Canadian stock market performance–based on the S&P/Toronto Stock Exchange Composite Index (SPTSX)–has been more closely correlated with the MSCI Emerging Markets Index (MXEF) than the S&P 500 Index over the past half-decade, a curiosity given Canada’s longstanding and significant trading relationship with the US.

The explanation lies in the fact that Canada’s main equity benchmark is heavily weighted toward resources. Prices of things such as oil, coal, iron ore and potash are driven nowadays by demand from high-growth markets such as the 21 represented in the MXEF, including Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand and Turkey.

It’s no great mystery that Canada’s abundant natural resources form the backbone of its trading relationship with fast-growing emerging economies and will continue to do so for years to come.

Although Canadian businesses are diversifying their export markets, the US still accounts for approximately 70 percent of outbound goods and services, based on 2012 data. But this is down from more than 80 percent in 2000.

That’s another way of saying that Canada’s exports to markets beyond the US have increased from a share of about 19 percent in 2000 to about 30 percent in 2012.

This diversification is the result of several factors.

Demand for Canadian exports has been supported by rapid economic growth in emerging markets, in particular for resource-related products, but also for non-resource-related products and services.

For much of the relevant time period the US has been experiencing slower-than-historic-trend growth, while the appreciation of the Canadian dollar has limited the attractiveness of Canadian exports to US consumers. Intense competition from emerging countries, including China, in the US market also helped restrict Canada’s exports to the US.

There is still a lot of room for more even more diversification. But Canada’s export structure is more balanced geographically and better positioned to benefit from different sources of growth going forward.

British Columbia’s experience provides a useful illustration of what’s happening with Canada’s export mix. BC is still dependent on its resources, and China is its fastest-growing market.

About 75 percent of what’s shipped from Canada’s main west coast port at Vancouver comes from natural resources.

And over the past decade BC’s exports to China have grown six-fold, from USD920 million in 2003 to USD5.75 billion in 2012. Exports to the US have fallen from USD18.8 billion to USD13.8 billion.

China-bound exports have more than accounted for the decline in US exports. Most of the China trade growth has been in natural resources, which at USD4.95 billion accounts for 83 percent of all BC exports to China.

Forest products and coal top the list of resource exports. Shipments of both commodities to China have grown more than 20-fold in the last decade.

And even though growth of the Chinese economy is slowing, the projected growth rate of 6 percent to 7 percent for an economy that’s now the second-largest in the world means there will be continued growth opportunities for BC resources.

A significant ramp-up could come from the approval by regulators and construction of infrastructure necessary to move Canadian oil and gas across the Pacific Ocean.

In December 2013 the federal Joint Review Panel (JRP), following two years of regulatory proceedings in British Columbia and Alberta, recommended that Enbridge Inc (TSX: ENB, NYSE: ENB) be allowed to proceed with its USD6.5 billion, 525,000 barrel per day Northern Gateway pipeline. Northern Gateway would provide a new route for oil producers’ output to Asian markets and fetch them stronger global prices.

The JRP’s decision is the first stage of what will be a difficult, drawn-out process. The panel attached 209 conditions for the pipeline regarding wildlife monitoring, spill prevention and response, maintaining CAD950 million of insurance coverage and a long list of other requirements. Enbridge CEO Al Monaco suggested none of the conditions would be a deal-breaker for the project.

The project still requires final approval from the federal government, expected by June. Enbridge is a buy under USD44.

Alberta heavy crude routinely sells for a significant discount to US light oil due to difficulties moving it out of Alberta, though crude-by-rail shipments have eased some of the pressure in the past year. But Alberta oil sands production is forecast to double over the next decade.

Northern Gateway isn’t only conduit proposed to move bitumen to the West Coast. In December 2013 Kinder Morgan Inc’s (NYSE: KMI) Canadian unit applied for a CAD5.4 billion expansion to its Trans Mountain pipeline to Vancouver from Alberta that would triple capacity to 890,000 barrels a day.

And TransCanada Corp (TSX: TRP, NYSE: TRP) close to applying for approval to build its 1.1 million barrel a day Energy East pipeline to New Brunswick from Alberta, which would allow Canadian crude to be shipped as far as India.

Canada’s build-out of liquefied natural gas (LNG) capacity is predicated on the fact that the transport route from BC to Asia is only nine to 10 days, while getting LNG from the Gulf of Mexico to Asia takes more than 20 days.

LNG is also 30 percent more efficient in the cold weather of northwest BC compared to product shipped from hotter, more humid areas. And gas from Canadian fields generally contains high liquids content, including ethane and butane, which add value by increasing the fuel’s energy density. For much of the volume shipped from the US these liquids must be added.

The Canadian government so far has approved three LNG projects, including efforts led by Chevron Corp (NYSE: CVX) and Royal Dutch Shell Plc (London: RDSA, NYSE: RDS/A).

Four more projects filed in Canada during the summer of 2013 are pending, including one large-scale plant by Exxon Mobil Corp (NYSE: XOM) and two more major terminals by BG Group Plc (London: BG/LN, OTC: BRGXF, ADR: BRGYY) and Petroliam Nasional Berhad, the Malaysian national oil company better known as Petronas.

As of yet there are no finalized agreements with Asian Pacific countries to buy Canadian LNG. But this is another area of relatively explosive growth potential.

Our favorite oil and gas producers, including Aggressive Portfolio Holdings ARC Resources Ltd (TSX: ARX, OTC: AETUF), Crescent Point Energy Corp (TSX: CPG, OTC: CSCTF) and Enerplus Corp (TSX: ERF, NYSE: ERF), will certainly benefit from expansion of Canada’s export markets via improved infrastructure.

Buy ARC under USD28, Crescent Point all the way up to USD40 and Enerplus under USD18.

Companies poised to benefit from a Canadian LNG build-out include specialist drillers such as Trinidad Drilling Ltd (TSX: TDG, OTC: TDGCF). Precision Drilling Corp (TSX: PD, NYSE: PDS) will also play a significant part in this story, as two recent contract wins could tie in to providing feedstock for liquefaction facilities. Trinidad is a buy under USD9.50. Precision is a buy under USD12.

Essential Energy Services Inc (TSX: ESN, OTC: EEYUF) operates Canada’s biggest deep-coil tubing service well fleet. Essential also has experience with and has earned the trust of many of the super majors venturing into the Canadian LNG market. Buy Essential Energy Services under USD2.65.

Mullen Group Ltd (TSX: MTL, OTC: MLLGF) is a solid play on long-term growth in Canadian oilfield services with or without the upside potential of LNG-related activity.

Mullen is the dominant oilfield hauling and logistics services provider in Western Canada, and the proposed LNG projects won’t come to fruition without a tremendous amount of transportation and logistics support in all the operating areas. Mullen Group is a buy under USD25.

And ShawCor Ltd’s (TSX: SCL, OTC: SAWLF) specializes in products and services for the pipeline and pipe services industries and the petrochemical and industrial segments of the oil and gas industry. North America remains its primary market, and it’s well positioned to benefit from many facets of the LNG build-out. ShawCor is a buy under USD45.

In June 2013 Petronas announced it expects to spend up to USD16 billion on its LNG export facility in British Columbia. The key infrastructure includes up to USD11 billion worth of liquefaction plants to be built near the BC port of Prince Rupert. And it includes a USD5 billion, 750-kilomter pipeline to be constructed by TransCanada. TransCanada is a buy under USD47.

Longtime CE Portfolio Holding AltaGas Ltd (TSX: ALA, OTC: ATGFF) announced in early 2013 a partnership with Japan-based Idemitsu Kosan Co Ltd (Japan: 5019, OTC: IDKOF, ADR: IDKOY) to deliver LNG for export.

AltaGas owns and operates the only natural gas pipeline that ties western producers to Canada’s northwest coast. Proposed LNG exports could begin as early as 2017, subject to consultations with First Nations and the completion of a feasibility study, permitting, regulatory approvals and facility construction. AltaGas is a buy under USD37.25.

Secure Energy Services (TSX: SES, OTC: SECYF) and CE Portfolio Aggressive Holding Newalta Corp (TSX: NAL, OTC: NWLTF) will see solid growth driven by a steadily increasing well count in Western Canada, combined with the proliferation of horizontal drilling; by the fact that older wells are generating increasing amounts of waste; and by the shift to an oil-focused from a gas-focused basin that therefore creates greater waste volumes. Buy Secure Energy Services, which just announced a 33 percent dividend increase, under USD18, Newalta under USD17.50.

Beyond Oil and Gas

Diversified miner Teck Resources Ltd (TSX: TCK/B, NYSE: TCK) recently gave the greenlight to a Canadian oil sands project it intends to develop along with Suncor Energy Inc (TSX: SU, NYSE: SU) and France-based Total SA (France: FP, NYSE: TOT).

But its bread continues to be buttered by coal, which it exports in very large quantities via Westshore Terminals Investment Corp’s (TSX: WTE, OTC: WTSHF) facility in Vancouver to China.

Coal isn’t very popular right now, and prices have been under pressure. But Teck CEO Don Lindsay noted that third-quarter 2013 coal volumes “set a quarterly record, and demand from customers is strong.”

Teck’s rising coal production for shipment to China is driving Westshore’s solid volume growth to what will likely be another company record in 2014 of approximately 32 million to 34 million metric tons.

Teck Resources is a buy under USD32. Westshore Terminals is a hold at these levels.

Potash Corp of Saskatchewan’s (TSX: POT, NYSE: POT) is the world’s largest producer of potash fertilizer by production capacity. The firm’s Canadian mines sit at the low end of the cost curve and should generate profits even if prices drop to marginal costs of production.

Volume is set to expand significantly over the long run, as potash demand in emerging markets grows and the company fills newly installed brownfield capacity. Long-term sales volume should approach 14 million metric tons per year, up from a forecast of about 8.4 million metric tons for 2014.

The company is spending about USD8 billion to expand its potash production capacity, with operational capacity expected to reach roughly 17 million metric tons by 2015.

Potash Corp, which has aggressively ramped up its dividend in recent years, is a buy under USD35.

Magna International Inc (TSX: MG, NYSE: MGA), one of the world’s leading automotive parts and components suppliers, is enjoying a solid revenue growth for its core North American and secondary European markets. But the auto parts and components maker and assembler has also seen rapid growth for the segment it dubs the Rest of the World, which includes China and other emerging markets.

Magna’s shareholder-friendly capital management includes consistent dividend growth, including a 18.8 percent increase announced along with fourth-quarter and full-year 2013 results, as well as aggressive share buybacks. Magna International is a buy under USD95.

CE Portfolio Holding Bank of Nova Scotia (TSX: BNS, NYSE: BNS), meanwhile offers conservative, diversified exposure to Latin America and Emerging Asia backed by a solid domestic banking franchise, all supporting consistent dividend growth.

Scotiabank, which recently boosted its dividend by 3.2 percent, is a buy under USD62.

New Addition to Coverage

Vancouver, British Columbia-based Methanex Corp (TSX: MX, NSDQ: MEOH) is the world’s largest producer and supplier of methanol to North America, Asia-Pacific, Europe and Latin America.

Approximately two-thirds of all methanol demand is used to produce traditional chemical derivatives, including formaldehyde, acetic acid and a variety of other chemicals that form the basis of a large number of chemical derivatives for which demand is influenced by levels of global economic activity.

The remaining one-third of methanol demand comes from energy related applications.

There has been strong demand growth for direct methanol blending into gasoline, as a feedstock in the production of dimethyl ether (DME), which can be blended with liquefied petroleum gas for use in household cooking and heating, and in the production of biodiesel.

Methanol is also used to produce methyl tertiary-butyl ether (MTBE), a gasoline component, and an emerging application is for methanol demand into olefins.

Its total annual production capacity, located in located in Chile, New Zealand, Trinidad, Egypt and Canada and including interests in jointly owned plants, is 9.3 million tons.

Methanex’ Chilean plants are the core hubs, with capacity of 3.8 million tons of methanol per year. These plants serve North America, Latin America, Europe and Asia. Plants in Trinidad have capacity of 2.05 million tons. New Zealand plants serving Japan, South Korea and China can churn out up to 2.23 million tons of methanol per year. The company can make up to 0.76 million tons a year in Egypt and another 0.47 million tons in Canada.

Methanex reported 2013 adjusted earnings before interest, taxation, depreciation and amortization (EBITDA) of CAD736 million, up from CAD429 million in 2012, and adjusted net income of CAD471 million, or CAD4.88 per share, up from CAD180 million, or CAD1.90.

Fourth-quarter adjusted EBITDA was CAD245 million, up from CAD184 million for the third quarter, while adjusted net income totaled CAD167 million, or CAD1.72 per share, up from CAD117 million, or CAD1.22 per share.

Management noted healthy demand that combined with supply constraints to drive methanol price higher during the fourth quarter. Increased production from plants in New Zealand and Chile, along with strong pricing, contributed to robust EBITDA and earnings results.

Sales and volumes for the year were company records.

Management anticipates “an exciting time” in 2014, as Methanex recently added approximately 1 million metric tons of operating capacity through growth projects completed in New Zealand and Medicine Hat, Alberta. Another project underway in Geismar, Louisiana, will support another significant step-up in capacity by 2016, a time, in management’s estimation, when new market supply will be limited.

As of Dec. 31, 2013, Methanex had more than CAD700 million of cash on hand and an
undrawn credit facility. A strong balance sheet and healthy cash flow provide further support for long-term growth.

The stock has pushed out to an all-time high this week, following up a triple-digit total return in 2013 with an impressive 25 percent gain to start 2014.

Methanex declared its first dividend in July 2002 at CAD0.0 per share. It’s raised the quarterly payout nine times since, including three times since the end of the Great Financial Crisis, during which it held the dividend steady. The company has never cut its payout.