Global capital still looking for a Canadian home: Don Pittis

A crisis in developing markets means there is some serious money on the move around the world. And despite the falling Canadian dollar, there are good reasons to think some of it is on its way here.

So far, new data shows house prices in Vancouver and Toronto are still hot,at least partly due to the interest of overseas buyers.Increasingly that money may be moving into things other than real estate.

• Canadian dollar dips below 71 cents for 1st time since 2003
• Vancouver, Toronto real estate markets end year on sky-high note

At first glance, putting your money into loonies might seem like a bad idea.

For more than a decade the Canadian dollarhas been identified as a petro-currency, and as the price of oil tumbledtoward $30 US this week, the loonie has been falling too.

Floods of cash

But neither that nor threats of rising interest rates and tighter mortgage rulesseem to be slowing the flood of new cash into Vancouver and Toronto property.

One of the reasons could well haveto do withsomething happening on the other side of the world. If so, expect more of it.

On the first trading day of the year there were new signs that all was not well in China's giant economy. Stocks plunged seven per cent in a single day. Far more significantly, the Chinese currency also fell sharply.

• Dow Jones,TSX slump after China halts trading

In the days following, the Chinese government moved in to slowthe decline in both the market and the currency. And while China's central bank does not reveal its activities, there were clear indications China was dumping money into the market tostem the plunge in itscurrency, the renminbi.

Rush to sell

"In the foreign exchange market, traders saw signs that the People's Bank of Chinawas selling dollars from its foreign exchange reserves to support the renminbi," reported the Financial Times on Tuesday.

In other words, China was using its trillions of U.S. dollar reserves, accumulated when the renminbi was rising, to counteract the effects of a rush by people inside and outside the country to sell renminbi and buy some other currency.

China is not alone in facing an exit of cash.That's partly because moving money around the globe may never have been so easy. And before last year's commodities crash, that seemed like a good thing.

When emerging markets like Brazil, Russia, Indiaand China,the so-called BRIC countries, were booming,money rushedin, putting people to work and increasing living standards. And there was plenty of money around.

Central banks in the United States, Europe, China and Japan had created floods of cash to rechargetheir weakened economies. A spirit of globalism and free market capitalism meant that money sloshed across borders all around the world.

Strong emerging marketcurrencies and low U.S. interest rates meant countries could borrow freely in U.S. dollars.Hot money cash with no national loyalty that moves quickly around the worldto find its best returnpoured into developing economies in search ofhigher interest rates.

But suddenly that flow of money has changed direction.

WithoutChina to suck up the world's excess ofcommodities, Brazil,Russia and other emerging markets are in serioustrouble.

Experts say theBrazilian economy is in something closer to a depression, not a recession, asgrowth is expected to shrink by some eight per cent over three years. There are serious worries that even government-backed companies could default on bonds.

Suddenly Canada looks good

In such a climate Canada suddenly seems like a pretty great place to keep your money. Unlike precarious spotslike Brazil and Russia, Canada has diversified wealth and stable institutions. Its population is highly educated and resourceful.

While the plunge inresources will continue over the next year as oil prices bottom, Canada is not just a resource economy. The loonie is not just a petro-currency.

Certainly in our oil-producing regions, the pain is not over. But already there are signs that the non-resource economy is on the way back, ready to serve a stirring U.S. industrial and consumer economy.

The U.S. private sector is creating jobs.Car sales on both sides of the border havehit new highs.

• Canada sets record for new vehicle sales in 2015

An acquaintance in Hong Kong who used to invest money for people he described as "seriously rich" taught meone of the most important rules of international investing. Yes, you must look at whether the stock will increase in value. But when astock goes up 25 per centthere is no profit to be had ifthe currency falls by half.

The loonie is just now sliding to the bottom of its historic range.

Compared to developing countries where economies may benearing thepoint of serious disorder, Canada is safe and boring. And in a frightened world, that's a good thing.

Follow Don on Twitter@don_pittis

More analysisby Don Pittis