Title: Canada Plays China Card

Word Count:
758

Summary:
Trade friction and power leverage has led to an unprecedented Canadian coverage of ?communicate loudly and carry an enormous piece of lumber? coverage in direction of the United States.

The lengthy operating dispute over American tariffs on Canadian lumber escalated to the purpose final week that Canadian Prime Minister Paul Martin not directly linked settlement with continued U.S. entry to Canadian power provides. Meanwhile, Canadian Natural Resources Minister John McCallum was off to China to fulfill wi…

Keywords:
etf, ishares, funding publication, investor publication

Article Body:
Trade friction and power leverage has led to an unprecedented Canadian coverage of ?communicate loudly and carry an enormous piece of lumber? coverage in direction of the United States.

The lengthy operating dispute over American tariffs on Canadian lumber escalated to the purpose final week that Canadian Prime Minister Paul Martin not directly linked settlement with continued U.S. entry to Canadian power provides. Meanwhile, Canadian Natural Resources Minister John McCallum was off to China to fulfill with Chinese oil, mining and forestry officers.

This is critical enterprise. Part of the 1994 NAFTA Free Trade Agreement assured that Canada would stay the favored provider to the U.S. It may shock you to study that Canada provides 17% of U.S. oil imports, 16% of our pure gasoline and practically all of our hydroelectric energy. The Canadian authorities owns the overwhelming majority of the nation?s power sources and Canada exports greater than 1.5 million barrels a day to America representing 8% of U.S. consumption.

China?s Lengthening Reach

Meanwhile, China?s aggressive strikes in Canada?s power sector are elevating eyebrows in Washington. Chinese authorities has earmarked $100 billion for abroad acquisitions of oil and gasoline. The Chinese are occurring a shopping for spree investing in Canadian power corporations and not too long ago plunked down $2 billion to construct a thousand mile pipeline from Alberta tar sands to port on the west coast and onward to Beijing and Shanghai. While the oil reserve numbers for Saudi Arabia are underneath scrutiny, Canada has recoverable reserves of roughly 175 million barrels. Much of it’s in oil sand that’s processed profitably at oil costs of $20 or greater and T. Boone Pickens thinks that Canada?s oil sand manufacturing may attain 6 million barrels a day

There at the moment are about 1 million ethnic Chinese residing in Canada and China is now Canada?s second largest buying and selling associate. Last month, Chinese President Hu Jintao visited Canada and declared that the 2 nations had upgraded their relations to a ?strategic partnership?.

The US?s Waning Grasp

This Chinese-Canadian energy play places America in actual jam. You may write a e book in regards to the lengthy simmering lumber dispute however a Nafta panel not too long ago ordered the U.S. to return $5 billion of collected tariffs to Canadian lumber corporations. Relations with Canada had been additionally weakened earlier this yr when Canada introduced that it could not contribute to the American-led missile protection program although 90% of Canadian residents stay inside 100 mile of the border between the 2 nations and Americans buy 85% of complete Canadian exports.

What?s occurring? Part of the reply is that the overwhelming majority of Canadians oppose the insurance policies of the Bush Administration. The subject is delicate in lots of areas throughout Canada which can be extremely depending on the lumber business and Mr. Martin and his occasion are making ready for nationwide elections anticipated early subsequent yr. It is at all times a vote getter to poke a stick within the eye of the elephant to the south.

How to Play

While Canadian-American relations have seen higher days, the power growth has definitely been helpful to buyers in Canadian markets. The Canada iShare (EWC) tracks the MSCI Canada Index that has 40% publicity to Canada?s power and supplies sector. While the S&P index is up solely 3%, the Canada iShare is up 16.6% yr thus far and 28.8% over the previous twelve months.

Speaking of timber, it’s sensible to have some timber publicity in your portfolio and I’ve had timber REIT Plum Creek Timber (PCL) in our core portfolio for over two years. Here is why I prefer it. First, timber is a good inflation hedge and over the previous 100 years has risen 3% above the typical annual inflation fee. Secondly, timber shouldn’t be correlated to shares or bonds and thus is a good ?shock absorber? to cushion your portfolio when shares are declining. During the Nineteen Seventies bear market, timber rose in worth whereas shares went down. Thirdly, from 1973-2000 timber yielded a median annual return of 15%. Last however not least, timber valuations are engaging after some declines throughout 2000-2002 particularly relative to actual property costs. During 2004 Plum Creek was up 23% and this yr it has traded between $34 and $39 ending final week simply over $35 with a horny dividend yield of 4.3%.

It behooves the U.S. to barter a settlement to the lumber dispute as quickly as doable and lock up Canadian power sources earlier than the Chinese get the leap on us. Investors can?t do a lot about enhancing Canadian-American relations however they’ll enhance their portfolios by including publicity to timber in addition to to Canada as each an power and China play.

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