Strong Canadian dollar adds muscle to TSX

Sun May 25, 2008 1:06pm EDT
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By Jonathan Spicer

TORONTO (Reuters) - It's been a bloody year for world stocks, but above the fray, Canada stands with Brazil and Mexico as the only countries with unscathed major indexes.

The pattern of course is that soaring oil has treated these three well, and left others grappling with its high costs.

But Canada has a second trump card in its hand: the steady Canadian dollar, which allows global investors to park money in North American energy stocks without worrying too much about taking a hit on foreign exchange.

"When global investors look at Canada they're making a currency call and a sector bet," said John Johnson, chief strategist for Harbour Group at RBC Dominion Securities.

Conventional thinking is countries that produce the hottest commodities are unlikely to see their currencies decline.

While nearly 30 percent of Toronto's main index is devoted to energy companies, Sao Paulo's benchmark -- which has outperformed all major stock indexes by far in 2008 -- counts oil giant Petrobras as its biggest listing. And in Mexico, oil is the top source of foreign currency.

With crude futures logging record highs above $135 a barrel last week, speculators are snapping up shares of energy producers to get in on the party.

The rush has brought new capital, liquidity and a record surge to the Toronto Stock Exchange's S&P/TSX composite index, which surpassed the 15,000-point level for the first time last week.   Continued...