It has been a crazy year for U.S. stocks, with the
market surging higher into the spring, slumping badly in the summer and regaining some lost ground as the year came to a close. After all that swing, the S&P 500 stands right where it was last Christmas.
Our neighbors to the north have not been so lucky. The iShares MSCI Canada fund (NYSE: EWC), which owns a basket of that country's largest companies, has slumped 15% in the past year. In fact, the fund is right back where it stood in February 2007. This flat performance is a bit curious when you take a deeper look at the Canadian economy, which in many respects, stands on much firmer footing than the U.S. economy. As such, Canadian stocks represent a great opportunity.
To be sure, the U.S. and Canadian economies are heavily interdependent. But recently, the Canadian economy has demonstrated resiliency even as the U.S. economy has sputtered. In the third quarter of 2011, the Canadian economy grew at twice the pace of the U.S. economy. This marks the sixth-straight quarter the Canadian economy has grown at a faster clip.
Some of the growth differences can be explained by the structure of the two economies. Canada has a greater focus on natural resources and is benefiting from rising output at key mines and energy fields. Yet another part can be explained by the confidence business leaders express. In the past four quarters, the Institute of Supply Management's (ISM) index of purchasing managers has been stuck in a tight range of 50.6 to 52.7 here in the United States. (Any number above 50 signals an upturn in activity). In Canada, the same survey has yielded readings between 55.6 and 63.4. Simply put, Canadian firms are ending 2011 on a much more bullish note.
Looking beyond recent economic indicators, the Canadian economy stands on firmer footing by other key measures as well.