking about a total CAD collapse, but in America it seems like a near certainty after the nationalization of Fannie, Freddie, and the failures of the Federal Reserve.

REASON #4 — THE TSX IS TECHNICALLY STRONGER THAN THE DOW

The S&P 500 did not make a higher high in 2007 (versus 2000 peak) during that last rally. Also, the US market is right back down to its 2002 low, a total evaporation of the Greenspan rally.

The Canadian benchmark index made a higher high in 2008 (versus 2000 peak) by 36%. In contrast to the USA, the TSX is fully 45% higher than its 2002 low, so there has not been a total evaporation in the bear so far.

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