Chinese scout business prospects in Canada
By ALLAN ROBINSON
Tuesday, September 6, 2005 Updated at 9:22 AM EDT
Globe and Mail
The visit to Canada beginning this week by China's President Hu Jintao marks a significant move by one of the world's fastest-growing nations to develop business ties abroad.
Along with the political delegation will be more than 100 of China's top business executives plus staff from the China Council for the Promotion of International Trade.
"It's a big and impressive list," said Earl Drake, Canada's ambassador to China from 1987 to 1990, and now adjunct professor with Simon Fraser University and vice-chairman of the Toronto-based Canada China Business Council. "The main focus to this trip is getting to know the broad range of prospects."
Between Thursday and Sunday, Mr. Hu will visit Ottawa and Toronto, with a side trip to Niagara Falls, Ont. On Sept. 16 and 17, the Chinese group will visit Vancouver.
Their focus will be on the availability of raw materials, uranium, oil and gas as well as semi-finished products, high technology, pollution control technology, engineering services and financial services such as life insurance, Mr. Drake said. "The Chinese are part of a global supply system. The delegation is looking for new opportunities for trade and investment. They have a lot of money available."
The Chinese delegation includes senior executives from a wide variety of businesses: aviation, Internet communications, coal mining, steel, newspapers, power generation, fertilizers, shipping, hardware goods, real estate development, automobiles and auto parts, building materials, air conditioners, textiles, chemicals, industrial equipment, and electrical consumer products.
But don't look for an overnight success. Mr. Drake cautions Canadian wanting to do business with the Chinese: "It's tough sledding, but it certainly can be done."
Last week, Westport Innovations Inc. of Vancouver struck a deal to form a joint venture with China's Beijing Tianhai Industry Co. Ltd. to market and sell liquefied natural gas fuel tanks for buses and trucks. "We think we can get to market very quickly, and have the tanks available for sale in 2006," said Michael Gallagher, president of Westport.
"There is a strong interest in environmental technologies in Canada," and China is taking "aggressive steps" to address its environmental problems, said lawyer Phil Hodge, Westport's China expert, who plans to attend the Canadian trade sessions.
China is looking to create joint ventures with small to medium-sized Canadian tech firms, he said.
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Saturday, July 2, 2005 Updated at 12:43 PM EDT
From Saturday's Globe and Mail
The worldly thing to do with your retirement savings plan right now is to forget about the world.
Instead, go Canada. At a time of increasing global uncertainty over slowing economic growth and soaring oil prices, our home and native land stands out as a good place to invest.
The most basic rules of investing say you should diversify your holdings, which means mixing global stocks and bonds with your Canadian holdings. But that doesn't mean we can't engage in a little dialogue about the benefits of investing at home, especially given that it's the Canada Day long weekend. Debating the investing merits of Canada is all the more timely because the 30-per-cent foreign content limit for registered retirement savings plans died this week when the federal budget was given royal assent.
The most common reason for investing abroad is that Canada represents only 3 per cent or so of the global stock market. But that's like saying you should avoid too much filet mignon because it's just 3 per cent of the cow.
Today, Canada is investing filet mignon. Here are three reasons why you should eat up.
1. The Canadian economy looks good on a global basis.
Douglas Porter, senior economist at BMO Nesbitt Burns Inc., says Canada ranks in the upper echelon of global economies, despite facing challenges like a rising dollar that makes its exports more expensive in the key U.S. market.
Canada's strengths include a federal government that is the only one in the Group of Seven industrialized countries to consistently run a budget surplus. "Whereas some other countries are possibly looking at raising taxes or they certainly don't have the wherewithal to cut taxes or increase spending, Canada does have a little room on both fronts," Mr. Porter said. "That's not just a story for the next year, it's arguably a story for the next five years."
One of the biggest threats to the global economy is a near doubling of oil prices over the past year. Consumers have less money to spend because they're paying more to gas up their cars and businesses face higher costs for making and transporting their products. While Canada isn't immune to these effects, it does benefit from higher oil prices because it has a strong contingent of companies in the oil and gas business. Rising oil prices mean rising profits for these companies, and that in turn means more tax dollars for governments. As well, investment dollars have been flowing into Canadian energy projects such as the Alberta oil sands.
Geographic proximity means the Canadian economy is constantly compared with the United States. Today, Canada comes out looking better. Investment dealer Merrill Lynch issued a report this week saying that the U.S. economy is slowing and thus vulnerable to risks that don't exist to anywhere near the same extent in Canada.
One risk is that the U.S. Federal Reserve Board will go too far in raising interest rates, which have been on a steady path higher in the past year. The Bank of Canada has left rates on hold for a while and no one expects significant increases in the near term.
Another risk is rising protectionism in Congress, particularly against China, and a third is that the housing market will slow or drop and thus remove a key source of stimulus.
The U.S. housing market is a concern unto itself. Last week, Morgan Stanley chief economist Stephen Roach joined those who are warning that the housing market is a bubble in the same way that technology stocks were five years ago. Housing prices have jumped in Canada, too, but not to the same extent as in some U.S. cities.
2. The Canadian stock market is hot, but not overheated.
Slice the numbers any way you want -- the S&P/TSX composite index has dominated the major U.S. and global indexes in the past few years. On a pure comparison of cumulative three-year returns, we're up 40.5 per cent and the S&P 500 index is up about 21 per cent. On a Canadian-dollar basis, the S&P 500 was down a compound average annual 7 per cent for the three years to May 31, the MSCI World Index fell 4.7 per cent and the TSX gained almost 10 per cent.
A seasoned investor might decide at this point that selling Canada and buying the U.S. market is the move to make. It's not, though. While the S&P/TSX composite has been much stronger than the S&P 500 lately, it's still a better value. Data supplied by Standard & Poor's itself show that the price-to-earnings ratio of the composite index was about 18.7 this week, while the S&P 500 was 20.1.
"I think the prospects for Canadian stocks in a global context continue to be very positive," said Richard Howson, manager of the $414-million Saxon Stock Fund. "I'm not saying Canadian stocks are dramatically, statistically cheaper than other countries around the world, but we're certainly not at any disadvantage."
The powerhouse of the Canadian market in the past several years has been the energy sector, which now accounts for about $1 of every $4 when you add up the value of all the stocks listed on the S&P/TSX composite. But energy's not the only source of strength in the index.
The metals and minerals sector index on the TSX had a three-year total gain of 104 per cent as of midweek, while telecom services were up 100 per cent, real estate 70 per cent and information technology 59 per cent. That compares with a three-year gain of 110 per cent for the energy sector. Energy's been as hot as ever in June, but other sectors such as gold, utilities and financials have also been strong.
Energy stocks mirror the broader Canadian market in that they're not overpriced right now. Mr. Howson said senior oil and gas producers such as Encana Corp., Canadian Natural Resources Ltd. and Talisman Energy Inc. are trading at roughly four times cash flow, and at slight discounts to net asset value. "I view those as attractive valuations," he said.
Mr. Howson doesn't see oil and gas royalty trusts as a comparable value, noting that some trade at around eight to 10 times cash flow and at premiums to net asset value.
3. Canadian companies give you the world.
The Saxon Stock Fund holds 5.7 per cent of its assets outside Canada, so Mr. Howson has a lot of potential room to add more global stocks if he chooses. He's not biting, though. "We have enough exposure through Canadian companies to international growth that I don't feel we're missing the boat," he said.
With its heavy weighting in resource stocks, the Canadian market benefits from demand for oil, metals and other commodities in China, India and elsewhere. But Mr. Howson said there's a global component to many stocks outside the resource sector.
Rogue
