That “G20” and not “G7” is the high-profile summit attracting all the attention these days is itself a significant sign of change in the global financial system. The new math includes countries such as Brazil, China, Russia and India–the so-called BRIC bloc that rode resource and manufacturing export booms to top slots in economic growth during the last 10 years.

The contagion that’s debilitated markets for two years originated with the old-school G7 members–the US, the UK, Australia, Japan, Germany, Italy, and, to a much lesser, extent, Canada. But the emerging economies among the G20 have also been hurt, some much more than their developed counterparts.

In a remarkable step further underscoring the changes that have already taken place and foreshadowing those to come, the BRIC countries issued a joint communique following last weekend’s meeting of finance ministers called to establish the agenda for the full G20 summit in London April 2. Brazil, Russia, India and China, making their first such statement, called for more lending to emerging economies hit by the collapse of private capital and for urgent reforms to improve their representation in the International Monetary Fund.

What does the rise of the BRIC countries mean for Canada over the long term? Canada’s trade relationship with the four major emerging markets has certainly evolved during the past decade, and the future promises more of the same: Brazil, Russia, India and China are projected to grow significantly in coming decades, resulting in higher incomes and more purchasing power for their respective nascent middle classes. According to Goldman Sachs (NYSE: GS), the annual increase in US dollar spending by the BRICs could surpass that of the world’s top six economies in 2009.

That increased spending power means increased demand that could offset slowing demand from aging developed nation populations such as Canada’s. The opportunity for Canada rests with the “-IC” part of the BRIC acronym.

Canada’s relationship with China has certainly flowered during the 2000s. China is now Canada’s second-largest trading partner, trailing only to the US. In the first Canada China Business Forum, held in 2005 during a visit by President Hu Jintao to Canada, the two governments set a target to increase bilateral trade to USD30 billion by 2010. That goal was met in 2007, when trade between the two countries climbed to USD30.38 billion.

According to statistics from the General Administration of Customs of the People’s Republic of China, the volume of bilateral trade between China and Canada reached USD34.52 billion in 2008, a year-over-year increase of 13.8 percent. Canada’s exports to China reached USD12.73 billion, a 16 percent increase over 2007, while Canada’s imports from China stood at USD21.79 billion USD, a 12.6 percent increase over 2007.

According to a recent Fraser Institute study of the economic relationship between China and Canada, “There are unexploited opportunities for further gains from trade that can enrich both countries.” That statement is applicable as well to India, which is becoming increasingly open to international investment and is home to a younger population.

Amid the global slowdown, Canada is actually intensifying its efforts vis a vis its fellow Commonwealth nation; high-level Canadian officials are pushing for negotiations on a comprehensive trade agreement.

According to Canada’s Department of International Trade, in 2007 two-way merchandise trade increased 4 percent to an all-time high of USD3.74 billion, and two-way direct investment reached USD652 million. However, India is only the 14th largest export market for Canada, suggesting plenty of room for improvement. There are market opportunities for Canadian companies in agriculture and oil and gas, as well as service industries, infrastructure, information and communications technology, electrical power and the aerospace and defense sectors.

China’s and India’s rising exports give them more money to spend on imports from developed countries. Growing middle-class populations in both emerging nations are boosting demand for products worldwide, and should translate into terms of trade gains for Canada; India and China are both resource hungry, and Canada is resource rich. Increased demand for resources means higher resource prices.

While most of Canada’s imports from China are manufactured goods, direct Canadian exports to China are primarily resources: Almost 35 percent of exports comprise pulp, organic chemicals and non-ferrous metals.

More than two-thirds of Canada’s exports to India are resource-based. India significantly ramped up its imports of Canadian wheat in 2006 because it can’t meet its needs from domestic-based crops. Wheat is now Canada’s largest export to India. Other top Canadian exports to India include copper and fertilizers.

Interestingly, oil and gas exports from Canada to both China and India represent relatively small shares of total exports. But whether the emerging economies get their fuel from Canada or not, their rising appetites equal rising demand, and rising demand, again, equals rising prices. Canada does benefit from increased fossil fuel consumption in China and India, albeit indirectly. That, however, is another area for improvement.

As has been said often since mid-September 2008, the key to restoring growth is fixing the global financial system. The recent G20 ministers meeting once again resulted in a general commitment to do what’s necessary, and we’ll hopefully have more clarity after the G20 leaders meet in April. Nevertheless, there are small signs, despite the continuing grandiose statements of solidarity, of hope.

Recent data suggest China has in fact begun to rebound, news that drove a short-lived rally for global equity markets in early March.

China’s manufacturing Purchasing Managers’ Index (PMI) strengthened for a third consecutive month in February, climbing to 49.0 percent from 45.3 the previous month, and marking a three-month rebound from November’s low of 38.8.

All sub-indexes were higher than their respective levels in the previous month, though many were still lower than the critical level of 50; a reading below 50 indicates contraction, while a figure north of 50 indicates growth.

In particular, both the Output Index and the New Orders Index rebounded to the expansionary zone of higher than 50 for the first time since September 2008. In addition, the New Export Orders Index grew strongly by 9.7 points to 43.4 in February.

Andrew Pyle of ScotiaMcLeod noted: “Estimates for the country’s growth outlook in 2009 have also started to levitate from the alarming 5 to 6 percent suggestions earlier this year back to 8 percent. Not as lofty as what we have been used to, but firm enough to put a floor under commodity prices …”

The improved PMI numbers, together with the possibility of further stimulus spending by the Chinese government, likely mark a trough in China’s GDP growth cycle. And Premier Wen Jiabao said in early March his government will “significantly increase” investment to boost the economy, on top of the USD586 billion stimulus package announced in November.

The prospects for resource-focused economies such as Canada’s are strong in the long term because of the enormous potential demand from an emerging Chinese middle class. For example, Su Shulin, the chairman of China Petroleum & Chemical Corp, China’s biggest oil refiner, said domestic oil demand has shown signs of recovery. Daily fuel sales have risen to about 310,000 metric tons, compared with a record low of 280,000 barrels in December.

And the Chinese government plans to tap its USD1.95 trillion currency reserves to secure resources. Chinese state-run companies have been told to acquire resources abroad as prices of commodities, led by energy and industrial metals, decline.

Note that even during years of recent global recession (2001-02), China’s import growth remained fairly strong. In fact, imports increased by almost 20 percent between 2001 and 2002, suggesting that the strength of Chinese demand for imports may have reduced the severity of the global downturn on various economies. It’s possible that this will occur again in the present global recession, with China’s relatively faster economic growth supporting economic activities elsewhere.

Speaking Engagements

There are few better places to combine work and play than Sin City: Join Canadian Edge, Editor Roger Conrad and The Energy Strategist Editor Elliott Gue for The Money Show Las Vegas, May 11-14, 2009, at The Mandalay Bay Resort & Casino.

With Elliott’s and Roger’s sage advice, this is one trip to Vegas that won’t make a wreck out of you.

To attend as Roger’s guest, click here or call 800-970-4355 and refer to promotion code 012649.

And make plans to join Roger, Elliott, Gregg Early and Benjamin Shepherd at the 18th Atlanta Investment Conference. Sponsored by Friends for Autism, the conference is held in a mountain setting north of Atlanta from Thursday, April 23, to Saturday, April 25.

Roger, a steady hand through many market events such as the one we’re dealing with now, will talk about Canadian income and royalty trusts as well as his new service focused on exploiting the greatest spending boom in history, New World 3.0.

Elliott will detail the new direction for Personal Finance and provide insight into his approach to stock selection and portfolio management. What’s required now amid these difficult times are clarity and focus, qualities Elliott has demonstrated in these pages and through The Energy Strategist for years.

Gregg, a constant at PF for nearly two decades, will be there to address recent developments with the publication. He’ll also discuss the Smart Grid, an endeavor he’s exploring as part of his role with New World 3.0.

Ben, editor of Louis Rukeyser’s Mutual Funds and Louis Rukeyser’s Wall Street, the in-house mutual fund expert, will discuss efficient, cost effective ways to simplify the investing process.

Be sure to bring your questions. These guys love to talk markets and everything that impacts them.

Attendance is limited to 175 of the most enlightened, savvy individual investors. Go to http://www.aicatchota.com/ for more information. Meals are included for the Maple Leaf Memo discounted price of $459 for a single and $599 for couples. Call 770-952-7861 or e-mail altinvestconf@mindspring.com to register.

The Roundup

Conservative Holdings

TransForce (TSX: TFI, OTC: TFIFF) reported a 10 percent boost in 2008 revenue, 21 percent growth in cash flow and a jump in annual earnings to CAD0.92 a share from CAD0.52 a year ago. Those robust results continued in the fourth quarter as well, as the company also grew revenue and cash flow by 10 and 21 percent, respectively. Earnings per share, meanwhile, swung into the black at CAD0.17 a share, up from a year ago loss of CAD0.36. Adjusted for one-time items, fourth quarter profits per share were down slightly at CAD0.26 per share, versus CAD0.29 last year.

Three of the company’s four operating units–Less than Truckload, Specialty Truckload and Package/Courier–reported stronger fourth quarter results, as management successfully expanded services and integrated recent acquisitions. The other, Truckload, saw a 6 percent decline in sales, hardly surprising given the steep contraction in the US economy especially. The fact they didn’t fall further is largely a testament to the company’s high quality service, cost containment and solid marketing.

The company is well within its debt covenants with a debt-to-cash flow ratio of 2.97-to-1 versus an upward limit of 3.5. Further, it expects to generate CAD100 million in free cash flow in 2009, which it will use to cut debt. And thanks to timely purchases of equipment last year, it expects only CAD50 million in capital spending, reducing further its need to rely on credit. The company has also announced a plan to buy back up to 7.5 percent of its outstanding shares, a further affirmation of financial strength.

TransForce has been a tough stock to hold since its shares peaked three years ago. The underlying company, however, has continued to grow and strengthen. Now trading at barely half book value, TransForce remains a buy up to USD4.

Conservative Holdings’ Reporting Dates

• Artis REIT (TSX: AX-U, OTC: ARESF) Mar. 18, 2009 (Confirmed)
• Atlantic Power Corp (TSX: ATP-U, OTC: ATPWF) Mar. 30, 2009 (Confirmed)
• Bird Construction Income Fund (TSX: BDT-U, OTC: BIRDF) Mar. 16, 2009 (Estimated)
• Innergex Power Income Fund (TSX: IEF-U, OTC: INRGF) Mar. 25, 2009 (Estimated)

Aggressive Holdings

Ag Growth Income Fund (TSX: AFN-U, OTC: AGGRF) continues to benefit from solid fundamentals in the agriculture industry. We’ve seen successive large grain harvests, and a long-term trend toward on-farm storage and aeration that resulted in record 2008 demand has persisted thus far in 2009.

Ag Growth reported an 82 percent rise in fourth quarter sales to CAD48.24 million from CAD26.56 million; for the year, sales surged 53 percent. A weakening Canadian dollar contributed to the fund’s robust fourth quarter numbers (Ag Growth is heavily reliant on exports), as did sales price increases.

Although business is heavily dependent on the US market (and its high ethanol requirements, which essentially build a floor under corn acreage), Ag Growth expanded into emerging markets such as Russia and Kazakhstan during 2008. Organic international sales, excluding the impact of acquisitions, rose more than 70 percent last year.

Gross margins were impacted in 2008 by rising steel and other input prices, though some of those increases were passed on to customers. Management should be able to maximize margins on businesses it acquired during 2007 and 2008 as those operations come under Ag Growth’s productivity improvement program.

As of Dec. 31, 2008, Ag Growth has total long-term debt of USD52.8 million, which includes term loans as well as vehicle financing loans. The fund’s credit facility includes operating lines of CAD10 million and USD2 million; as of Dec. 31, no amounts were drawn on the operating lines.

Ag Growth also announced it would continue to pay CAD0.17 per unit per month for March, April and May. Positioned as well as any company to weather the global economic downturn, Ag Growth Income Fund is a buy up to USD20.

Paramount Energy Trust (TSX: PMT-U, OTC: PMGYF) reported that production fell 9 percent in the quarter from year earlier levels, due to asset sales, cold weather-related interruptions and natural declines at certain fields, which were only partly offset by fewer gains at newer wells due to project delays.

Funds from operations per share were flat versus last year’s levels at CAD0.55, as the trust was able to lock in higher prices with hedging than it realized a year ago. That’s a strategy management has continued to follow, locking up 57 percent of projected April through December output at an average price of CAD7.74 per thousand cubic feet. That’s 60 percent above prevailing prices.

Hedging output has helped the trust cut its bank debt by 15 percent over the past year, freeing up space under its credit line and cutting the net debt-to-cash flow ratio to 2.1 from 2.4 last year. That’s not as deep a cut as management had hoped for at the beginning of 2008, largely because of falling gas prices. But achieving that reduction is proof positive of management’s skill in projecting cash flow in even the most difficult scenario. That speaks well for its chances of outlasting this downturn, though its dividend will be cut again to a monthly rate of CAD0.05 beginning with the April payment.

Looking ahead, the new payout ratio is only 27 percent of fourth quarter 2008 funds from operations. The trust has slashed projected 2009 capital spending to CAD65 million, down from an initial budget of CAD113 million. With CAD40 million to be spent by the end of the first quarter, that leaves relatively little cash outlay for the rest of the year, leaving a lot of upside for debt reduction particularly if gas prices can bounce up a bit.

Management remains focused on being able to fund all capital expenditures and distributions with internally generated cash flow, preferably with a surplus left over for debt reduction. That means there’s still some near term dividend risk, should natural gas prices fail to recover as hedges expire. On the other hand, this one still yields nearly 20 percent, even after the recent cuts. Paramount’s only suitable for very aggressive investors. But if you are one and don’t yet own this trust, the shares are a buy up to USD5.

Provident Energy Trust (TSX: PVE-U, NYSE: PVX) shares jumped nearly 20 percent the day it announced its fourth quarter earnings and reserve information. The jump is probably best termed a “relief” rally. But the results did include a number of encouraging items for the trust’s ability to survive the near term and thrive over the long haul.

Baseline funds from continuing operations–the account from which distributions are paid–fell from CAD0.72 to just CAD0.32 in the fourth quarter, as the trust felt the bite of falling commodity prices. The bright spot was midstream operations, which posted basically flat profits from a year ago despite weaker natural gas liquids spreads. But with trust-wide production costs up from the sale of the US operations, a slight drop in output from year earlier levels due to an outage at a pipeline owned by a third party and falling energy prices took their toll.

Anticipation of these disappointing results had already induced management to cut the trust’s distribution to CAD0.06 per month starting with this month’s payment. The good news is that rate is only 56.3 percent of fourth quarter funds from operations. These in turn are based on realized oil prices of just USD47 and gas of just USD6.63 million thousand cubic feet, which are not too far from current forward curve pricing. In addition, midstream margins have improved greatly in the first quarter of 2009, which should offset any price weakness on the production side.

As for debt, Provident’s fourth quarter interest expense was 38 percent less than a year ago, thanks to a 45 percent reduction in bank debt. The trust now has CAD620 million undrawn on a CAD1.125 billion bank line. Proved reserve life was steady versus year earlier levels at 6.1 years, proved plus probable increased to 10 years.

Capital spending for 2009 is CAD27 million for midstream and CAD88 million for upstream, modest levels that should ensure the trust is able to cover both distributions and capital expenditures (CAPEX) with cash flow. Total debt is just 31 percent of capitalization, versus 40 percent a year ago. Net debt of CAD727 million is still high for a producer trust at 2.2 times annualized fourth quarter cash flow. But it’s actually modest considering much is attached to the much steadier midstream operations.

Provident’s earnings and reserve numbers paint the picture of a trust able to survive this downturn, and poised to take advantage when prices rise again. Yielding 18 percent and selling for just 64 percent of book value, Provident Energy Trust is a buy up to USD5.

Aggressive Holdings’ Reporting Dates

• Advantage Energy Income Fund (TSX: AVN-U, NYSE: AAV) Mar. 18, 2009 (Confirmed)