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Number Cruncher

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Number Cruncher

Euro zone watch: It's a small world after all Add to ...

What are we looking for?

Canadian financial stocks that have the largest exposure to Europe.

It’s not exactly the continent where risk-averse investors want to venture these days. But many financial companies that are mainstays in portfolios on this side of the pond generate a sizable portion of their sales there.

If the debt crisis spirals into economic ruin for Europe, the repercussions may be especially ugly for these firms. Financials are a big component of the Canadian stock market, so be warned: You may not be as sheltered from the euro zone storm as you may think.

What we found

This group of companies is swimming in a sea of red. Total losses year-to-date are mostly in the double-digits, well outpacing the decline of the broader S&P/TSX index. Onex Corp. is an exception.

We required each company to have a market cap greater than $100-million. The smallest company to make our screen was also the one with the largest European exposure: Dundee International REIT . It generates no less than 100 per cent of its revenue from Europe. It’s not a big surprise, given that Dundee’s current portfolio consists of properties only in Germany.

But the next three on our screen are financial heavyweights in Canada: Great-West Life , Power Financial Corp. and Power Corp. of Canada . All are part of the Desmarais family empire and generated more than a quarter of their respective revenues in the past year from Europe.

Great-West, which is Canada’s second-largest life insurer, pointed out during its second-quarter results in August that it has no direct exposure to Greece. It said its aggregate exposure to Portugal, Ireland, Italy and Spain is $926-million and that it reduced its exposure by $131-million during the second quarter.

Power Financial, meanwhile, is taking an opportunistic approach to the European debt crisis. Chief executive Jeffrey Orr said last month that the company is on the lookout for foreign assets that may shake loose from the hard-hit European financials.

None of the stocks on our list look particularly expensive, given price-to-earnings ratios (where available) are all under 11. Financials have been particularly bruised during the latest market carnage; these companies could be seen as carrying some additional risks.

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