So what took them so long?
On January 20, Russia’s central bank announced that it had started buying Canadian dollars and Canadian-dollar-denominated bonds to diversify its foreign exchange reserves.
We’re not talking about a huge allocation to Canadian-dollar-denominated assets—maybe around 2%. But Russia has the world’s third-largest foreign exchange reserves at $439 billion so even 2% comes to about $9 billion worth of Canadian currency and bonds.
The logic is pretty simple, I think. The Russia reserves have been split about 50%/50% between dollars and Euros. Neither currency seems a great bet at the moment and worries about high debt loans in the United States and the euro zone could keep the currencies weak for years.
In contrast Canada’s government accounts are in good shape and the country’s commodity-based economy is solid insurance that the country’s economy will growth with the world economy.
If you’re looking for stability in a very volatile world, Canada certainly fits the bill, the Russian central bank is saying.
What to buy if you want to follow suit?
I own three Canadian stocks in Jubak’s Picks—Goldcorp (GG), Thompson Creek Metals (TC) and Potash of Saskatchewan (POT)—and five in the Jubak Picks 50—Canadian National Railway (CNI), Enbridge (ENB), EnCana (ECA), Goldcorp, and Kinross Gold (KGC). If you’d like to up your exposure to Canada take a look at Alliance Grain Traders (AGXXF), Bank of Montreal (BMO), Toronto-Dominion Bank, and Manulife (MFC). Buying the IShares MSCI Canada ETF (EWC) will give you broad exposure to the whole market.
Full disclosure: I own shares of Goldcorp, Potash of Saskatchewan, and Thompson Creek Metals in my personal portfolio.
mike makes a good point about the Canadian economy being closely tied to the US. In 2008, 77.6% of all Canadian exports went to the US (http://www.ic.gc.ca/eic/site/cis-sic.nsf/eng/h_00029.html#it1) The flip side to mike’s comment is that if the US dollar drops, it can bring the Canadian dollar along with it. It hasn’t so far, but there is a limit to that. In contrast, Australia does not have this issue.
I think it is important to consider that while Canada has great exposure to the world’s commodity markets, it still has significant economic ties to the US. The two economies are very intertwined. Once the US economy recovers, the Canadian economy may pick up much more momentum.
Just wanted you to know that I’m a Canadian and I have a good percentage of my portfolio in C$ so I really appreciate coverage of Canadian equities. Keep up the great work.
1492, CNI is sujpposed to be in the Jubak Picks 50 as of January 5 when I executed the 5 buys for the portfolio. I’ll check to see why it’s not and repost if necessary. Thanks for the catch.
mike, I did own a small position in TD. Sold it a while back (to pay tuition). Don’t own any now.
Smartinvestor, thanks for the ticker catch. I’ll correct. (All nitpicking appreciated, actually.)
doydum, on a currency basis Australia is about as attractive as Canada. But they are further along in raising interest rates–first major country in the world to do so–to fight inflation. That means more of the appreciation that goes with raising rates is already in the Aussie dollar. I own ETFs for both countries.
Monika, still doing the numbers. Should have it up next week. Sorry for the delay.
Hi Jim: When will you post your total returns for the “Jubaks’ Picks Portfolio” for last year, as well as for the last quarter of 2009?? Thanks!
You guys are real nitpickers.
If you do Canada, why shouldn’t you also do Australia? Any ideas? Thanks.
CNI was listed as a possible replacement for BNI when Buffett bought BNI. No actual purchase yet, just a suggested replacement with more info to follow.
I note that in the article CNI is in the Jubak Picks 50 portfolio but it is not listed in the web version.
I thought that he also had TD in his personal portfolio.
All good choices. Thanks, Jim. Manulife is MFC, not MFL.