Investing in Canadian Stock

According to Statistics Canada, Canada’s economy is one of the wealthiest in the world. The claim was made in 2010 when the country’s GDP came up to an impressive $1.574 trillion. Needless to say, now would be a good time for both local and international investors to invest in some Canadian stock.

Of course, investing in any country’s equity can be a mystery to investors if they are new to stocks even if they happen to be locals. Here are some of the basics of trading on the Canadian floor –

How to Invest in Canadian Stock

The country’s stocks and bonds can be purchased in a variety of ways. For example, these can be purchased directly on the –

  • The TSX (Toronto Stock Exchange)
  • The CNSX (Canadian National Stock Exchange)

Investors or shareholders can also purchase Canadian stocks and bonds through ADRs (American Depository Receipts) or ETFs (Exchange Traded Funds).

Toronto Stock Exchange

The TSX is the largest stock exchange in country and the seventh largest of its type in the world in terms of market capitalization. It represents a large number of Canadian businesses and strong economies such as the United States and Europe to name a few.

Canadian National Stock Exchange

The CNXS was approved as an official stock exchange by the Ontario Securities Commission 70 years ago and serves as an alternative for emerging companies and micro cap. In addition, instead of requiring investors to trade on traditional “open outcry” trading floor, the Canadian National Stock Exchange is fully automated and requires investors to create online trading accounts in order to trade.

American Depository Receipts

An ADR or American Depository Receipt represents an investor’s ownership of shares in a foreign company. Furthermore, American Depository Receipts make international companies more accessible which is why this particular resource is such an enticing prospect to investors looking to put their money on successful global prospects.

According global product manager of depository receipts at Deutsche Bank Edwin Reyes, “Depository Receipt trading reached an all time high at $1.3 trillion for the first half of 2007, up 45% year-on-year and surpassing all of 2006.”

Of course, any purchase of security should be treated with a level of caution. Investors should keep in mind that their ADR investments will be exposed to the same risks as their domestic investments. For example, in economies like Canada, the local currency is tied to the price of commodities. This means that the value of the currencies may drop if the price of commodities, like oil drops.

With a strong base in natural resources, a stable monetary policy and a low budget deficit, Canada is considered to be a haven for investors. According to Bloomberg.com, Canadian stocks rose in January 2014; a feat that sent the benchmark index to its best performance since 2010. Of course, investing in any stock exchange comes with its share of risks. However, a few lessons on how Canadian stock exchanges work, the state of the local commodities market and keeping your own personal priorities in mind might be all it takes to invest successfully.

Actual U.S. Debt-to-GDP Ratio is Much Higher Than Official Rate

As the world’s lone superpower and issuer of the world’s reserve currency, the United States holds a prominent position in the world. Its Federal Reserve has one of the most complete collections of economic statistics on the planet. But more financial analysts are noticing a growing discrepancy between the “Official U.S. debt-to-GDP ratio” and the “Actual U.S. debt-to-GDP ratio” (when Unfunded Liabilities and Off-Budget Obligations are added).

The credibility of governments and banks has been sorely tested by admissions of guilt in manipulating LIBOR and other important economic rates. Some politicians might try to “paint a rosier picture” for a bad economy with inaccurate statistics. The actual U.S. debt-to-GDP ratio is much higher than the official rate due to the exclusion of at least three obligations: 1) Unfunded Retirement Benefits, 2) Freddie Mac and Fannie Mae and 3) Military Spending.


Governments Have Best Access to Economic Data


All financial analysts will admit that governments have the best access to economic data due to their power, money and authority. John Williams is an independent financial analyst who reviews published government financial statements to identify anomalies. On December 22, 2010, John Williams wrote in his “Special Commentary No. 340 on Financial Statements of the U.S. Government” that [t]he latter set of numbers [on U.S. debt] reflects GAAP accounting (generally accepted accounting principles), which, at present, excludes the level of and annual changes in the net present value of unfunded liabilities for Social Security and Medicare in balance sheet and income-statement accounting.” He calculates the debt with and without these large programs included.

Besides these retirement obligations, the mortgage programs of Freddie Mac and Fannie Mae were not included in the official budget figures. Add the CIA, NSA and “black box” military spending of the off-budget list too. For 2010, John Williams calculated that the Official debt-to-GDP ratio was 94% and the Actual debt-to-GDP ratio was 529%.


Cross-Reference of Unfunded Obligations


Credit bureaus and investors must question the financial health of nations that place more “obligations” off-budget. Here is the data from “http://www.usdebtclock.org/” for cross-reference purposes on July 16, 2013:

+ U.S. GDP = $15.8 trillion

+ U.S. Official Debt = $16.8 trillion

+ “Official Unemployed” = 11 million

+ “Actual Unemployed” = 22 million

+ Gross Debt-to-GDP Ratio = 106%

Unfunded Liabilities -

+ Social Security Liability = $16.4 trillion

+ Prescription Drug Liability = $21.8 trillion

+ Medicare Liability = $86.6 trillion

+ Total for U.S. Unfunded Liabilities = $124.8 trillion

The inclusion of “Official” versus “Actual Unemployed” shows that the accuracy of other government statistics are being questioned too. The line for Social Security = $16.4 trillion is higher than the annual GDP of the entire country.

So let’s do the calculations using these figures: “Official Budget Debt” of $16.8 trillion plus “Unfunded Liabilities” of $124.8 trillion equals $141.6 trillion. Divide that by a GDP of $15.8 trillion and the result is a U.S. debt-to-GDP ratio of 896%. So now we can understand why the United States government is placing so many of its debt obligations in the off-budget category.