Pedestrians walk past retail advertising signs outside a shopping mall in SydneyWILL BURGESS
Canada gets kudos for the robust financial health it exudes in comparison to its G7 peers, but expand the picture to all industrialized countries and Australia has its northern cousin beat.
Both former British colonies have strong banking systems and, importantly, the fortunes of both are strongly tied to commodity cycles, which are working in their favour right now. But Australia has an extra edge: its close proximity to Asia, the fastest-growing market in the world.
That helps explain why, according to the latest projections from the International Monetary Fund, Australia's economy grew 1.3 per cent in 2009, while most economies in the industrialized world, including Canada's, contracted. Australia is projected to grow 3 per cent this year and by at least 3.5 per cent in 2011. But it also helps to explain why Canada's strongest investors are hungering for a piece of Australia's action and why Australian behemoth BHP Billiton Ltd. can afford to launch a hostile $38.6-billion (U.S.) all-cash bid for Potash Corp. of Saskatchewan Ltd.
"The factor that's helping Australia to really outperform is its export exposure to Asia," said Craig Alexander, chief economist at Toronto-Dominion Bank. "On a trade-weighted basis, growth in the trading partners of Australia has been rising at 6 per cent."
On Wednesday, the Canada Pension Plan Investment Board (CPPIB) said it is investing about $350-million (Canadian) into a portfolio of Australian shopping centres, making a bet that Australia's retail sales will soon be on a roll again despite the global financial crisis.
"The economy in Australia remains quite strong, largely driven off resources feeding into Asia, and that circumstance is not widely held across the rest of the developed world," said Graeme Eadie, senior vice-president of real estate investments at CPPIB. The trickle-down effect is insulating the country's economy, consumers and, therefore, retail sales - hence CPPIB's interest in shopping malls and other investments in Australia. "We are finding some very interesting opportunities there," Mr. Eadie said.
Last month the pension fund launched a $3.2-billion offer for Australia's Intoll Group, which has stakes in an Australian toll road and Highway 407 north of Toronto. This month, Calgary-based Agrium Inc. unveiled a $1.16-billion bid for Melbourne-headquartered grain marketer AWB Ltd. And this week, Toronto-based Brookfield Infrastructure Partners submitted an offer for the 60 per cent of Sydney-based Prime Infrastructure that it doesn't already own, a bid that values the company at $1.4-billion (U.S.).
"Right now, people view Australia as being attractive," said Michael Boyd, Canadian Imperial Bank of Commerce's head of mergers and acquisitions. "Canada and Australia are similar in that both of them are what I would describe as takeover-friendly jurisdictions," he added.
The Canadian suitors are eyeing inroads to an economy where incomes are rising at a fast clip and the unemployment rate was 5.1 per cent in July, compared with 8 per cent in Canada and 9.5 per cent in the United States.
"We don't have to think that far back to remember when oil prices were up near $140, how strong Western Canada was booming," Mr. Alexander said. "Similarly in Australia, the strong commodity prices have filtered through to very strong domestic economic conditions."
The Australian central bank has set the country's key interest rate at 4.5 per cent, a sign of confidence in the economy. Canada's key interest rate stands at 0.75 per cent, and the United States' is 0.25 per cent.
"For Australia, China will continue to be a positive driver of economic activity," James White, an economist at Colonial First State Global Asset Management wrote in a recent report.
"Energy and base metals, where demand is more dependent on household consumption, will see strong growth. But even in areas like iron ore, where demand growth will moderate substantially in the next decade, the relatively low cost structure, a function of better market access, higher investment and good assets, mean Australian resources will remain competitive."