Monday, June 9, 2014

Just what Canada needs: more exposure to a resource/China driven economy

Tony Abbott - the Australian Prime Minister - is in Canada at the moment. The Australian press reports that he is meeting a whole lot of fund managers to encourage them to invest in Australia. To quote the Murdoch National Newspaper (The Australian):
Mr Abbott is due to meet leaders from Sun Life Financial, the Canadian Council of Chief Executives, the Ontario Teacher’s Pension Plan, Barrick Gold, Barclays Canada, Saputo and Cameco.
I want to be blunt. There are advantages in investing in your own country: you know it better. You are less likely to make mistakes.

And there are reasons to invest overseas: you can get exposure to industries and economic cycles that might not be available at home. You get diversification.

Also every now and again a foreign market can become very cheap (not everywhere is in a bull market simultaneously). Blind Freddy could make money buying the Korean market at the height of the Asian crisis.

None of these reasons apply to a Canadian investing in Australia. Australia most certainly is not cheap. Sydney makes London and New York seem inexpensive.

And Australia and Canada have about the most similar economies in the Western World. We are large land masses, rich in resources, with small population bases and currencies and economies driven by Chinese resource demand. A Canadian investor in Australia gets little diversification benefit.

At the risk of seeming unpatriotic I am going to give you some advice. If you are a Canadian investment leader and Tony Abbott is seeing you today keep it brief. Don't waste his time or yours.



dearieme said...

Let me turn that round. Does this mean that as a UK investor one way for me to invest in the Chinese boom (insofar as it still exists) is to invest in Australia and Canada?

John Hempton said...

Absolutely. Sitting here drinking my $4 lattes and watching European 21 year olds being waitresses attracted by the high wages here (25 dollars an hour for a waitress) is simply a function of the Chinese boom.


Frozen in the North said...

The PM's visit was so important that I cannot find any trace of it in the Canadian press! and I live in Montreal...

Bottom line its crazy for Canadian companies to invest in Australia -- because our economies are virtually identical (resource based with massive exposure to China).

The CEO of the Caisse de Depot -- one of the most important Canadian institutional investors has made his case for investing in Asia (they will have an office in Australia) but they are looking at Australia -- they invested in the Brisbane port, they are looking at infrastructure.

It may be more a case of "i've got two days to kill before Obama is back in I will go to Canada for 48 hours" I'm sure that Canadians will be polite and make all the right noise for the Australian press. But there is nothing really about his visit in the Financial Post.

Now I am sure that the PM has a full page spread in Sydney's equivalent newspaper.

Frozen in the North said...

Sorry, there was a comment in the press about your prime minister's visit to "CANADIA" yep that's what he said!

So we know he's around here somewhere...jet lagged it appears. No comments about his desire for Canadians to invest in Australia though

Anonymous said...

Flat white, John...flat white.

Anonymous said...

On my flight to NYC (from AU) last month I sat next to an engineer who's been doing fly in fly out stuff from America. 'The potential to earn out here is phenomenal'

Oh really? You don't say..

Anonymous said...

There are vital dimensions to international relations other than the economic aspects.

Little generalist said...

Nicely expressed, John, although I'm not sure I agree with everything you've said, for once.

First, our own equivalents of the Canadian pension funds have been criticised (unfairly, in my opinion) for being too shy when it comes to investing in infrastructure projects, especially greenfields ones that the banks won't lend to either because cashflows are so uncertain and so far away at the start.

It may be that our own "Infrastructure Prime Minister" (NOTE for overseas readers: in the last federal election, Mr Abbott said that's how he wanted to be known) might just be looking for a bit of competitive tension ahead of another round of public asset selling (AKA privatisation) and the launch of more public-private projects.

We've still got some lover-ly motorways and tunnels for sale, plenty of cars will pay overpriced tolls to use them (not)... oh yes, the Canadians learned about those ones first hand, last time. I guess that proves your point about knowing your own country.

On the other side of the equation, though, buying into Aussie agribusiness like wheat, something the Canadians also know about, gives them complete geographic and therefore counter-seasonal diversification into soft commodities, the next big market in China, BTW, at a time when a lot of Aussie farmers want to get off their farms.

Dan Davies said...

Does this mean that as a UK investor one way for me to invest in the Chinese boom (insofar as it still exists) is to invest in Australia and Canada?

The great thing about living in a global entrepot like London is that you don't even need to get out of your easy chair to do this; the nice people in the City will do it for you by stuffing the FTSE350 chock full of foreign metals and mining stocks.

Anonymous said...

John, What do you think of coca cola amatil?

Anonymous said...

Sadly, John on this one you are wrong. The Canadian economy does trend quite nicely with oil, as one rather large example. Australia does not - there is little or no correlation. Perhaps what you meant was over-valued housing?

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