State Street Corporation

State Street Corporation

March 17, 2005 12:22 ET

Canadian Government Proposes Elimination of Foreign Investment Caps




MARCH 17, 2005 - 12:22 ET

Canadian Government Proposes Elimination of Foreign
Investment Caps

BOSTON--(CCNMatthews - Mar 17, 2005) -

State Street Corporation (NYSE: STT):

Freedom of Allocation for Tax Sheltered Funds

When the Government of Canada announced the proposed elimination of the
30% cap on foreign property content limits for tax-sheltered retirement
savings, including registered retirement savings plans (RRSPs),
registered pension plans, deferred profit sharing plans and retirement
income funds, markets reacted by driving the Canadian dollar down to
80.5 cents US. While some analysts have predicted further falls, capital
flight and further currency pressure is unlikely.

Despite the easing of foreign property content limits on RRSPs and other
tax-sheltered plans over the years, Canadian investors have consistently
demonstrated a preference for local investment. From 1995-99 Canadians
invested an average of C$17bn per year in foreign securities. By 2000,
thanks to the tech bubble south of the border, that figure exploded to
C$64 - fully 6.5% of GDP - before steadily diminishing to just C$16bn by
2004. Meanwhile, foreign capital inflows into Canada achieved a record
C$53bn in 2004.

By some measures this home-country preference has hurt Canadian
investors. Over the 1980-2000 period commodities were in a secular bear
market, reflecting the global disinflationary trend. Not surprisingly,
Canada's S&P/TSX composite index, weighted to the resource sector,
underperformed. But over the past 5 years, with secular disinflation and
the secular decline in commodities over with, Canadian equities have
outperformed global equities.

Macroeconomic performance has been highly supportive of Canadian
investment. The Canadian current account, for example, moved from a
deficit of 3.4% of GDP in 1990 to a surplus of 2.6% in 2004. Compare
this with a 2004 US current account deficit of over 5.5% of GDP.

-- Secular Bull Market in Commodities Would Benefit Canada

Canada today is better positioned than most developed countries to take
advantage of a secular bull market in commodities -- driven by the
resource demands in a booming Asia - that may drive Canadian equity
outperformance and a rising Canadian dollar, thereby enticing more
foreign capital into Canada and keeping Canadian capital at home.

Our Research

State Street Global Markets, the investment research and trading arm of
State Street Corporation, develops proprietary research using
information aggregated from more than 15 percent of the world's tradable

By aggregating and analyzing the holdings, flows and borrowings of
institutional investors around the world, the research provides unique
insights into institutional investor behavior and its interaction with
global financial markets.

State Street Corporation

State Street Corporation (NYSE: STT) is the world's leading specialist
in providing institutional investors with investment servicing,
investment management and investment research & trading. With $9.5
trillion(a) in assets under custody and $1.4 trillion(a) in assets under
management, State Street operates in 25 countries and more than 100
markets worldwide.

(a) As of December 31, 2004


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