Solid if unspectacular governance, rising appetites in emerging economies and the hints of a durable recovery in the US: These are the elements of Canada’s strength in the second decade of the 21st century. Our North American neighbor is a model for the world on several key issues, and it remains an important market for US investors.

The Great White North is now known the world over for the quality of its financial system. Canada’s Big Six banks, now expanding again into the US, are the envy of major institutions for their ability to withstand the recent crisis and expand their footprints in its aftermath. These are circumstances borne of a rational approach to regulatory oversight.

Although the Canadian system is highly concentrated, the Big Six derive most of their strength from domestic retail operations. Trading activities have enabled the banks to post headline-grabbing earnings growth in recent quarters, but long-term health is determined by the soundness of the deposit base.

Fortunately, the employment situation in Canada is markedly different than in the US. At the headline level the comparison could hardly be more favorable: The unemployment rate in Canada is down to 7.6 percent, more than 2 percentage points lower than in the US and the lowest rate in more than two years. 

That the Canadian employment situation didn’t deteriorate is a function of the federal government’s ability to respond with a stimulus package that made up for demand lost because of weakness in the US and other markets. The seeds of Canada’s strength were planted in the aftermath of its “Great Recession,” which took place in the early 1990s. The sitting Liberal government, prompted by similar belt-tightening actions at the provincial level, undertook a massive budget-cutting effort that’s becoming a model for other governments, such as the UK.

Prudence on the regulatory front obviated a debilitating subprime crisis, while austerity in the decade preceding made what was a Great Recession elsewhere routine. Canada isn’t burdened by bloated public debt levels, and its ability to respond to future crises hasn’t been compromised.

Another factor that separates Canada from its developed peers is its resource base, particularly the promise stored within Alberta’s oil sands. Energy information provider Platt’s reported in early December that Chinese oil demand reached 9.3 million barrels per day in November, a record for the mainland. And US commercial supplies declined three times faster than analysts anticipated for the most recently reported week. The per barrel price of oil, reacting to these signs of gathering economic strength, surged past USD90.

New demand from Asia, old demand in the developed world and a desire from investors for hard assets will keep the per barrel price of oil elevated over the next 12 months. And that, in turn, will keep the Canadian dollar elevated versus the US dollar.

The Canadian Leading Indicators Index, like the Conference Board’s Index of Leading Economic Indicators, includes 10 components that “lead” cyclical economic activity and together represent all major categories of gross domestic product. The index rose 0.3 percent in November, (data for December 2010 was not available when this publication went to press), the same as in October. Six of the 10 components were higher, three were unchanged and one declined.

The housing index recorded the largest turnaround, as both starts and existing sales firmed after sizable retreats from their highs in the spring. Furniture and appliance sales leveled off after four straight declines, reflecting the upturn in housing. Spending on other durable goods continued to advance steadily. Manufacturing demand continued to improve, as new orders rose 0.7 percent. The ratio of shipments to inventories was unchanged for a third month, as the growth of inventories has caught up to the recovery of sales.

The Toronto Stock Exchange posted a 2.8 percent gain in November, driven by strength in commodity prices. The US leading indicator component rose a modest 0.2 percent.

The factors that allowed Canada to avoid the worst of the Great Recession now will allow it to prosper amid a rapidly shifting global economic landscape. Multiple governments led by different parties have made responsible decisions on financial regulation and fiscal policy. And Canadians have long benefitted from provincial and federal management of natural resources.

To call it “The Canadian Century” would be hyperbole. It’s no stretch to say, however, that American investors interested in preserving and building wealth for the long term need exposure to the Great White North.