A new report from research and management firm Morningstar shows that only 48% of the revenue streams for Canadian equities are sourced domestically. In other words, your investments could be getting more globalized – whether you know it or not.
Driving the news: According to Morningstar, Canada is joining the likes of the United States, Japan, and Australia as its companies’ revenues become more internationally focused.
- The Bank of Montreal, for example, saw the majority of its revenues in 2022 coming not from Canada but the United States. It’s a first for the storied bank and a surprising shift as Canada provided about 60% of revenues just a year prior.
- This pivot to foreign markets mirrors a similar trend showcased by American mega-firm Meta, which now reaps the bulk of its revenues from the Asia-Pacific region.
Catch up: Globalization took a beating at the beginning of the pandemic, as international trade volumes plummeted and cracks formed in the US-China relationship. But, despite pressures from the Russian invasion of Ukraine, companies are ready to invest in global trade again, which has already surpassed pre-pandemic levels.
Why it matters: As Canadians, we tend to invest heavily in domestic stocks. Maybe some of that is patriotism, but more of it is likely a preference for what we know and an aversion to the political and economic risks that sometimes come with businesses operating abroad.
However, this home bias has exposed Canadian investors to other types of risks.
- Canadians allocate as much as 52% of their equity into domestic stocks, even though they only account for about 3.4% of the global equity market.
- Not only does this home bias leave Canadians “overweighted” in their equities, it also pools their money into just a handful of industries, including banking, energy, and telecoms.
As Canadian companies’ revenue streams become more globalized, the distinctions between domestic and international investments could blur.
Bottom line: It may be time to reconsider what defines “Canadian” equities – and the sorts of risks (and rewards) that come with investing in them.