SHAUN BEST
Telecom transmits big gains
Investors seeking a haven in volatile stock markets could have done worse than pile into the Canadian telecom sector over the past year.
While a majority of the sectors in the Canadian market traded in the red, telecom provided one of the few bright spots, climbing 14 per cent year-to-date, notes Marco Lettieri of National Bank Financial Group.
"Bolstering these dynamics is the fact that all constituents of the telecom sector are recording gains in 2011," he writes in a recent research note.
In addition to their share price gains, this country's major providers of wireless, Internet, television and regular telephone services – notably Bell Canada, Rogers Communications Inc., Telus Corp., Vidéotron and Shaw Communications Inc. – have been throwing off generous amounts of cash to their shareholders in the form of dividends.
"Despite the recent strength in price, this sector continues to attract attention to its relatively large dividend yield (4.6 per cent), which continues to trade above its five-year average rate."
The sector yields 1.8 percentage points more than the S&P/TSX composite, he points out.
"We expect this sector to continue providing solid refuge for investors seeking dividend distribution in a risk-averse world."
Military spending picks up
Fallout from the global financial crisis put a bit of a crimp in military spending, but the long-term upward trend continues.
Total defence spending in 2010 came in at $1.6-trillion (U.S.), according to figures compiled by the Stockholm International Peace Research Institute. That's up 50.3 per cent since 2001.
"The single biggest element is U.S. spending related to 9/11," says SIPRI senior researcher Sam Perlo-Freeman.
Asia's rapid growth over the past decade is another factor. As countries get richer they tend to want to flex their geopolitical muscle, he says.
China's defence spending has increased by almost 200 per cent since 2001, reaching an estimated $119-billion in 2010.
Canada is one of the "dark horses" in the pack, with surprise increases in military spending over the past 10 years, Mr. Perlo-Freeman points out. In 2010, it spent an estimated $22.8-billion, a 51.8 per cent rise from 2001.
Spending here has accelerated since 2006, the year the Conservatives under Stephen Harper came to power, he notes.
Countries with the biggest chunk of GDP spending on military hardware include Saudi Arabia, the U.S. and Russia.
Export slump to continue
After dramatically shifting to a deficit in October, Canada's trade balance looks set to continue to slide in the face of a slowing global economy.
Expect net exports to act as a major drag on GDP growth in the fourth quarter, says Ryan Brecht of Action Economics.
"Exports have seen sizeable swings so far this year, contracting in the second quarter amid Japan supply disruptions and weather related issues, only to rebound in the third quarter amid an unwinding of supply disruptions," he writes in a recent analysis.
"But those distortions appear to have run their course, setting the stage for a slower pace of export growth in the fourth quarter.
"We currently expect GDP to expand at a 1.2 per cent rate in the fourth quarter after the 3.5 per cent clip in the third quarter."
Canada has been particularly hit by the slowing of exports to our major trade partner south of the border.
The strong loonie hasn't helped. But even its rapid decline to below 80 cents in late 2008 didn't do much to boost exports to the slumping U.S.
"While a stronger [Canadian dollar]is part of the story behind the erosion in Canada's trade position, much of the weakness also stems from exogenous factors – namely the soft U.S. growth trajectory, especially in the industries that matter to Canada" such as house construction and auto manufacturing.