Canada Connection: Commodity Central

Many of Canada’s small cap companies can thank China for the recent boom in share prices and volumes in past months.

The value of trading on Canada’s small cap exchange, the TSX Venture Exchange, soared in the first three months of this year to C$12.6 billion, up 35% from C$9.3 billion during the same period in 2006. Trading volume jumped more than 18% during the same three months, to 13.5 billion shares from 11.4 billion a year earlier.

And that is because commodities dominate Canada’s small exchange, where some 2,271 companies trade their shares. The total market cap for the exchange is C$63 billion.

The exchange is increasingly attracting investors, both inside and outside Canada,  who want to get a piece of the booming China market, observers say. “Canada is a conduit for China in many ways,” says Ian Nakamoto, an analyst with the Toronto investment firm MacDougal, MacDougal and MacTier. “It’s a ‘safer’ way to invest in China.”

Nakamoto says that the 10% economic growth expected this year in China is based on infrastructure, all of which is commodity intensive. Nakamoto is especially attracted to the farm sector. “Commodities such as corn, soybeans, and wheat are all doing well and in my view will stay high for years,” he says.

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