Since there ain’t no such thing as a free lunch, investing in Canada does involve some risks:
- The Canadian market is dominated by the finance and resources sectors. The risks of concentration in these two sectors can be seen from the performance of the Canadian market in October. The brutal correction in the energy sector (down 13%) dragged down the TSX to a 5.7% loss in just one month.
- The forward P/E of the Canadian market is 14.5, just a little less than the more diversified US market (P/E of 14.6). And as a Globe and Mail column points out today, many Canadian securities are trading at high valuations (Bank of Nova Scotia is trading at 13 times 2006 earnings, whereas Bank of America, Citigroup and Washington Mutual are all trading at less than 11 times).
- While the loonie has appreciated sharply over the past three years and many forecasters are calling par with the USD, but the loonie can also depreciate (like it did for most of the nineties).
- Foreign investors are piling into Canadian securities (again as the Globe and Mail column points out) and Canadian investors are pulling money out of US equities to invest at home. Is there a better contrarian indicator to hold off any investments for now?
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2 responses so far ↓
1 RM // Nov 6, 2005 at 7:33 am
Interesting how many people look for safety in all the wrong places.
If you are looking forward say 20 years does anyone think Canada will do so well that our economy will be able to have the currency at par?
People should start the the US is on sale and it is time to buy. When the Canadian dollar starts its fall again as it did in the last cycle it will make a huge difference in your returns.
2 Canadian Capitalist // Nov 8, 2005 at 8:57 pm
RM: You are absolutely right that Canadians should be bumping up their foreign assets now that our dollar is strong.
My post was aimed towards US investors suggesting that Canada should have a little place in their portfolios.
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