....And speaking of our wealth, what about global diversification?

Published by on

THE $3 TRILLION QUESTION

The following chart from STATSCAN shows what we own as Canadians in foreign assets. If you figure that our total net worth collectively is $6.3 trillion, and our total stock, bond, GIC, and mutual holdings at all levels is just over $3 trillion, then it starts to become very evident that at about $800 billion, our foreign financial asset exposure is quite undernourished. While Canada's market capitalization is hovering around $2 trillion compared to a global market cap that is above $50 trillion, does that not imply that we would have just 4-5% of our financial liquid assets right here in Canada (after all, we're stuck with our domestic real estate)? And with globalization, rapidly expanding emerging markets, and much easier access to research and information, you would expect a more globally tuned in investor in this country.

OR SOME U.S. EXPOSURE?

And when it comes to the U.S., a market that gives us all the diversification we may need and the comfort of solid jurisdiction and good familiarity, our exposure is closer to $400 billion......$400 billion of a $3 trillion total? What a difference a decade makes. Back in the 1990's, RRSP investors could not get enough of their foreign/US content. There was an intense lobby to have the limits expanded to the point where foreign content could be 100% of the retirement account. Now it is an investment theme that your average investor could care less about. The investor's behavioral leaning towards the comfort food of familiarity is what rules in these nervous times.   

FROM STATISTICS CANADA www.statscan.gc.ca 

 Securities     Countries or regions3   2006  2007  2008   2009   2010
 All securities   All countries   735,963   764,177   583,201   645,266   743,516
 North America   383,653     384,615  325,219  343,336   406,462
 Caribbean   27,035    28,288    21,031  23,524  26,564
 South and Central America   7,589   11,566   7,265    14,234  15,868
 Europe   219,364     231,753   152,758  172,738  180,850
 Africa    2,451  3,357   1,855    3,098  4,158
 Asia and Oceania    92,575  99,227   70,455   83,895   105,660
 International organizations     2,343  4,983  4,473  4,127   3,949
 Unallocated countries      953   388  145  314  6
 Stocks1  All countries    582,241  603,163   437,283   502,501   578,516
 North America      286,577  287,074   224,140  245,673  290,294
 Caribbean   24,471   25,778   19,255   19,930   23,814
 South and Central America   5,404   9,047   5,270   12,747   13,904
 Europe      178,204  187,893  122,334   143,919  151,155
 Africa    2,179  2,897   1,747  2,908   3,874
 Asia and Oceania    84,490  90,186   64,402   77,011   95,474
 Unallocated countries   916   288   135   313  ..
 Debt Instruments2  All countries   153,722   161,014    145,918  142,765   165,001
 North America   97,076   97,541   101,080   97,663   116,167
 Caribbean   2,564   2,510   1,776   3,594   2,750
 South and Central America   2,185    2,519   1,995   1,488  1,964
 Europe    41,160   43,859    30,424  28,819  29,696
 Africa   272   459   108   190   284
 Asia and Oceania    8,086   9,042   6,053  6,884   10,186
 International organizations      2,343  4,983  4,473  4,127   3,949
 Unallocated countries   37   100   10   1   6
 Footnotes