O CANADA

Since you may be considering investing in Canadian resource equities, it makes sense that I should briefly introduce you to Canada itself.

The second largest country in the world, by area, Canada is home to 31 million people. A parliamentary democracy, Canada is a member of the Commonwealth and considers Queen Elizabeth II to be its sovereign.

While Canada is a nation of immigrants, the Government has made multiculturalism its official policy. Thus, newcomers are encouraged to adopt Canadian values while retaining their cultural identity and heritage. There is no 'melting pot’ approach here, with almost 1 out of 5 Canadians being members of a visible minority (black, brown or oriental).

Canada was designated the best country in the world to live in by the UN, for seven consecutives years, to 2001.

Canada’s only neighbor is the US (which has been the only country to attack it in its history). While both are members of the G8, have the largest bilateral trading relationship in the world and share liberal democratic traditions, Canadians see themselves as different in many respects. For example:

• There is far less violence in Canadian society (homicides by firearms are at the lowest level since 1966)
• Healthcare is universal (40 million Americans are not insured for health coverage)
• Income disparity and poverty rates are much lower than in the US
• Canadians are far more environmentally conscious and Canadian cities are much cleaner and safer to visit
• Canadians are patriotic but not militaristic. Canadians see themselves as diplomats for peace and its armed forces as primarily peacekeepers (prominently so in UN backed missions). Canada did not join the coalition in the Iraq invasion, despite US pressure (and it is not easy to say no to the US when 86% of our exports go there).

Vancouver

The city that I live in, and which is the strongest base for junior exploration companies in the world, is undoubtedly one of the most beautiful in the world. Nestled at the foot of the Coast mountain range (with peaks reaching almost 6,000 ft.) and lying on the Pacific Ocean, Vancouver has a moderate climate (similar to London’s), tremendous natural beauty, 1.6 million people and a laid-back West Coast approach to life.

Let me present a pictorial essay, since words cannot do it justice.

The Canadian Economy

The Canadian economy has been performing well, not as impressive as the US in terms of GDP growth, but with a much stronger foundation. Unlike the US, Canada has surpluses at the Federal Budget level and surpluses in its current account balance. Part of my concern with the US economy is that it has lost its equilibrium. Canada’s economy is far more balanced.

GDP: Canadian GDP was $1.1 trillion (in 1997 chained $s) in 2003. GDP grew by 3.4% in 2002 and by 2.0% in 2003.

Federal Budget: In 1994, I left Canada for Dubai. At the time, the top marginal tax rate had exceeded 53% as the government was living beyond its means and was running record deficits while it had been elected on campaign promises of balanced budgets. You can see the impressive recovery and fiscal discipline since that time. The budget surplus in 2003 was $ 4.5 billion.

The architect of this remarkable turnaround? Canada’s newly elected Prime Minister, Paul Martin, who was the Finance Minister during that period.

Trade Account: Canada’s largest trading partner is the US with whom we have a positive trade balance. Note the positive trend in Canada and the large deficits running in the US.

Canadian $: The Canadian $ has shown strength against the US$ based on its current account surpluses with the US, moving from C$1.60:US$1 in 2001 to C$1.32:US$1 today.

Presently against the UAE Dirham, C$1 = 2.77 AED.

Against other major currencies, the Canadian $ has held its own. The chart below shows that, while Canadian interest rates are low, Canada’s current account surpluses make it a more favourable currency within this matrix compared to the Euro and the US$. In the chart below, the Canadian $ is represented as CAD.

The Bottom Line: If you wanted to invest in a sound economy and a stable political system, while hedging against the US$, Canada ranks among the top choices in the world.

Added to this are the positive fundamentals affecting the Commodities markets worldwide and the fact that Canada is one of the top 5 players in this space, and it makes sense to consider investing in Canadian resource equities.

In the next issue, I will highlight a couple of major Canadian mining companies, Barrick Gold and Placer Dome.

Opening an account in Canada

If you already have a trading account anywhere, ask your broker if he can buy Canadian equities in your account. If he can, you may not need to open an account in Canada in order to trade.

While there are many full-service (an account with a broker who trades on your instructions) and discount (you trade on-line by yourself, though there is extensive support available on the telephone and by e-mail) in Canada, many of the on-line brokers are not licensed to handle foreign accounts.

Full-Service: To set up an account with a full service broker in Canada, you need to invest a significant amount (perhaps in the range of US$ 100,000+) for it to be worthwhile for the broker to handle your trades. If you wish to do so, send me an e-mail and I will refer you to a choice of brokers.

On-line: You have three options that I have identified at this point. The best-known and easiest account opening option is provided below (the other two are TD Waterhouse and Questrade):

Hong Kong Shanghai Bank (HSBC) Direct Invest (http://investdirect.hsbc.ca): You need to fill out the Investment Access Portfolio application form and the W-8BEN form (must be filled out - used only for withholding tax on any interest and dividends on US stocks that you buy)

Once this is done, you need to take the forms with 2 pieces of identification (one of which must be a government issue photo ID, such as a driver’s license) to a local HSBC branch and get them to verify your identity and put a stamp of ‘certified true copy’ on the ID documents.

Forward the documents with bank draft for Canadian $ 10 to the address provided in the form. You can fund the account by sending funds by bank draft with the documentation or else wire transfer funds once the account is activated.

Previous Issues:

If you are a new reader, you can catch up with earlier issues here.