The World Market Super Performer: S&P/TSX

Back in July 2007, we saw the beginning of what is going to be the source of the next recession; the credit crisis. The little cookie monster that we ignored while he was doing its first steps grown up into a real Godzilla crashing our financial companies skyscrapers (remember Bearn Stearn a few month ago, right?). Well believe it or not, there are 2 markets that are surviving so far: the Brazilian market and the Canadian market; the S&P TSX.

Since the beginning of 2008, there are the only two markets offering positive returns with 14.51% for Brazil and 6.18% for the TSX. In regards to the other members of the BRIC, Russia is at -0.93% because of its oil while India and China are showing disastrous yield or -18.60% and -32.08. I guess that manufactured I Pods and Blackberries are less valuable than gasoline in our cars!

Is the Canadian market will continue outperform the world economy?

I would start my answer with a “ish…” and then I would add “aaaaah…. Bacon…!” (Homer Simpson, get out of this post!). Seriously, there are several reasons why we should be concerned about the TSX index astonishing trading peak.

Canadian very dependant economy

One of the biggest reasons why the Canadian stock market did so well is because of its high concentration in sectors such as materials and energy. With 50% concentrated in these sectors (and a heavy concentration in financial services as well), there is only the Norvegian market with a 65% concentration in energy and material sectors that is more exposed to the price of natural resources.

The world economy is slowing down

Since the global market is slowing down as Homer Simpson on a treadmill, there is a great chance that the demands for natural resources will decrease as well. Since even the BRIC are putting their foot on the brakes, there is not much hope for the energy sectors.

More specific information on oil

As you probably know already, Canada has one of the biggest oil reserve on the planet. This is good news since the crude oil price keeps going up like my craving for ice cream (I decided to put an end to my relationship with desserts lately). However, there are many economists thinking that such high prices are only motivated by speculators and hedge funds trying to bring the barrel on the top of the mountain before it rolls down on the other side.

There are also several Asian countries that were supporting the oil price via subsidies. Those are about to pull out the plug of generosity as fuel is burning down their budget.

So in the end, the best approach is to reduce your exposure to the Canadian market and turn your investments towards markets that are more independent in front of the energy (such as the S&P 500 which contains only 18% in those industries).

 

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