BMO Capital Markets

BMO Capital Markets

September 19, 2011 08:00 ET

Emerging Markets and Financial Services Offer a Clear Growth Opportunity for Canada: BMO Economics-Sibos Report

- Emerging market economies currently only account for about 11 per cent of total Canadian merchandise export receipts and offer clear growth opportunities

TORONTO, ONTARIO--(Marketwire - Sept. 19, 2011) - With the economic outlook in much of the industrialized world quite subdued, Canada must redouble its effort to diversify its export markets, according to a special report from BMO Capital Markets Economics, prepared for Sibos, which is holding its annual global financial services conference in Toronto this week. According to the report, financial services offer a clear growth opportunity, especially in emerging markets.

"Trade is vital for the Canadian economy and we, as a country, should be focusing on our competitive advantages, including financial services, given our strong banking sector," said Sara Joyce, Executive Managing Director, Trade Finance & International Financial Institutions, BMO Capital Markets. "As a company, clients are increasingly looking to us for advice and assistance to navigate the complexities of trading in global markets. It's our job to make sure they have the tools to take advantage of these opportunities."

The BMO report explains why emerging markets are an obvious target for future Canadian export growth. Specifically, Canada does not face the same severe government debt overhang that currently constrains U.S., Europe and Japan and has seen an average growth rate of more than 6 per cent over the past 10 years versus less than 2 per cent in the developed world. The report goes on to indicate that this growth gap will actually widen further as a result of the vastly differing fiscal backdrops.

Yet, while Canada has this advantage in financial services, the country's trade deficit on services has actually grown over time. Over the past four quarters, Canada's net services trade has widened to a shortfall of $23.8 billion, a record high, which in itself represents 1.4 per cent of GDP. While much of this deficit reflects a gaping shortfall on tourism, this has swamped the small surplus in commercial services (which includes financial services).

"With Canada's merchandise trade balance sinking into the red in recent years, the country's overall trade position in goods and services has dipped into a large deficit," said Doug Porter, Deputy Chief Economist BMO Capital Markets. "In fact, in the latest four quarters, the current account deficit totaled $53.5 billion, or more than 3 per cent of GDP, which is an uncomfortably large current account shortfall. Canada's external trade gap is now comparable to the U.S. deficit of just over 3 per cent."

Mr. Porter went on to add that, "While this is not an immediate threat to the country's prospects, a persistent and significant current account deficit can be an early warning signal of an uncompetitive economy and/or an overvalued exchange rate."

According to the report, this backdrop adds further weight to the view that Canada must redouble its efforts to find new export markets – especially in light of the fact that emerging market economies currently only account for slightly more than 11 per cent of total Canadian merchandise export receipts.

BMO Financial Group has had significant activity in major emerging markets, opening an office in India in 2008, and actively developing their China capabilities. Last year, BMO officially opened its new incorporated subsidiary, Bank of Montreal (China) Co. Ltd. (BMO ChinaCo), allowing the bank the flexibility to expand its product and service offerings for North American and Chinese clients. In addition, BMO recently became the first Canadian bank to offer North American commercial clients the ability to make payments directly to Chinese companies in the Chinese Yuan. As the only Canadian bank with branches in Beijing, Guangzhou, Shanghai and Hong Kong, BMO Financial Group is well poised to take advantage of the opportunities available in this and other emerging markets.

To obtain a copy of the full report, please follow this link: http://bmocm.com/mzl.

Sibos takes place in Toronto at the Metro Toronto Convention Centre from September 19-23, 2011. For more information: http://www.sibos.com/.

About BMO Capital Markets

BMO Capital Markets is a leading, full-service North American financial services provider, with nearly 2,200 employees operating in 17 North American offices and 29 worldwide, offering corporate, institutional and government clients access to a complete range of investment and corporate banking products and services. BMO Capital Markets is a member of BMO Financial Group (NYSE:BMO)(TSX:BMO), one of the largest diversified financial services providers in North America with US$499 billion total assets and more than 47,000 employees as at July 31, 2011.

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