Attention Contrarian Investors: Canada’s Screaming Opportunity (EWC)
Tom Essaye: Part of being a good contrarian investor is constantly looking beyond your investment “comfort zone” and trying to find less-followed opportunities. In that vein, as I look across the scope of the investing landscape, I can’t help but see that the whole world has been focused on two regions: Europe and China.
Obviously people are paying attention to Europe because of the ongoing economic weakness and seemingly ever repeating sovereign debt problems. China, on the other hand, is being closely watched with the hope that it will be able to engineer an economic “soft landing” and continue to help the global economy grow.
To be sure, these are two very important regions of the world. And investors must monitor them because the movement of those markets will have an effect on us here at home. But, you shouldn’t have “tunnel vision” and only focus on those two areas — and ignore the other regions of the world where there is opportunity.
For example …
Canada has often been overshadowed by its much larger neighbor — the United States.
While everyone is focusing on Europe’s problems and Asia’s growth, things in the land to our north have quietly been picking up. Let me give you three reasons why …
#1 — Strong banks
Canadian banks are some of the best run and well capitalized in the whole world. The banking crisis that hit the U.S. and just recently Europe never hit the Canadian banks! So from a safety standpoint, Canada is one of the best investment destinations in the world.
#2 — Strengthening economy
From an economic growth perspective, the Canadian economy has recently been showing signs of strength — as evidenced by the fact that just two weeks ago, at the Bank of Canada interest rate decision meeting, Governor Mark Carney stated,
“In light of the reduced slack in the economy and firmer underlying inflation, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate.”
Basically he said the economy is doing better than expected, so good in fact that the Bank of Canada (BOC) may have to become the first major central bank to begin raising interest rates later this year. That screams bullish opportunity for the contrarian investor!
#3 — Abundant resources
Much of Canada’s economy is focused on natural resource demand. And with oil, gold, and silver prices all solidly positive for the year and economic demand inching higher in the U.S., there are bullish prospects for the Canadian economy. They have even increased trade relations with China this year, opening up a potentially huge market for energy, uranium and base metal export.
With all this bullishness, you’d think the Canadian stock market would be soaring year-to-date. But as you can see in the chart below, it’s quite the opposite …
As of the close Friday, the Canadian market was up less than 4 percent, not even half of the U.S. markets performance. Additionally, we’ve seen more weakness this week when data showed Canadian GDP fell by 0.1 percent in February.
But I think this weakness in the Canadian market presents an opportunity!
The Canadian GDP reading is now over two months old, and the comments from the BOC were in real time. Additionally, a lot of the weakness in the GDP number was due to temporary factors. So while you never like to see declining economic growth, I think letting this one data point color your outlook bearish on Canada is a big mistake.
One way to take advantage of this opportunity in Canada is through the iShares MSCI Canada Index ETF (NYSEARCA:EWC). This exchange traded fund gives you broad, diversified exposure to some of the largest Canadian companies on the market.
Remember, being a contrarian investor requires that you always keep one eye on what the market is focused on, and one eye on areas the market is ignoring. That’s a virtual sure-fire strategy to get you ahead of the crowd and positioned for big potential opportunities.
Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, and Michael Larson. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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