Many of the major investment themes that MoneyWeek has been talking about for years are now making it into the mainstream.
It goes without saying that you’ll have read a lot about oil in the press in the past year. And gold’s stellar performance has ensured that it is starting to make it onto the front pages as well. Even the world water shortage is starting to be recognised as a big problem – and potential profit opportunity.
But even although the mainstream press is catching on, we still believe there’s plenty of life left in these stories. There may be corrections on the way, of course, as MoneyWeek editor Merryn Somerset Webb points out further down this email – but that’s only to be expected in long-term bull markets.
And the good news is that one country gives you access to all three of these big themes. And better still, this country isn’t some strife-torn backwater – in fact, it’s widely recognised as one of the safest and most stable countries in the developed world…
Investing in Canada: the commodities boom
Canada has done extremely well out of soaring commodities prices. Commodities account for 35% of Canadian exports and about 10% of its $990bn economy. The country is sitting on large reserves of gold, uranium and nickel, to name just a few of its resources. This has helped lift the Canadian dollar to its highest level against the US dollar in nearly 30 years.
The commodities boom has also left miners sitting on hefty cash piles, which is driving consolidation in the sector. Canadian zinc miner Teck Cominco has just launched a surprise $16.1bn bid for rival Inco, a nickel producer. The offer is conditional on Inco abandoning its agreed takeover of nickel and copper miner Falconbridge.
But Falconbridge shares leaped on the news – because it is also being eyed up by UK-listed Swiss miner Xstrata. Xstrata already owns 20% of Falconbridge and has made no secret of its desire to own the rest of the group.
Investing in Canada: Canada’s oil sands
The biggest investment story however, remains Canada’s oil reserves. The oil sands in the Canadian province of Alberta are thought to contain more barrels of oil than Saudi Arabia’s Ghawar oil field – the largest field ever discovered in the Middle East.
The snag up until recently has been that getting the oil out of the sands is expensive. But with oil sitting at around $70 a barrel, the costs are no longer prohibitive.
And oil companies are clearly coming around to the idea that oil prices are going to remain high for the foreseeable future. Royal Dutch Shell has just bought Canadian oil sands group BlackRock Ventures for £1.2bn.
It’s the group’s second investment in Alberta in two months. According to The Telegraph, the price paid suggests that Shell believes that oil will remain at or above $50 a barrel in the long term.
It may seem like a hefty price to pay – BlackRock shares have already risen 64% this year. But as respected commentator David Fuller says on Fullermoney, the deals in both this and the mining sector show that “significant mineral resources in politically stable countries remain extremely attractive assets.”
Robin Griffiths at Rathbones Investment Management is another great believer in Canada and oil sands in particular. “America already buys more oil from Canada than other places and in 10 years time will have forgotten that it ever came from anywhere else,” he says.
The Canadian stock market, the S&P/TSX, is already up nearly 10% this year, and has more than doubled since its low point in October 2002. Mr Griffiths says that those looking to invest in Canada may want to wait for a correction, but “if we must own something right now then it has to be the tar sand stocks.”
Canada’s oil sands featured in MoneyWeek just a few months ago. If you’d like to read more about which companies can give you exposure to the sector, click here: How to invest in Canada’s black gold mine
Investing in Canada: is water the oil of the 21st century?
The other big story for the future could be Canada’s water. The country is one of the most water-rich in the world – a nice position to be in at a time when water is increasingly being described as the ‘oil of the 21st century’. You can read more about this, and how to invest in water, in this week’s issue of MoneyWeek, out on Friday.
And if you’re not yet a subscriber, you can get access to all the content on the MoneyWeek website and sign up for a three-week free trial of the magazine, just by clicking here: Sign up for a three-week free trial of MoneyWeek.
Turning to the stock markets…
The FTSE 100 ended up 38 points at 6,105. Mobile phone giant Vodafone was the main riser, up 3% to 130p, on renewed rumours that the group is set to sell its 45% stake in US unit Verizon Wireless. The mining sector was also popular once again, amid continued gains for metal prices. Anglo American rose 2% to £25.27 while Rio Tinto gained 1% to £32.55. For a full market report, see: London market close
Over in continental Europe, the Paris Cac 40 rose 29 points to 5,312, while the German Dax gained 12 to close at 6,140.
Across the Atlantic, technology stocks were battered by a profit warning from computer giant Dell. The Nasdaq fell 6 to 2,338. But the blue-chip Dow Jones was boosted by mining and energy stocks, rising 55 points to 11,639, its highest close since January 2000, and not far off its all-time high of 11,722. The S&P 500 was flat at 1,325.
In Asian markets this morning, the Nikkei 225 fell back, shedding 238 points to 16,951 as the dollar fell to a near eight-month low against the yen. Exporters such as car maker Honda and digital camera group Canon were among the main losers.
This morning, oil edged higher in New York, trading at around $70.70 a barrel. Brent crude was higher too, trading at around $70.90.
Meanwhile, spot gold hit a new 25-year high, rising to $702.10 an ounce before easing back to around $700. Silver was trading at around $14.44 an ounce.
And here in the UK, Dixons and Currys owner DSG International has said that annual profits look set to beat analysts’ forecasts, helped by the World Cup effect. Demand for flat-screen TVs in particular has fuelled a rebound in sales. Sales at stores open at least a year rose by 4% in the 24 weeks to April 29, after falling 3% in the first half.
And our two recommended articles for today…
Should contrarian investors avoid commodities?±
– Commodities were once the obvious choice for the true contrarian investor. But recent stellar returns mean that fund managers and the financial papers are now singing the sector’s praises, says MoneyWeek editor Merryn Somerset Webb – and that’s a major warning signal for contrarians. Although the underlying trend is strong, all the evidence points to a nasty commodities correction in the near future. To find out how far she thinks gold and oil prices could fall, click here: Should contrarian investors avoid commodities?
How much is gold really worth?
– Contrary to popular belief, the price of gold is little affected by demand for jewellery, central bank sales or even investment demand, says gold commentator Paul van Eeden. Gold’s value is determined in the same way as any other currency – it depends on its inflation rate. But how do you measure that? To find out, and to learn what gold’s fundamental value is currently, see: How much is gold really worth?