Can Canada Keep It Up?

Is it too late to head for the Great White North?

Canadian stocks were the easy way to go last year, as rising commodity prices and a strengthening currency lifted shares 13%. Nevertheless, with oil prices thought to be topping off and the U.S. dollar bottoming out, investors are wondering if Canadian companies will provide a third straight year of gains.

Maxime LeMieux, portfolio manager for the $646 million (FICDX Quote - Cramer on FICDX - Stock Picks)Fidelity Canada fund, highlights interest rates as the key to Canadian stocks' performance in 2005. According to LeMieux, if interest rates move up too quickly it's going to hurt the mining and energy stocks that have powered Canadian equity returns. And LeMieux's personal performance over the past two years makes him a good source on our neighbors to the north. In 2003 and 2004, his fund returned 51.9% and 23.9%, respectively.

The Great White North Fidelity Canada Fund
Fund/Index	Ticker	YTD %	Annual Returns %			Expense Ratio %
			2004	2003	2002
Fidelity Canada Fund	FICDX	-4.75	23.9	51.9	-4.3	1.42

TheStreet.com checked in with LeMieux to get his thoughts on Canadian stocks in 2005 -- and, perhaps more important, how Canadians are surviving without hockey.

What are your projections for Canadian stocks in 2005, coming off two very strong years?

After two strong consecutive years, it will be harder to achieve similar results, especially if the Canadian dollar stabilizes, because that would mean no gains as a result of currency movements. If earnings growth decelerates and interest rates continue to rise, that would also make it tough to see positive returns this year. Finally, natural resources account for a third of the Canadian market; therefore any slowdown in demand for commodities would put some pressure on the market.

How is the weak U.S. dollar affecting Canadian companies and the Canadian economy?

A weak U.S. dollar is obviously a negative for Canadian exporters and a positive for companies that import goods to Canada, such as retailers. The industrial and manufacturing sectors are particularly affected, given that they usually export a big portion of their production. The latter is mostly done in Canada, so production costs do not change, but they get less for their goods sold in the U.S. given the currency impact.

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