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Best and worst homegrown investment
bets
Are we still primarily hewers
of wood and haulers of water? Not entirely. Canadian
investors have plenty of cutting-edge options
to choose from among the nation's growing and
established industries. Here's a run-down of the
good, the bad and the uninspiring:
Aerospace: Canada has
been particularly strong in aerospace development
in the past, but the domestic industry is at a
crossroads with Chinese and other Asian firms
rapidly advancing into international markets.
Manufacturing/Automotive:
"The dying dinosaurs, the walking dead," Dr Velk
says. "It's amazing they still walk around, the
poor things." But Dr Kirton says predictions of
manufacturing's decline are overblown: "We've
been hearing these predictions for about 60 or
70 years. But we have Toyota here now, we have
Magna and Bombardier."
IT/Electronics: This
is the future of the Canadian economy, says Dr
Velk -- "the brain industry." Companies like Research
In Motion (makers of the Blackberry) are showing
that homegrown corporations are increasingly able
to reach the world market and succeed.
Oil and gas: Dr Kirton
and Dr Velk agree: It's a strong place to put
your money at the moment, but the fact that we
export our energy almost exclusively to the United
States means the oil industry here has an inherent
volatility. Dr Kirton recommends looking at energy
companies that are working on contracts beyond
the US, like TransAlta. Also keep an eye on new,
energy-related technologies where Canada is a
leader, like carbon sequestration and ethanol.
Biotech/Pharmaceuticals:
As Canada's economy becomes more globalized, so
too will the medical research sector -- a turn
of events that will keep Canada competitive with
growing R&D in emergent economies like India's
and China's, says Dr Velk.
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The 20th century belonged to Canada,
famously proclaimed Sir Wilfred Laurier. But that was
then and this is now. Is Canada still a player on the
21st century's world economic stage?
Looking at the hard numbers, if
the G8 were formed today we wouldn't make the cut. Instead,
we'd say "Hola" to the Spanish, whose economy is rapidly
eclipsing ours. Not to mention "Ahn nyeong" to the South
Koreans and "Bom dia" to the Brazilians, both of whom
are fast catching up to Canada in terms of gross domestic
product (GDP).
So, was Sir Wilfred wrong? Depends
who you ask.
"If the 20th century belonged to
anybody it belonged to the US," says McGill economist
Thomas James Velk, PhD. "Certainly in the last decades
of this century we lost ground compared to the US. We
are very much behind in the race."
But John Kirton, PhD, chair of
the G8 Research Group at the University of Toronto,
says it's a mistake to think of the global economy as
a zero-sum game. He thinks Sir Wilfred wasn't so far
off the mark. "He was right -- save for the United States.
His phrase implies we would be number one, but the US
rose to global hegemony at the end of the Second World
War. There was a sort of observational crowd-out effect,
but we won the war and had an economic miracle in the
1950s here, too."
If Canada didn't quite live up
to Sir Wilfred's expectations in the 20th century, what
then can be said of the 21st? Will Canada continue to
be "one of the most successful major powers on the planet,"
as Dr Kirton describes it, or have we squandered the
considerable economic heft we once had?
TRADING
IN FUTURES
The big question mark in predicting Canada's future
economic growth is the matter of diversification.
Commodities economies like Canada's
are dangerously vulnerable to hiccups in the world market
because they lack diversification, says Dr Velk. The
solution, he says, lies in continuing the free-trade
movement begun in the last few decades of the 20th century.
"Texas and California have commodities exports but because
they are completely integrated into the American economy
they are differentiated economies and they have insurance
in terms of portfolio diversification," says Dr Velk.
With the recent fluctuations in
the market and Dr Velk's concerns about Canadian commodities
volatility, should you be investing in Canada right
now?
Canada only commands about a 3%
share of the global economy. But it's probably okay
to keep more than 3% of your investments in Canada,
says Dr Velk -- just don't place an excessive amount
in any one place. Diversification is the key for large-scale
national economies -- and for your portfolio.
Dr Kirton says focusing your strategy
on Canada may not be a bad idea in the coming years,
however. With Canadian investments, he says, "you get
the best of both worlds -- you get the strength of Canada
but you get globalization as well." (For more, see "Best
and worst homegrown investment bets," below.)
Asked to give Canada a grade on
its economic prospects for the near future, Dr Velk
decides on a B-minus, and Dr Kirton an A-minus. Overall,
it seems, we're on the honour roll.
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