Investor Prospects In Canada Improve

When StarBase Corp. of Irvine, Calif., needed to raise capital, the software developer turned to the Vancouver Stock Exchange.

When Microsoft Corp. and Silicon Graphics Inc. decided their futures lay in Hollywood, they first opted to buy a pair of Canadian software-video developers: SoftImage Inc. of Montreal and Toronto-based Alias Research Inc.

And when the U.S. government intervened to bail out the Mexican peso, the Canadians anted up $1.5 billion.

Yet the adventurous U.S. investor with a desire to see the world inevitably is steered to such faraway markets as Argentina, Brazil, and China.

Why is it that Hollywood producers can venture to Toronto to film the gritty Midwestern locale for “Tommy Boy” but middle America can’t earn popcorn change on Canadian securities?

A half-dozen money managers have some thoughts on venturing north:

“Sell it,” replied Nick Carn of London-based Draycott Partners.

Sell Canada?

The fact is that the Canadian economy - even the natural-resource sectors led by oil, gas and timber - is terribly dependent on U.S. industry.

Consequently, Canada has failed to establish its own investment identity. And in investments a lack of respect is equivalent to a lack of capital.

Anthony L.T. Cragg of Milwaukee-based Strong Capital Management says, “Canada still is regarded more as a ‘North American’ rather than a true ‘international’ market.”

“In general,” Cragg adds, “we don’t see any great incentive to invest in Canada and think there are many better opportunities elsewhere.”

But upon closer review, differences between the United States and Canada emerge, as do potential opportunities to the north.

First, consider that Canada maintains a sizable trade surplus with the United States, to which 80 percent of its exports are bound. In fact, U.S. complaints about Canadian beef, beer, dairy, egg and poultry exports often smack of whimpering.

Canadian Wheat Board spokesman Robert Roehle says, “It seems that if you beat the Americans in the trade game they cry foul right away and say ‘you must be cheating because somehow you’re doing better than we are.”’

The Canadian government also is taking dramatic steps to reduce the 5.1 percent federal budget deficit - double the U.S. gap - by cutting ministry-level spending by 19 percent over three years, eliminating 45,000 civil-service jobs and cutting business subsidies by 60 percent.

Of course, frugality has costs. The Canadian dollar is weak, interest rates are high and unemployment hovers near 10 percent. But Finance Minister Paul Martin is quoted as saying, “This budget sets this country on a sure course of fiscal responsibility and government renewal.”

David S. Beckwith, the head of international equities at Boston-based John Hancock Funds, says, “Canada looks more interesting now. Austerity measures seem to have improved the federal budget outlook and helped the currency.”

Thinking of ways to capitalize on the situation, Beckwith says, “I’d advise possibly buying into the oil and gas stocks.”

Cragg is more confident about touting Ontariobased Four Seasons Hotels Inc., the owner of 37 luxury hotels in 19 countries; and Montreal-based Bombardier Inc., a manufacturer of subway and train cars.