Continued job losses and an unstable real estate market have resulted in market volatility and an increase of business and personal bankruptcies. Between April and June, 2010, the Administrative Office of the U.S. Courts counted 422,061 bankruptcies, an 11% increase on a year by year basis. These disturbing figures signal the highest rate of bankruptcy since 2005. Furthermore, 2010 has seen the failure of 113 American Banks, well on track to overtake the 140 banks that went under in 2009.
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In contrast to America, personal and business bankruptcies have not been as prevalent in Canada; not a single Canadian bank was forced to shut its doors through the credit crisis. Furthermore, Canada's fairly high unemployment rate of 8.0% is considerably less than the 9.5% experienced in the States, especially after considering that many potential American workers have removed themselves from the labor force as the opportunity to find employment remains grim.
Following the collapse of Lehman Brothers on September 15, 2008, perhaps the official beginning of the great recession, the Canadian market has outperformed its southern neighbor. The iShares MSCI Canada Index ETF (NYSE:EWC) has since fallen 6.1% while SPDR (NYSE:SPY) has tumbled by 14.8%. Based on a five-year time horizon, the Canadian ETF has appreciated by over 30% while the SPY, which tracks the performance of the S&P 500. receded by 11%. Even year-to-date performance indicated that Canada has outperformed the American market by approximately 3.7%.
The contrast between American and Canadian market performance can best be drawn from looking at the financial sector. Royal Bank of Canada (NYSE:RY), Canada's largest financial institution, with a market cap of $73 billion, has not has a solid 2010, underperforming analyst's expectations by 14% in its latest quarter and losing 8.6% of its share value. Nonetheless, it has still managed to outperform Bank of America (NYSE:BAC), the largest bank within the United States by 2%. On a five-year time horizon, Royal Bank has given shareholders a 35% return, much better than the 63% loss of BAC shares. Following the collapse of Lehman, RY has moved up 4.7% and BAC has by fallen 60%.
A somewhat similar pattern of returns emerges when analyzing the largest coffee chains within both countries. Tim Hortons (NYSE:THI) has produced returns of 13%, 14% and 16% based on a time horizons of five years, Lehman's bankruptcy and year-to-date respectively. Starbucks (Nasdaq:SBUX), on the other hand, has lost 5% within the last five years, and is up only 7% YTD. Following September 15, however, it shares have risen considerably. An important consideration to the limitations of this comparison is that Starbucks has a broader international asset base than Tim Hortons. Tim Hortons has over 80% of their locations within Canada and only a small amount in the States; Starbucks has locations all over the world.
The Bottom Line
Depending on the time interval of interest, many American stocks have outperformed their Canadian counterparts by a wide margin. With many companies on the verge of collapse during the great recession, those who survived, like Citigroup (NYSE:C), were able transform their business, rewarding shareholders who bought stocks at their lows. However, long-term trends suggest that Canada is a much safer investment. (For more stock analysis, check out Dependable Dividends.)
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