Good Countries and Economies for Investment. Economic and Financial Indicators of Health for Businesses.

When on the hunt for new investment ideas, macroeconomics, or the larger economic picture can often be over-looked. One source for macroeconomic analysis that provides investors with valuable insights is the Economist. In particular the "economic and financial indicators" on the back pages provide the Intelligent Investor with a wealth of information from which to make broader decisions regarding where in the world to invest your money. This week, six countries or economies stuck out to me as being particularly favourable for the enterprising investor.


The metrics I used to measure the general health of the following economies was their trade balance, current account balance, and general level of interest rates and inflation. If inflation or interest rates are out of control, they should not be considered as stable areas to invest.


1. Hungary. Hungary is poised for substantial growth when Europe rebounds from the doldrums. It has a +$9 billion trade balance, +$2.9 billion current account balance, and a budget balance of +1.9% of GDP.


2. Norway. With vast amounts of oil and natural gas wealth, Norway is poised to be a great provider of scarce resources to the rest of the world for still some time to come. It has a +$63.4 billion trade balance, +$49.6 billion current account balance, and a budget balance of +12.5% of GDP. Much like Canada in its abundance of resources, Norway has been a much better steward of its wealth for future generations.


3. Sweden. Another Nordic economy, Sweden does not benefit from the oil and gas reserves of Norway, but it has a highly skilled and educated workforce. It has a +$12.3 billion trade balance, +$32.2 billion current account balance, and a budget balance of +0.5% of GDP.


4. Singapore. With an excellent base in South-East Asia, Singapore will surely benefit from the significant growth and investment there going forward. As global trade moves eastward, Singapore has much to gain. It has a +$48.3 billion trade balance, +$52.5 billion current account balance, and a budget balance of +0.3% of GDP.


5. South Korea. Another bastion of Asian growth going forward, the South-Korean economy has been an export powerhouse for years. It has a +$40.7 billion trade balance, +$28.2 billion current account balance, and a budget balance of +1.6% of GDP. The important caveat with a country like South Korea is its low birth rate. As the people tend to focus more on consumerist elements of their society, population growth slows and future productivity can be seriously threatened.


6. Chile. The only South American country on my list, Chile is often neglected by investors due to a rough history of corrupt and inept governments. However, Brazilian consumer growth means that neighbouring markets could experience a halo effect and also gain a massive new market for their resources. It has a +$16.6 billion trade balance, +$2.4 billion current account balance, and a budget balance of +0.4% of GDP.


It is often said that a rising tide lifts all shifts. In the vein of investing, this means that the national or macroeconomic picture, if positive, bodes well for the business and investment climate in the country, and for those who invest there.

CPP Generates Big Returns. What Should Canadian Investors Learn from the Canada Pension Plan's Results?

The assets of the Canada Pension Plan, or the CPP, now sits at a whopping $148.2 Billion. For the year, it returned 11.9 percent, or about $15.5 Billion. This is good news for young Canadians, as the albatross hanging around their necks will soon be the hordes of baby-boomers seeking to collect pension payments all around the same time. To make these payments, younger Canadians will have to make larger and ever-increasing contributions into the plan to ensure that their parents and future generations will continue to be able to draw sustainable support payments. As long as the plan continues to experience higher returns, hopefully younger Canadians will be able to keep more of their hard earned money. Importantly, the Intelligent Investor must now ask how the plan generated such positive results?

CPP management said that their time horizon and investment views extended to the longer-term, with many investments made for the next 50-75 years! This long-term thinking has helped the plan to snap up a number of bargains during recent economic and financial turmoil around the world. These bargains should help the fund to remain positive in the coming decades.

Importantly, most of the opportunities for the fund were found outside of Canada. Presently, 51.7 percent of the fund's holdings are outside of the country, which is very interesting considering Canadians are apt to invest the vast majority of their hard earned wealth within domestic boundaries. With the rise of the Canadian dollar over the last year, foreign assets have become cheaper and the fund is utilizing this fact to Canadians' long-term advantage. The Intelligent Investor must do the same with their own portfolios so as to ensure that their risk and exposure is not so concentrated in Canada, which, by any stretch of the imagination, is not a large country for investment purposes. When you limit your opportunities to the Canadian marketplace, you eliminate the possibly to take advantage of investing in thousands of companies in other countries, which are often growing much faster than one's at home.

On the whole, stocks make up about half of the CPP, bonds 30 percent, and real-estate and infrastructure the remainder. Clearly, therefore, the management at the CPP trusts in the long-term opportunities to be found in the international stock markets, where many Canadians fear to tread. Most recently, the CPP has entered into an arrangement with the other members of a new entity titled "Maple Group," in the hopes of buying the Toronto Stock Exchange for $3.6 Billion. As an owner of TMX Group, (TSE: X), the operator of the Toronto Stock Exchange, I think this deal is a very good offer, and personally, believe that it is superior to a merger with the London Stock Exchange.

It is always a good idea to pay attention to what the large pension funds are doing with their money, as it is often pension funds that higher the savviest and most astute investors, especially the CPP. To be sure, international equities are clearly going to form the basis of the fund going forward, and this should be a lesson for many Canadians to personally increase some of their exposure in this area, as it is often badly neglected.

Happy Investing : )

Matthew Clarke.