All Roads Lead to Canada

Debaters: when home bias gives global exposure.

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881760_parliament_of_canadaCanada is a small portion of global capital markets. Yet, Canadian securities have outperformed those of most other developed countries.

Reason enough to stay home? That’s the current debate at CIR Debates Online.

But perhaps staying home is a misstatement. Under globalization, the world comes to Canada in manifold ways, says Bob Decker. “The lowering of information costs that modern transportation and communication has facilitated, has resulted in seamless financial integration, while at the same time arbitraging geographic valuation differentials and harmonizing business cycles across all jurisdictions,” he argues.

As a result, “You want to invest in the emerging financial sectors of Latin America? Try Bank of Nova Scotia. Want to access the massive boom in infrastructure spending by surplus-laden emerging economies? Buy SNC Lavalin and Aecon. Want to explore for hydrocarbons in the energy-starved Asian market? Load up on Niko Resources, a $5-billion Calgary-based exploreco. The same can be said for information technology, mining, aerospace, transportation and the list goes on. Globalization has been a game changer.”

Jonathan Jacob disagrees. Better to be there on the ground, where the action is. “The notion of a secular bull market in commodities as an underpinning of Canadian equity performance is attractive. But if the source of the commodity bull market is the growth of the middle class in China and India, shouldn’t one prefer to invest in these economies directly? On the other hand, if the source is loose monetary policy in the United States, would we not want to invest in that economy and perhaps hedge the currency risk that will likely develop with such easy monetary policy?”

Debate moderator Philip Falls finds it hard to distinguish the two sides. “This debate is like arguing whether a zebra is black with white stripes or white with black stripes? As always, the truth lies in between. All I know is that it’s a zebra.”

Perhaps the truth lies in the currency arena, he suggests. “So, if currencies can be easily hedged, does it not become more of a debate about valuations, growth opportunities and profit margins rather than about a company’s place of residence or investing globally versus domestically (at least with larger companies)? Are not companies becoming easier to compare?”

Ease of currency hedging, he thinks, would turn the debate into which company is the better pick, regardless of domicile.

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