The worldwide investment arena has changed dramatically over the last four or five years due in the main to the US mortgage crisis which very quickly impacted the worldwide money markets and has been followed by other financial meltdowns. This in itself has brought about a number of different investment strategies from investors around the world and we thought it would be interesting to have a look at specific strategies amongst expats in different countries.
The situation in Canada is relatively upbeat compared to the vast majority of economies around the world but will this upbeat situation be reflected in investment strategies?
Much the same as Australia, the Canadian economy is very much weighted towards the mining sector and natural resources. As a consequence Canada has remained relatively strong throughout the ongoing worldwide economic downturn and is continuing to attract more than its fair share of expats to the region. This is a country which has only recently decoupled itself from its North American cousin which was effectively dictating economic activity due to a one-sided trading relationship.
Thankfully Canada has recently been able to step out of the shadows of its North American cousin and take its own position on the worldwide stage. It is a country which has everything from wonderful scenery to a growing economy, a buoyant employment market to a relatively strong government. Indeed David Cameron is said to have based his austerity measures on a similar ploy introduced by the Canadian authorities when the worldwide economic downturn hit home. So, Canada has very much come of age over the last decade or so and the economy is still very robust even during these difficult worldwide times.
So rather than looking at the investment arena from a downbeat viewpoint it will be interesting to see how Canadian expat investors view the situation from a relatively upbeat viewpoint.
The property sector has emerged as the major investment arena in the eyes of expats living Canada. Since the Canadian economy began to power ahead, buoyed by the natural resources available to the authorities, there has been significant demand for property across the country. While there are a number of regional variations with regards to property prices and property types, on the whole the market has remained fairly buoyant for some time now.
The Canadian central bank has only today indicated that it will do “whatever necessary” to encourage further economic growth in Canada which will be to the benefit of all investment markets. This is a country which is very much looking forward, planning for the future and able to make decisions which in the past may have been influenced by trading partners. The more buoyant the Canadian economy the more demand for property, both from domestic investors and overseas investors, which has not gone unnoticed by expats.
When you take into account the fact that precious metals, number two on the list, only registered 23.08% of the vote it perfectly reflects the underlying strength of the Canadian property market.
Precious metals (23.08%)
When you consider property and precious metals there are no other investment sectors which come anywhere near these two amongst Canadian expats. The situation with regards to Canada, and investing in precious metals, is very similar to that in Australia because the country itself is benefiting from rising precious metal prices and other natural resources such as oil and gas. Therefore it is no surprise to learn that investors are certainly very keen on precious metals as an alternative to the stock markets of the world which are struggling to push forward.
The most precious metals in the eyes of many investors is gold and when you consider the price has moved from $300 an ounce back in 2000 up to $1600 an ounce today, peaking at $1800 an ounce in 2011, this reflects the power of this sector. However, it is worth noting that precious metals such as gold have benefited enormously from a flight to “safe havens” as stock markets around the world continue to deliver disappointing performance figures. At some point we will likely see the transfer of investment funds from the precious metals arena to the more traditional stock market sector but only when the worldwide economy has consolidated and is ready to move ahead. When this will be is anybody’s guess.
Classic cars (11.54%)
Classic cars may not be one of the first investment sectors on the tongues of many expats in Canada but it seems that there is an above-average interest in this particular arena. Figures suggest that investment in classic cars is making a comeback and again it has benefited from the volatility in worldwide stock markets and the ever-growing demand for “safe havens”. Whether or not you could class classic cars as a safe haven is a matter for debate because very often an investment in a classic car could well be a long-term project.
It is also worth pointing out that these are very specialist markets and private investors automatically assuming there is money to be made in every classic car investment will be disappointed. Very often it may also prove difficult to liquidate an investment in a classic car due to the fact there are limited buyers and it is still seen as a relatively niche market. Having said that, the statistics also reveal that investment in classic cars continues to rise and many of the vintage classic cars grab the headlines with astronomical sale prices. If you’re looking to invest in this particular arena you should take professional advice as soon as possible.
Research conducted by Barclays international has shown that there is a greater demand for art around the world, a demand which has fed into the investment arena attracting the attention of expats and domestic investors. There are likely to be many people out there who have never considered the art market as a bona fide investment arena but when you bear in mind the sector itself is valued in excess of $100 billion a year it is a significant investment sector.
Official statistics also suggest that 30% of the current investment in art world comes from Chinese investors and while this does place a dependence upon this particular set of investors, with their economy growing they appear well funded for the future. There are many different areas of the arts market to consider and, as you might expect, we strongly recommend taking professional financial advice before parting with any of your hard earned cash. While some of the more attention grabbing artworks which change hands for tens of millions of dollars may have a “real value”, there are many artworks which come and go with fashions and trends and prices can be volatile. Do your homework!
Stocks and shares (3.85%)
The stocks and shares market, i.e. stock markets around the world, have been a dismal performer over recent years due in the main to a variety of different financial crisis. If we look back to the US mortgage crash of 2008 we have seen a flurry of other financial disasters culminating with the loss of well-known investor names such as Lehman Bros. When you consider that investment houses with centuries of history were effectively assigned to the dustbin it perfectly reflects the very difficult financial environment in which we live today.
The fact stocks and shares appear so low down the investment list of expats in Canada, and indeed many around the world, should not be a total shock when you bear in mind that investor sentiment is also very low at this moment in time. Many investors around the world, and even Canada despite the economy been fairly buoyant, are still nursing significant losses and reluctant to commit large amounts of their hard earned cash to the shares market at this point in time. Human nature determines that in times of trouble we can be over pessimistic while in the good times we can be overoptimistic, so when will the good times return?
The antiques market is one which we offered to expats in Canada but it is one which appears to be fairly out-of-favour compared to the likes of property, precious metals and even classic cars. However, it is an area which has received more interest of late as worldwide stock markets continue to falter and investors look for alternative investments. There is an argument for saying there are underlying valuations for specific antiques but there is also an argument that many antique valuations are susceptible to trends and fashions.
Indeed, the influx of investment funds into the antiques market, as a consequence of more traditional market struggling, could very quickly be reversed as when the worldwide economy improves. This could leave many investors nursing antiques which have fallen in value and may prove very difficult to dispose of in the short term. This is a very specialist market which needs very specialist advice at a very early stage. It is possible to make a significant return on antique investments if you have done your research and you have the relevant professional advice to hand but be careful!
Fine wine (0%)
The popularity of the fine wine investment arena does vary significantly from country to country and unfortunately this particular asset class received no votes amongst expats in Canada. However, on a worldwide basis there is no doubt that investment in the fine wines industry has increased dramatically over the last 20 years or so and indeed it is now more heavily regulated than ever before.
This is a specialist market which attracts investors from Asia, Russia, South America, Europe and India to name but a few areas of the world. There are so many different varieties of fine wine to choose from that many valuations come down to preference and indeed in the eyes of some people it can be difficult to value such commodities. There are a number of specialist advisers available today who will be able to research specific types of fine wine and give you advice on whether they are an attractive investment proposition.
Those private investors who believe they can buy any fine wine and make money in a relatively short space of time may well receive a significant shock because this is not a market to enter without researching the background. However, it is also worth noting that you do not need to physically invest in individual bottles of fine wine as there are a number of fine wine investment funds in which you can buy units. These are far more liquid, if you excuse the pun, than buying individual wine assets!
Risk reward ratio
Whatever type of investment you are looking at, whether it is property, classic cars or something else, you need to consider the risk reward ratio to see whether it is in theory a sensible investment. In simple terms you need to compare the risk of investing in a specific asset and a specific asset class against the potential reward in the short, medium and longer term. Only then will you be able to compare and contrast the theoretical value of investing in specific assets and decide your strategy going forward.
As the worldwide economy is struggling at the moment a number of asset classes are now attracting a higher risk ratio in order to obtain an acceptable reward ratio. One perfect example of this was the money markets in the aftermath of the credit crunch in America back in 2008 which saw a number of lenders leave the sector. As a consequence, those lenders who remained in the money markets were demanding a higher return on their investment because of the perceived greater risk of third-parties defaulting on their liabilities. More recently we have seen an increase in the interest rate on Spanish sovereign debt, which recently touched 7%, because investors believe there was more chance of the Spanish government defaulting.
The principle of the risk reward ratio is very simple but putting it into practice is often a little more challenging. However, it is something that you should always have in the back of your mind when investing any of your hard earned cash.
There is no doubt that the worldwide economy is still struggling and events within Europe are causing ripples across the globe. Historically the US market was the leading economy in the world and while to a certain extent it still is, the situation Europe is still taking centre stage. There is no doubt that the European Union leaders need to come to an agreement in relation to bailout funds, how these are administered and quickly.
The recent increase in Spanish sovereign debt interest rates, which peaked at around 7%, perfectly reflects the very difficult situation many governments are facing. The rate has now come down to near 6% in light of an agreement in principle between European Union leaders which would see bailout funds for domestic banks channelled straight into the troubled banks rather than through the government which would then need to add this funding to their overall debt position. This may seem a little like smoke and mirrors to many people but it does help, assuming it goes ahead, to reduce sovereign debt.
There are some who believe that while the US economy is starting to make progress, the future of the worldwide economy hinges fairly and squarely on the European situation. If European leaders are able to put into practice the recent agreement then there is every chance we could start to see progress made but we have seen a number of false dawns in the last few months which have alienated many investors. Therefore investor sentiment on the whole is still relatively low although this is not surprising when you bear in mind we have made very little in the way of progress since the initial credit crunch part one back in 2008.
It is perhaps no surprise to see that property and precious metals are very much at the forefront of the minds of expats in Canada looking to invest their cold hard cash. This is a country which has fared significantly better than many of its overseas counterparts due in the main to a massive stockpile of natural resources taking in mining to oil and gas. To be fair to the Canadian government they have more than made use of this strong position and used it to further diversify the underlying economy.
It is also worth remembering that this is a country which continues to attract more and more expats and seems more willing to accommodate those with specific skill sets which may be in short supply across the region. Whether we see the re-emergence of stocks and shares as a more prominent investment vehicle in the medium to longer term remains to be seen but it is not difficult to understand why some investors are reluctant to invest in the stock market bearing in mind the worldwide situation and specific problems within Europe.
However, there is no doubt that Canada is in a much stronger position than many leading economies and will probably exit the worldwide economic downturn with a far louder voice on the international trading stage.