Canada Should Think Globally and Act Locally

For some reasons, Canadian financial firms — that is, banks, brokerages, and mutual funds — seem reluctant to venture outside our borders, which could turn into a serious problem as domestic investment opportunities gradually taper off in the coming years. This is rather strange, considering that the mining, automotive, pharmaceutical, and telecommunications sectors have no problem stepping beyond our borders.

In the past, the reason why it was easier to focus on domestic investment was simple: The pickings were good and plentiful. However, as corporate Canada keeps on hollowing out, pickings are likely to become slimmer and slimmer. At the rate we are going, all that is going to be left over will be resource and financial stocks. And there is only so much inbreeding that can be done in those two markets in Canada.

In contrast, the size of globally investable assets is expected to more than double by 2015 to about $300 trillion. A decade after that, investable assets worldwide are expected to skyrocket to a whopping $700 trillion! Of course, more than half of investment power supporting such spectacular growth is expected to come from the emerging markets. The rest is going to be contributed by the “veteran markets” in North America and Europe.

Experts are also predicting a shift of massive proportions in how financial products are consumed. Namely, bank deposits are currently the dominant investment vehicle worldwide. However, by 2020, that is supposed to change in favor of securities, such as stocks and bonds, and even surpass currency and deposits.

When ranked according to the level of sophistication in the financial sector, Canada currently occupies fifth place. Now, this performance is in spite of (rather than because of) Canada’s relatively low aggregate market capitalization. But Canada is not likely to keep that ranking for very much longer, especially if the country’s financial sector remains limited only to domestic investment opportunities.

To illustrate, last year, for the first time ever, China had more IPOs than London and New York. In fact, IPOs in the U.S. have declined by approximately one-third in comparison to 2005. Also last year, China’s three major exchanges — Shenzhen, Shanghai, and Hong Kong — hit an aggregate market cap of $53.0 billion. This also meant that China was a frontrunner in both the London exchange, currently capped at $48.0 billion, and the NYSE and NASDAQ, at a combined $46.0 billion.

Even our employees lag behind the talent employed abroad. Labor market analysts predict that in the next decade, the financial industry’s labor market will find more than half of its workforce in the emerging markets.

Meaning, in order to stay competitive globally, some things will have to change drastically in the way that Canada’s financial sector does business. Among other things, since it is not likely that Canada will be able to prevent corporate hollowing out, the best thing when you can’t beat something is to join it! So, the next logical thing will be to start diverting focus, energy, and money outside our borders and start pulling foreign talent and resources into our own backyard.