By Tom Bradley

As an addendum to my post last week (Risk-free? Be Careful What You Wish For), I want to revisit the words safe and Canada.

An excellent reason for investing in Canada is that it’s a safe(r) way to play the emerging markets, specifically China. Our resource stocks in particular will benefit from China’s unquenchable thirst for raw materials.

Why is Canada a safer way to play China? The argument is that:

• Our capital markets are well regulated.
  
• Corporate governance is best of class.
  
• Market transparency and corporate disclosure are good.
  
• And in general, our companies are well funded, or at least have ready access to capital.

All of this is true and Canada may continue to be an effective way to play China, but whether it proves to be safer or not is yet to be seen. I say that because resource stocks are the most volatile way to play any economic trend. Commodity prices are unpredictable, highly cyclical and cannot be controlled by company management. And relying on one big customer is always a risky strategy (as we’ve seen in the past, China can turn the tap on and off without notice).

The key point here (and in my previous column) is that holding a portfolio that is all-Canada all-the-time may be a safe(r) way to play the emerging markets, but it’s not a safe strategy per se. Having exposure to the world’s growing economies is a key piece of any investment strategy, especially with the developed countries being growth challenged, but it’s a more volatile piece and needs to be apportioned accordingly.