Canada Attractive to Foreign Investors: How to Invest in the TSX

- December 29th, 2011

Foreign investors added C$7.9 billion worth of Canadian securities to their portfolios in September. While the pace of foreign investment has slowed, down from C$12.1 billion in July, Canada still remains an attractive place for foreign investors looking to invest in a mature economy. Here is a How To.

By Karan Kumar – Exclusive to Resource Investing News

Investing in TSXForeign investors added C$7.9 billion worth of Canadian securities to their portfolios in September, according to the latest data from Statistics Canada. While the pace of foreign investments has slowed, down from C$12.1 billion in July, Canada still remains an attractive place for foreign investors who are eschewing the United States and Europe but looking to invest in a mature economy.

Statscan reported in November that foreign investment in Canadian equities slowed to C$306 million, adding that from December 2010 to June 2011, foreign investment in Canadian stocks through secondary markets totaled C$13.8 billion.

How to invest in the TSX

Foreign investors can easily invest in the Toronto Stock Exchange or another exchange in Canada through a broker or through private placements. Catherine Kee, a spokeswoman for the Toronto Stock Exchange, told Resource Investing News that about 40 percent of the volume traded on the TSX comes from outside of Canada.

Finding a broker is easy, Kee said, pointing out that investors can contact firms on Toronto Stock Exchange Participating Organizations and TSX Venture Exchange Member Firms from the homepage of the Toronto Stock Exchange. More than 1,500 companies are listed on the Toronto Stock Exchange and more than 2,000 on the Toronto Stock Exchange Venture exchange.

A broker handles an investor’s money, reviews and creates portfolios and buys and sells shares on the investor’s behalf. Brokers can help those seeking to invest in Canada monitor the market and come up with investment strategies. In Canada, brokers much be must have passed the Canadian Securities Course administered by the Canadian Securities Institute to make investment decisions on the behalf of individual investors.

Doug Casey, Chairman of Casey Research, said 60 percent of all the mining companies in the world are listed on Toronto Stock Exchanges. “Canada is the world’s largest exporter of minerals. That resource focus has made the Toronto Stock Exchange (TSX) and Toronto Venture Exchange (TSXV) meccas for the junior mining industry,” Casey added.

Why to invest in the TSX

Another reason Casey offers for investing in Canadian equities is that investors need to diversify out of the US dollar. “From 2002 to late 2010, the Canadian dollar gained 58 percent against the US dollar. By purchasing your stocks directly on the Canadian exchanges, (and thus in the Canadian dollar), your investments are not only protected against the US dollar losing value, they will appreciate with every tick down of the greenback. We think this is not only a basic tenet of proper diversification, but also a wise one in the current investment environment.”

The loonie appreciated 0.5 percent to C$1.0343 on December 15 afternoon, advancing from its lowest level in two weeks.

What to look out for

Casey advises investors to hire a full service broker even though trading via the Internet has made it easy to buy shares anywhere in the world. But he cautions: “You should never pay more than 3 percent to a full-service broker. And you should strive to pay no more than 1 percent for online purchases, which isn’t always possible, but that should be the goal.”

Another word of caution from Casey is regarding taxes in your own country if you invest in Canadian equities. “Although it’s not always the case, your holdings of a foreign stock may make you subject to US tax if the compa­ny is considered to be a passive foreign investment company (PFIC).” A foreign firm is considered a PFIC if either 75 percent or more of the company’s gross income is passive income or 50 percent or more of the company’s assets produce — or could produce — passive income, or are assets that produce no income. He adds that tax reporting requirements “are neither onerous nor complex, but they should not be ignored. Be sure to discuss the subject with your accountant or advisor.”

Why to invest in the Canadian market

John McCoach, President of the TSX Venture Exchange, said in May of this year that Canadian markets “have what the world is looking for right now. Strong and stable financial service companies – both Moody’s and the World Economic Forum ranked Canada’s banking sector number one in the world – and an abundance of natural resource companies.”

Even Canadian bonds have become more attractive for global investors. Bond buying increased by a net C$1.98 billion in July, as foreigners added C$3.18 billion in corporate debt while selling C$1.2 billion of government bonds, Statistics Canada reported.

“The global love affair with Canuck fixed income continued in July,” Michael Gregory, senior economist at Bank of Montreal’s BMO Capital Markets unit in Toronto, was quoted as saying in a Financial Times Deutschland story in September. “European sovereign debt risks and fears of a US Treasury downgrade were mounting, so global investors sought safer havens.”

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