New China Investment in Canada

Well good news to investors comes today from an agreement between Ottawa and Beijing to allow Chinese insurers access to the capital markets in Canada, which would bring in potentially billions of new dollars into the TSX and the Canadian bond market; this will undoubtedly help push up asset prices in our relatively small market, as the Chinese seek to diversify their holdings out of US Treasury instruments.  The Finacial Post says:

The China insurance pact comes on the heels of the decision by Ottawa to stop a proposed bid by Australia’s BHP Billiton Ltd. to acquire Saskatoon-based Potash Corp. The ruling sparked widespread worry among policy experts that Canada would find it difficult in the future to attract foreign investment, which is required to help boost innovation, domestic competition and lacklustre productivity.

The Financial Post suggests this is welcome news in the light of recent events. The Canadian journalist community had convinced themselves that the failed Potash bid of Australian mining company BHP would send a negative message to foreign investors.  However, according to a very thorough article in the Globe and Mail on the failed deal, the fault lies entirely with BHP, starting with their low-balling the initial bid, making it so that neither the Potash board of directors nor the province of Saskatchewan were much interested in the offer.  In other words, if you want Canadian assets, you better be ready to pay a premium for them, and that is as it should be.  The BHP bid of $130, though 20% above the price of the day of the offer, was ridiculously below POT all time high over $244.

In my view, this is another reason to be bullish on the Canadian oil and gas sector.  In China, there is a growing demand for energy and a diminishing stock pile, as the WSJ has pointed out (hat tip Devon Shire).  I believe that the Chinese insurers will seek out energy stocks as one of their main interests, as they know their own demand for the products will continue to force up the price.  Meanwhile, there are still deals to be made in the TSX.  For example, Petrobakken has made a serious dip since its quarterly report, as investors were disappointed with less than spectacular results caused  by wet weather which hindered drilling.  Penn West Energy and Pengrowth Energy are both dipping, having both been downgraded by TD Newcrest from Action Buy List, to Buy–based only on their recent, dramatic increase in share price.

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