When stock markets anywhere perform a correction or fall, a set of investors may begin to explore other global markets available. Some countries like Canada have been seeking such investors. Other groups of investors who prefer global market ventures, begin to search for such opportunities. The Canadian government well aware of this growing trend has highly advertised the active projects in key sectors it has funded. Those companies on the TSX have been scrutinized, filtered and subjected to additional parameters making it a possible good investment. Many of these companies have been creating or implementing new clean technology practices or doing new business models. If an investor feels in a “change our world” mood a way to fulfill that desire may become buying Canadian stock.
Cross-border interlistings
Global Investors can check their stock exchanges for Canadian stocks. TSX and TSX Venture Exchange companies have secondary listings on the USA exchanges such as the New York Stock Exchange (NYSE) and NASDAQ. A merger exists between the London Stock Exchange and TSX as well. S0 when listed on a stock exchange outside of the country of origin, the firm must adhere to that foreign country’s rules for their trades. The most common interlistings have been between USA and Canada. It continues as a developing trend globally as seen with the inclusion of the London Stock Exchange.
Foreign Private Issuers (FPI) have full permission in Canada to take advantage of Securities and Exchange Commission’s multi-jurisdictional disclosure protocol. It often removes the extensive review. For USA investors the fewer tax implications, familiarity with USA protocols, and ease of the listing on a USA exchange come into play. The disadvantages list as much more paperwork to accomplish the transfer, so an investor must find a good brokerage firm that specializes in cross-border interlistings.
Foreign Private Issuer perspectives
Foreign companies like investing in other countries markets. It allows another arena for gaining capital and it establishes a trading presence early on in securities. It has many considerations to ponder and the firm or the investor must qualify. Once past those hurdles, it may give faster market access if the Foreign Private Issuer (FPI) Exemptions for the issuance of securities outside the USA clears. Canada reporting the requirements has become well established and respected. FPI exemption exists for the SEC Exchange Act as well as the Sarbanes Oxley requirement.
Disadvantages do exist. Doing so can cause tax issues on several levels. A business may have to reorganize its capital structure as in nonvoting equity to get the status. If a company and not an individual investor in that industry the USA may require compliance with USA regulation and controls. Do not go down that path alone. Like a grizzly bear lumbering through the Canadian North then accidentally crossing the border, it meets American bears who know that territory well. Get experts. Same can be said for American companies and investors going North. Canadians survive blizzards well on all levels including in the stock markets. Unusually patient, one needs to worry about the wrath of a patient Canadian. It keeps them warm till the blizzard blows over and then they act. Canadians know well how to wait for the sunshine.
Be aware
A study in the International Journal of Economics and Finance in 2014 examined the long run relationship between the USA money supply and the Canadian stock market. Prior economic studies established macroeconomic linkages between Canada and USA. When the USA changes monetary aggregates and short-term interest rate a corresponding change happens in Canada’s inflation rate, monetary aggregates, and short-term interest rate.
This more recent study cited empirical results using a time-series technique, long-run structural modeling, and general variance decompositions. The results showed that changes in the USA money supply have a significant positive impact on the prices of the S&P/TSX composite index. By using a Johansen cointegration test on the theory of a USA money supply and prices of the S&P/TSX composite index, it found the long run relationship. It displays as an equilibrium. Further, the study determined that by applying the general variance decomposition analysis it could classify Canadian S&P/TSX composite index variable as endogenous/lagging mostly as compared to US money supply variable classified as exogenous/leading most of the time.
Possibilities
A more intriguing finding would have been if a strand of the Canadian TSX becomes the leading indicator rather than the following indicator, but this study did not attempt that. In Canada’s global quest to be a global leader TSX needs to find that strand and soar. As a side benefit the study reinforced with data the significant relationship found earlier by other reviews that global stock prices nearly anywhere respond intensely to changes in the USA interest rate. For Canadian investors and policymakers, they need to determine which part of the markets have cointegrated with USA markets and which remain independent. Monitoring monetary changes by the USA will protect Canadian money supplies and become a way of policy to ensure the economics of their country. Of course, it also ensures that investors have an opportunity to make money on their stocks.