No doubt about it, Canadian investors have a lot to complain about. The marketplace is on a roller-coaster, pulled by doing this which by forces beyond our borders. The S&P/TSX composite was down more than eight percent by mid-January as benchmark oil prices dipped below US$30 a barrel and China continued to swoon. It recovered on speculation Russia and the Organization of Petroleum Exporting Countries would accept production cuts. Now the recovery proved short-lived, as oil prices once more dipped below $30. And so on.
Meanwhile, the Canbuck may be worth less against the greenback than anytime since 2002. Bank of Canada Governor Stephen Poloz says we need to get accustomed to inflation.
Closer to our pocketbooks than our portfolios, we’re already paying more for cauliflower and meat and oranges. Heck, a lot of us can’t even manage to escape from everything in Vegas or Miami, since we’re paying a 40 per cent premium on everything stateside.
Canada’s economy is a zombie, our stock markets basket cases – right?
Well, it depends how your perception. You have to maintain perspective (at least that is what they are saying). So when you do that, one thing becomes clear: maybe it’s a lot worse.
Like, say, should you lived in Brazil.
The comparison is not altogether out of left field, though there are obvious differences between Canada and the place in which the nuts originate from. Brazil is home to 200 million people. It’s an emerging economy. They’ve jungles there, for screaming loud. Plus they speak Portuguese, largely.
Yet there are some similarities. GDP both in countries hovers around US$2 trillion (Canada slightly below, Brazil slightly above). Moreover, Brazil is subject to the fluctuations of global markets, since it is hugely reliant on the export of commodities like oil, iron, meat and grain.
Like Canada, Brazil’s economy, currency and stock market have been hit hard by the double whammy of decimated oil prices and China’s economic slowdown.
Yet as much as we complain, the harm Canada has sustained from all of these twin factors is similar to Brazil’s in kind, but not in degree. Not with a long shot.
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The Brazilian real has fallen from the greenback by nearly 30 percent in the last Twelve months, making the CAD’s 8.8 per cent decline look piddling.
Brazil’s consumer price index rose by a lot more than 10 per cent in 2015; Canada’s rose by 1.6 percent, despite 3.7 per cent food inflation.
Yes, Canada’s economy barely grew this past year, but Brazil’s shrank by nearly 3 percent – the deepest recession for the country since 1901.
Meanwhile, and hardly surprisingly, Brazil’s Ibovespa stock index has fallen 20 percent previously year, and most 8 percent in 2016. The S&P/TSX composite’s 12-month return is -14.35 per cent, and YTD its -3.43 percent.
Compared with Brazil, that’s positively stellar.
This leaves the issue of why. Exactly why is Brazil doing so badly when Canada is doing, well, just bad?
Here we are able to consider a few things we should be thankful for.
First, enjoy it our economy isn’t as closely tied to China’s as Brazil’s economy is.
Brazil literally bet the farm on Chinese growth this millennium. Its trade with China expanded a lot more than 40 times between 2000 and 2013, making China its largest trading partner in place of the United States. Now, with Chinese economic growth foundering, Brazil is paying the price.
At least we still have America to rely on.
Second, be thankful Canada’s government doesn’t really matter that much, comparatively speaking. That is, when Canadian governments ruin, markets don’t care: You will not be hearing any talk of a Mike Duffy factor on Bay Street.
In Brazil, it is a different story, and a different order of magnitude. The federal government under Dilma Rousseff is embroiled inside a widening scandal involving alleged kickbacks, bribery and embezzlement that threatens the administration. It has no doubt helped fuel uncertainty in the stock exchange C which is, incidentally, the most volatile exchange in the Americas.
It does not help the country’s state-owned oil company, Petrobras, reaches the epicentre from the scandal. Its share price recently tested US$1. (Which jogs my memory of some other thing to be pleased about: Canada does not have a state-owned oil company anymore.)
Third, enjoy it we don’t have real stagflation (yet), which our central bank can still do something effective (probably).
You think Stephen Poloz is caught between a rock along with a hard place? Think about the central bank of Brazil. Its key interest rate has already been at 14.25 per cent, and the economy is shrinking. Raising rates to fight rampant inflation could deepen the current recession (and spark a well known revolt), but lowering rates to stimulate the economy could stoke further inflation. No surprise it chose to do nothing at all and hold rates steady last month.
There’s more, of course: the Zika virus, an upcoming Olympics coping with huge cost overruns, and so on.
This isn’t to revel in other people’s misery, only to point out that around we complain (with a few justification) about the state of the economy and markets, Canadian investors have fared OK, all things considered.
And since we’re all feeling better, we can go back to complaining.