By Christopher Mason, Toronto
A nation grapples with a contentious takeover bid of its stock exchange, dividing its financial sector, rattling a shaky minority government and reigniting a heated debate about foreign investment.
It should, especially when this same nation also faces the threat of a housing bubble and an economy that, although escaping the worst of the global recession, is hardly surging.
While these issues are keeping minds busy in Australia, they are currently consuming Canada, which may serve as a warning beacon for political and business leaders.
Canada is approaching its fourth election in seven years on the back of these concerns, which came to a head after the conservative government fell last week on a decisive non-confidence vote. It didn’t help Canadian Prime Minister Stephen Harper was held in contempt of parliament for failing to fully disclose financial details about critical legislation.
But it was only a matter of time before Canada was thrown into its latest election campaign. All three opposition parties had already pledged to vote against Harper’s budget, which included $11 billion in unspecified spending cuts.
Foreign investment fallout
The election, on May 2, comes at a delicate time, not least because of unresolved questions about Canada’s foreign investment laws stemming from the government’s November rejection of BHP Billiton’s $38.6 billion bid for Canada’s Potash Corp.
Harper’s industry minister promised to clarify foreign investment laws to avoid an investment chill. But months later the review has yet to surface, further muddying Canada’s investment landscape.
In the midst of this, the federal government and four provincial governments are reviewing a proposed merger of the TMX Group, operators of the Toronto Stock Exchange, with the London Stock Exchange. The proposal is getting a rough ride from several corners of Canada’s business community and especially the provincial Ontario government, which fears the deal will sap talent and value from its financial capital, Toronto.
Earlier this month some of Canada’s largest institutions, including TD Bank, Canadian Imperial Bank of Commerce and National Bank of Canada, signed a petition against the merger. TD Bank chief executive Edmund Clark came out today saying TMX “can do better”.
Though pegged as a merger, the deal’s critics frame it as a takeover. LSE shareholders would hold 55 per cent of the newly-formed exchange and LSE chief executive Xavier Rolet would retain the top job.
The deal – which would create the world’s largest bourse and home to the vast majority of the world’s listed energy and resources companies – could also have implications for ASX Ltd’s proposed merger with the Singapore exchange. If the local deal isn’t allowed to proceed, the resource-heavy ASX could be drowned out by this much larger mining powerhouse – although it’s not clear whether Australian regulators are paying attention.
Threats of a housing bubble
Even through Canada escaped a US-style default crisis, several reports have warned that Canada’s housing market could be headed for trouble. Currently, national housing prices sit at about 10 per cent above pre-recession levels, which were already at all-time highs. In March, a Bank of Montreal report warned that housing prices were rising faster than personal incomes and were beginning to form a worrisome, destabilising trend.
A recent report by Capital Economics, picked up by the Unconventional Economist (Is Canadian housing the next domino?, March 2), also warned prices would fall between 25-35 per cent in the next three years as interest rates return to pre-recession levels.
These bubble warnings persist despite the Canadian government taking steps to reduce the risks – the mortgage eligibility criteria were toughened and tighter restrictions were placed on the amount Canadians could borrow against the value of their homes. These concerns, along with rising national debt levels and other economic worries, loom large on the campaign horizon.
Just like Australian government MPs, Harper has been trumpeting his nation’s performance in escaping the global recession relatively unscathed. But cracks are emerging here, too. Just one week prior to the non-confidence vote, the Canadian Taxpayers Federation released a report showing that Canada’s national debt had hit a new record high of $562 billion.
Michael Ignatieff, the leader of Canada’s Liberal Party – the only group with a chance of unseating Harper’s Conservatives – is trying to paint Harper as a poor steward of the economy. But Mr Harper has largely drowned-out the criticism with his accusation that Ignatieff wants to form a coalition with his fellow opposition parties, making the term “coalition” a dirty word in Canada despite being a widespread political reality throughout much of the rest of the world.
Australia’s own minority government, facing many of the same political and economic pressures, would be wise to keep an eye on its friends across the Pacific.
Published April 2, 2011 by Australia’s Business Spectator