Canadian Capital Markets Perform Well In 2011
Friday, December 30, 2011

Canadian capital markets were the place to be in 2011, but fresh challenges will emerge in 2012, according to a new report from PwC.

PwC’s December Capital Markets Flash report shows that Canada bucked the global trend in 2011 and sets out 20 reasons why Canadian markets performed so well over the year. Kristian Knibutat, PwC’s Canadian Deals Leader said: "All things considered, 2011 was a stellar year for Canadian markets. This is notable, but it is critical to remember that there can be no ‘last one standing’ in a global economy. As go the big players, so goes Canada.”

A number of key statistics are pointed out by PwC as indicators of the positive position Canada established for itself in 2011. These include 142 Canadian private equity deals announced in the first three quarters of 2011, compared to a total of 130 the previous year, and an 86% increase in value of private equity deals over 2010. CAD47bn in equity capital was raised on the Toronto Stock Exchange (TSX), TSX-V year to date, representing an 8% increase over the same period last year. 45 corporate IPOs sit on the TSX-V - a 22% increase in volume.

In addition, the market capitalization of US-based companies listed on the TSX was worth CAD95bn, with CAD22bn the figure of market capitalization of Europe-based companies listed, and CAD15.6bn the market capitalization of China and South & Central America based companies. 9,500 mining projects were held by companies listed on the TSX, TSX-V, with 50% of projects outside of Canada, and 60% of the world’s mining equity capital raised on the TSX, TSX-V. TSX was therefore the number one in the world for the number of mining and energy companies publicly traded in 2011.

PwC also points to Canada’s ranking on the World Economic Forum list of the most sound banking systems in the world as one of its achievements in 2011. The big six Canadian banks made CAD23.6bn in profits this year, representing a 15% increase over 2010, and made acquisitions worth CAD11.4bn. Moreover, the US recorded 90 bank failures in 2011, and 157 in 2010, while Canada has not seen any such collapses in recent history, PwC says.

Canadian exports have also seen considerable improvement. In 2011, there was a 140% increase in Canada’s lumber exports to China, making China the number two destination for such trade activity. PwC refers to “The China effect”, the term used to describe the recent breakdown between the historically tight relationship between the US homebuilding market and the price of lumber, to explain this situation.

However, in spite of these positive developments, there remain three key external risks PwC believes will pose threats to continued growth in Canada in 2012. According to Knibutat, the first is developed world austerity, with over CAD2.5trn in austerity measures likely required to balance budgets in key developed countries.

Next, slowing growth in the emerging world will pose a challenge because emerging markets have not fully decoupled from the West. “Canada has had the good fortune of being able to reorient away from the slow growing West world towards fast-growing emerging and developing nations. Should these emerging markets continue to face headwinds, Canada may be left facing a double-whammy,” Knibutat said.

Lastly, political inertia could impact in 2012. PwC believes the coordinated, decisive action required to solve today’s economic dilemmas may prove elusive next year. “2012 and early 2013 will see an inordinate number of elections and potential leadership changes in key regions, a backdrop that, at best, will result in piecemeal reform and, at worst, will result in political inertia,” Knibutat explained.