Canada's shrinking stock market
The Financial Times reports on a series of high-profile foreign takeovers of Canadian companies:
This is getting serious: on current trends Céline Dion might be the only Canadian icon left. Many others are being picked off by foreigners. This year’s disappeared include Canada’s oldest corporation, the Hudson’s Bay Company; its two biggest nickel miners, Inco and Falconbridge; its steelmaker Dofasco; and ATI, its second biggest technology company.
Is Canada’s stock market really vanishing? There is some numerical evidence. Foreign takeovers have reached US$78bn in 2006 to date, equivalent to 6 per cent of average 2006 market capitalisation, according to Dealogic. On a net basis, things are more balanced. Thanks to the efforts of, for example, the biggest remaining miner, Barrick Gold , which bought US-based Placer Dome a year ago, the net attrition to foreign takeovers has been 2-3 per cent of market cap since 2004.
The reason for this is pretty simple: Canadian investors are selling their shares in Canadian companies and buying stocks in other countries. Since 2000, Canadian net purchases of foreign stocks were about $C 60b more than foreigners' purchases of Canadian stocks. Quite sensible behaviour. As the FT notes,
Canada’s equity market [has] two problems... The first is skewed composition: energy and mining have a weight of 44 per cent. Financials comprise another 31 per cent, concentrated in the “big five” banks. It is just as well restrictions on local pension funds investing overseas have been abandoned: the market is a bizarre benchmark.
