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A tote board displays the closing figure for the TSX for the year in Toronto on Dec.31, 2012. (FRANK GUNN/THE CANADIAN PRESS)
A tote board displays the closing figure for the TSX for the year in Toronto on Dec.31, 2012. (FRANK GUNN/THE CANADIAN PRESS)

Canada's stock market offers a false reflection of our economy Add to ...

Visit this year's Top 1000 rankings of Canada's most profitable companies and find more tables, multimedia and analysis in Report on Business's full Top 1000 section.

Yes, it was fun while it lasted, the whole Canada-is-superior thing. During the financial crisis, our banks and home prices didn’t collapse like a cheap cardboard box; our economy was lousy, but not as lousy as it was in a lot of other places. As the Prime Minister frequently reminded us—before his agenda was sidetracked by grasping senators—Canada was the first G7 country to recoup all of the jobs lost during the recession. But no country can sustain such a run of good luck forever, and now it’s our turn to pay.

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We’re stuffed with debt, the real estate market is exhausted and we’re saddled with investment portfolios with sad-sack performance. That’s partly because of the country’s less-than-amazing growth lately. But it’s mostly because the Canadian stock market has become a grotesque distortion of the economy.

The rest of the world is having an equities party, and we’re on the outside. As of early June, the S&P/TSX Composite Index is down 5.4 per cent over two years. U.S. stocks are up nearly 30 per cent, and the German market is up 17 per cent. Swiss, Mexican, French, British and Australian equities have all done better than Canadian stocks. And don’t even ask about rebounding bailout cases of the euro zone. (Hint: Even the Irish Overall Index is up about 37 per cent.)

For this record of underperformance, you can find many culprits. Bad investment decisions at Barrick Gold Corp. (No. 995 in our Top 1000 ranking) and Kinross Gold (No. 999) in faraway lands have crushed investors’ belief in gold stocks. The U.S. shale boom, the Keystone XL pipeline delay and the Conservatives’ squeamishness about foreign state-backed takeovers have reduced the value of big oil sands plays.

Weighing on it all is the China factor. Canada’s largest base-metals miner, Teck Resources (No. 34), was a $60 stock a couple of years ago. In early June, it was down to $25. That’s the Chinese slowdown at work. And who could forget Potash Corp. of Saskatchewan (No. 10)? Three years ago, BHP Billiton tried to steal it away for the insulting, lowball price of $43 a share (adjusted for a later stock split). The board and Ottawa told the Aussies to nick off, and Potash’s shares climbed to $60. But then it ran into some reluctant customers in Asia, and lately it’s been trading at…well, less than $43.

The crummy showing by the Canadian market makes a couple of things clear. First, for all of the criticism that executives are too timid to reach out beyond the country’s borders, big-cap Corporate Canada has become a globalized place. That was great when the world economy was on a tear, but it has its downside. Some companies have made grievous errors buying overseas assets, as Kinross did. But even companies that stayed at home are getting swatted around by external events. Canadian Oil Sands Ltd. (No. 31) mines all of its oil in Alberta, but the share price has gone from $33 to $20 since 2011 because of the discount on Canadian crude.

Second, investors are now feeling the effects of the past decade’s great wave of deals, which stripped away a lot of the diversity of the Canadian market. The great unwashed used to be able to buy stock in Canada’s two global hotel chains, Fairmont and Four Seasons, but they went private. The domestic tech sector was decimated–perfectly good companies like Cognos, Gennum and ATI Technologies disappeared from the market, too. Same story in food and beverages—it was goodbye to Vincor International, Sleeman Breweries and Cara Operations (which runs the Swiss Chalet chain). The Canadian steel industry, which was once a way to play the North American auto market, is now largely foreign-owned.

The result is a little bit weird. If you want to bet your money on a copper mine thousands of kilometres away, the Toronto bourse has an abundance of choices, but if you’d rather invest in a company that makes the beer you drink, forget it. Vancouver-based Eldorado Gold (No. 79), whose mines are in Turkey, Greece, China and Brazil, is part of the most exclusive club of Canada’s biggest public companies, the S&P/TSX 60. Vancouver-based Lululemon Athletica, whose clothes are worn by every hip thirtysomething woman from Halifax to Victoria, is not. Lulu’s market cap is bigger, but its stock doesn’t trade much in Canada, so it doesn’t make the cut for S&P’s index-makers. (In June, Lululemon said it would abandon its TSX listing.)

Why does this matter? Investors and pension funds have tens of billions of dollars tied to the market benchmark. The granddaddy of exchange-traded funds, the so-called XIUs, had $10.2-billion in it as of early June. That’s retail investor money, and it tracks the S&P/TSX 60—nearly half of which are energy and mining companies. Whatever those investors think they’re buying, what they’re getting is not a true picture of the Canadian economy.

The Top 1000 rankings in ROB Magazine and this website only provide a limited snapshot of data for the top 1000 companies in Canada. The most comprehensive database of Canadian corporate financial information is available for purchase in spreadsheet format here. This year we have improved on what we have offered in previous years in two separate packages based on whether your needs are research or sales prospecting. Find in-depth financial and contact information, total compensation for every CEO on the Top 1000 and more.

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