With financial turmoil and uncertainty in Europe and America continuing to dominate investor thinking, investors should have a closer look at Canada as a place to invest. Canada is well regarded as an important player in the resource industry. Few investors recognize just how important this country is to the resource industry and fewer appreciate the other strong reasons for investing in Canada.

Canada has been ranked number one in Forbes’ annual review as the Best Countries for Business. It is considered the fourth largest equity market by float capitalization in the MSCI World Index. According to the World Economic Forum, for three years in a row Canada has been ranked as having the World’s soundest banking system. It also has the lowest debt-to-GDP among the G7 and has a strong equity culture.

Canada’s Toronto Stock Exchange (TSX) and the associated Venture Exchange (TSXV) were the global leader for new listings in terms of numbers of companies in 2011, 2010 and 2009. Those exchanges now list companies with a $2.0 trillion market capitalization.

Canada is incredibly resource-rich, ranking as the world’s largest producer of zinc and uranium and a major producer of gold, nickel, aluminum, lead and a host of other metals and minerals. Beyond its place as a mining leader, Canada is the most important country in the World in terms of mining finance.

Canadian exchanges host the listings for 58% of the world’s public mining companies. Last year, Canada is ranked #1 in new mining listings globally. Canada is the clear leader in mining financings. Last year, 90% of all global mining equity financing deals were done on the TSX and TSXV. Canada’s portion of the equity capital raised globally for mining in 2011 was 39%. That figure was skewed last year by a huge financing in London: The Glencore IPO raised $9.5 billion in London, rating that city number 2 behind Canada. Aside from that one deal, Canada dominated global mining finance.

Aside from considerations of the mining industry, investors globally are beginning to recognize the fundamental strengths of the Canadian economy and for having the World’s soundest banking system.

Market Update

Previously I noted that investors in Europe and North America were greatly concerned about the situation with regard to the euro, and also to the enormous and ballooning debt levels of governments throughout the developed world. Those concerns had led to intense selling pressure which has depressed the prices of most equities, and in particular those companies with an element of risk. Resource stocks have been particularly hard hit.

We all know that at some time the markets will turn. We also know instinctively that we should buy equities when the market hits bottom and begins to turn upward. The challenge is to knowexactly when that moment is upon us.

The ten-year chart of the Venture Index shows that a recovery can happen quickly. For example, after the Global Financial Crisis of 2008, the index turned up sharply after hitting bottom. In just over two years, the index had more than tripled.

I don’t mean to belittle the enormity of the problems facing both Europe and America, but I would point out that the media has a big tendency to paint the worst possible picture of what might happen. For example, attention is heavily focused on the situation in Greece. People seem to have forgotten that Greece has already defaulted on its debt. The bond holders have already agreed to a “haircut” that effectively eliminated 70% of the value of those bonds. It seems unlikely that if Greece were to completely forfeit the remaining value it would bring down the global financial system. Yet, that is what some people are anticipating.

Looking beyond the near-term: Bailouts upon bailouts upon bailouts are creating oceans of new euros and new dollars with little or no fundamental support. I’m not expecting a cataclysmic event at the end of all this turmoil. I see the Western economies muddling through one crisis after another, eking out modest gains in their various economies. In the meantime, the developing world continues to systematically build infrastructure and productive capacity, leading to a growing level of wealth.

In the meantime, mining companies are producing as much metal as they can, generating profits and amassing a record $100 billion cash balance. Those companies are looking beyond today’s headlines and planning for the future. That future involves building new mines to replace depleted mines and to match long-term growth in demand.

The larger mining companies will continue a shopping spree that will see many more juniors being taken over at prices that are well above the current prices.

In addition to investor fear, the junior resource markets face a major challenge of their own making. Investors poured billions of dollars into this sector in the past couple of years. Much of that investment was badly-placed. While resources were in vogue, investment managers the world over were tasked with placing vast amounts of money in small companies. Lacking the skill and experience to differentiate among the literally thousands of companies in the space, the money was strewn far and wide.

Not surprisingly, many high-risk investments failed to pay off and the fundamental values of many of the companies plummeted. Those same investment managers who came naively into the sector are now facing redemptions. The selling is as indiscriminate as the buying was. In fact, the better companies in many cases are being hit harder than the outright dogs: The good companies at least attract a bid.

It is my belief that many companies will continue to be pushed lower as investors unload their shares into a market with few buyers. Those investors who know the industry well are patiently accumulating the companies with sound, fundamental value.

As a result, the “market” may continue to go lower. The higher quality companies are finding bottoms. Now is the time to be accumulating shares of carefully selected companies.

By Lawrence Roulston
www.resourceopportunities.com

Resource Opportunities
1510-800 W. Pender St
Vancouver, BC
V6C2V6 Canada