WHAT ARE WE LOOKING FOR? Canadian stocks that have more exposure to international customers than domestic ones. Why is this important? Well, confidence in the domestic economy is low at best, even if you think Canada can avoid being pulled down by the United States. More importantly for investors, Canadian stocks with an international focus have outperformed domestic-focused ones. BY HOW MUCH? Dundee Securities strategist Martin Roberge has separated the S&P/TSX 60 index into two groups. The domestic-focused group returned negative 2.2 per cent last year, while the international group returned 19.4 per cent (weighted). The trend has continued this year, with the domestic group losing 10 per cent, against a 2-per-cent return for the international group (as of March 12). If you scan the list of companies in each group, it becomes pretty obvious why one is doing so much better than the other. The domestic group includes the banks, which have been hammered by the subprime crisis, while the international group is largely weighted in resources companies. Amongst the resource companies, it's mainly the gold and energy companies that are propping up the rest of the group this year. THE OUTLOOK Mr. Roberge is in the camp that says the developed and developing economies are slowly decoupling. Reasons for this are many. Mr. Roberge points out that the U.S. accounted for only 13 per cent of Chinese export growth last year, down from 40 per cent eight years ago. This decoupling leads him to be bullish on the outlook for base metals, which means the international TSX group will continue to outperform this year. "We don't want to sound complacent about the challenges that the global economy is facing this year and next," he said. "A marked slowdown is in the cards and unavoidable. However, such a slowdown and even a U.S. recession do not necessarily have to translate into a crash in commodity pits."
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