CANADA PLAYS CHINA CARD

CANADA PLAYS CHINA CARD
BY: CARL DELFELD
trade friction and energy leverage has led to an
unprecedented canadian policy of "speak loudly
AND CARRY A BIG PIECE OF LUMBER" POLICY TOWARDS
the united states.

THE LONG RUNNING DISPUTE OVER AMERICAN TARIFFS
on canadian lumber escalated to the point last
week that canadian prime minister paul martin
INDIRECTLY LINKED SETTLEMENT WITH CONTINUED U.S.
access to canadian energy supplies. meanwhile,
canadian natural resources minister john
MCCALLUM WAS OFF TO CHINA TO MEET WITH CHINESE
oil, mining and forestry officials.

THIS IS SERIOUS BUSINESS. PART OF THE 1994 NAFTA
free trade agreement guaranteed that canada
would remain the favored supplier to the u.s. it
MIGHT SURPRISE YOU TO LEARN THAT CANADA SUPPLIES
17% of u.s. oil imports, 16% of our natural gas
and nearly all of our hydroelectric power. the
CANADIAN GOVERNMENT OWNS THE VAST MAJORITY OF
the country's energy resources and canada
exports more than 1.5 million barrels a day to
AMERICA REPRESENTING 8% OF U.S. CONSUMPTION.

china's lengthening reach

meanwhile, china's aggressive moves in canada's
energy sector are raising eyebrows in
WASHINGTON. CHINESE GOVERNMENT HAS EARMARKED
$100 billion for overseas acquisitions of oil
and gas. the chinese are going on a buying spree
INVESTING IN CANADIAN ENERGY COMPANIES AND
recently plunked down $2 billion to build a
thousand mile pipeline from alberta tar sands to
PORT ON THE WEST COAST AND ONWARD TO BEIJING AND
shanghai. while the oil reserve numbers for
saudi arabia are under scrutiny, canada has
RECOVERABLE RESERVES OF ROUGHLY 175 MILLION
barrels. much of it is in oil sand that is
processed profitably at oil prices of $20 or
HIGHER AND T. BOONE PICKENS THINKS THAT CANADA'S
oil sand production could reach 6 million
barrels a day

there are now about 1 million ethnic chinese
residing in canada and china is now canada's
SECOND LARGEST TRADING PARTNER. LAST MONTH,
chinese president hu jintao visited canada and
declared that the two countries had upgraded
THEIR RELATIONS TO A "STRATEGIC PARTNERSHIP".

the us's waning grasp

this chinese-canadian power play puts america in
real jam. you could write a book about the long
SIMMERING LUMBER DISPUTE BUT A NAFTA PANEL
recently ordered the u.s. to return $5 billion
of collected tariffs to canadian lumber
COMPANIES. RELATIONS WITH CANADA WERE ALSO
weakened earlier this year when canada announced
that it would not contribute to the american-led
MISSILE DEFENSE PROGRAM EVEN THOUGH 90% OF
canadian citizens live within 100 mile of the
border between the two countries and americans
PURCHASE 85% OF TOTAL CANADIAN EXPORTS.

what's going on? part of the answer is that the
VAST MAJORITY OF CANADIANS OPPOSE THE POLICIES
of the bush administration. the issue is
sensitive in many areas across canada that are
HIGHLY DEPENDENT ON THE LUMBER INDUSTRY AND MR.
martin and his party are preparing for national
elections expected early next year. it is always
A VOTE GETTER TO POKE A STICK IN THE EYE OF THE
elephant to the south.

HOW TO PLAY

while canadian-american relations have seen
BETTER DAYS, THE ENERGY BOOM HAS CERTAINLY BEEN
beneficial to investors in canadian markets. the
canada ishare (ewc) tracks the msci canada index
THAT HAS 40% EXPOSURE TO CANADA'S ENERGY AND
materials sector. while the s&p index is up only
3%, the canada ishare is up 16.6% year to date
AND 28.8% OVER THE PAST TWELVE MONTHS.

speaking of timber, it is smart to have some
TIMBER EXPOSURE IN YOUR PORTFOLIO AND I HAVE HAD
timber reit plum creek timber (pcl) in our core
portfolio for over two years. here is why i like
IT. FIRST, TIMBER IS A GREAT INFLATION HEDGE AND
over the past 100 years has risen 3% above the
average annual inflation rate. secondly, timber
IS NOT CORRELATED TO STOCKS OR BONDS AND THUS IS
a great "shock absorber" to cushion your
portfolio when shares are declining. during the
1970S BEAR MARKET, TIMBER ROSE IN VALUE WHILE
stocks went down. thirdly, from 1973-2000 timber
yielded an average annual return of 15%. last
BUT NOT LEAST, TIMBER VALUATIONS ARE ATTRACTIVE
after some declines during 2000-2002 especially
relative to real estate prices. during 2004 plum
CREEK WAS UP 23% AND THIS YEAR IT HAS TRADED
between $34 and $39 finishing last week just
over $35 with an attractive dividend yield of
4.3%.

it behooves the u.s. to negotiate a settlement
TO THE LUMBER DISPUTE AS SOON AS POSSIBLE AND
lock up canadian energy sources before the
chinese get the jump on us. investors can't do
MUCH ABOUT IMPROVING CANADIAN-AMERICAN RELATIONS
but they can improve their portfolios by adding
exposure to timber as well as to canada as both
AN ENERGY AND CHINA PLAY.

about the author:
CHARTWELL PARTNERS PUBLISHES THE INVESTMENT
newsletter "asia-pacific growth."
http://www.chartwellasia.com [2]719-264-1503

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