What We’re Seeing in Canada Today

I haven’t done this in a while. That is, take count of Canada’s economy and its stock markets. So, here it goes…

Canada’s economic fundamentals are recuperating, as forecasted last year when we hit a bit of an economic snag. However, interest rates are not likely to go up because the Canadian dollar is back on track as far as its performance against the greenback goes. Traders are also increasingly bullish towards the Canadian dollar, which represents a problem for the country’s economy, considering that 80% of our exports are to the U.S.

Canadians surely remember last May, when our dollar rose to almost a 30-year high of US$0.9134. And while our national pride grew, our products also became more expensive to foreigners. As a result, many businesses suffered trade losses and layoffs. Particularly hard hit was the manufacturing sector, so expect something similar to happen again.

The Canada Mortgage and Housing Corporation was happy to report an increase in the annualized rate of housing starts from 196,000 new homes in February to 210,900 in March. Analysts still expected more — about 215,000 new starts on an annual basis. This number has now been reduced to 205,000 units for 2007, down from 228,000 units reported for the prior year. In addition, although the industry expects a moderate 10% slowdown in housing starts, the risk of huge declines just isn’t there. In fact, shortages of both housing and labor are forecasted for the western provinces.

As far as Canada’s benchmark market is concerned, Toronto’s S&P/TSX Composite hit a high for the year this week, closing at 13,446 points on Tuesday. The mining and energy sectors offered particularly good performance, as gold edged up to US$682.30 an ounce and oil rose to US$62.01 per barrel.

In all likelihood, this means that Canadian investors can return to no-brainer investment strategies, such as avoiding companies that rely heavily on trade with their U.S. partners, particularly the manufacturers, and looking into diversifying their portfolios with more mining and energy stocks. Bear in mind that caveat emptor from my last article remains — look for growth companies that have at least one revenue-generating mine or oil well.