Canada Stocks Lag Peers as Resources Struggle With China Growth

  • Benchmark index slumps as trading resumes after Monday holiday
  • Chinese imports decline for an 11th month as economy slows

Disappointing data from China battered Canadian stocks, weighing again on a market that’s suffered one of the biggest hits among global equities as commodity prices slump.

Stocks fell after reaching a seven-week high last week as imports into China tumbled for an 11th month, rekindling concern that a slowdown in the world’s second-largest economy will spread. Energy and raw-materials producers have declined with prices from copper to oil and gold, giving Canadian equities the third-worst performance among developed markets this year.

The Standard & Poor’s/TSX Composite Index fell 119.63 points, or 0.9 percent, to 13,844.73 at 4 p.m. in Toronto, the most in two weeks, as Canadian markets re-opened after the Thanksgiving holiday. The benchmark Canadian equity gauge is down 5.4 percent for the year, the poorest showing among 24 countries except for Singapore and Greece.

Declines over the past two days have cut short an eight-day rally from the lowest level since 2013. Canadian stocks climbed 4.7 percent last week, the most since December, as commodities and emerging markets rebounded amid a drop in the dollar.

Equity strategists forecast Canadian stocks will resume their recovery. Brian Belski, chief investment strategist at BMO Capital Markets, estimates the S&P/TSX will close 2015 at 15,600 -- a 13 percent jump from current levels.

“The ‘Eeyore complex’ is alive and well in Canada, likely setting the stage for a surprising contrarian rally,” Belski said in an Oct. 1 note to clients. “Bearish sentiment toward Canada reached extreme levels in the quarter. We believe much of the bad news is now priced in and Canada should become increasingly correlated to a strengthening U.S. economy.”

Despite the declines, prices for Canadian stocks remain expensive relative to global peers. The MSCI All-Country World Index, a measure of developed and developing markets, currently trades at about 17.1 times earnings after halting a nine-day advance. The index’s valuation dropped to as low as about 16 at the end of September, the lowest since October 2014. By contrast, the price-to-earnings ratio of the S&P/TSX sits at 20.1, after falling to as low as 18.9 in September.

Copper fell for the first time in three sessions today as Chinese imports slid. China is Canada’s second-largest trading partner after the U.S. First Quantum Minerals Ltd. slumped 10 percent and Teck Resources Ltd. retreated 9.4 percent to lead mining companies lower. Copper for delivery in three months lost 0.8 percent in London as nickel, lead and zinc also fell. While copper has rebounded since late September, prices are still near a six-year low.

Kicking Horse Energy Inc. soared 45 percent, the most since December 2010, after PKN Orlen SA, Poland’s biggest oil company, agreed to buy the Canadian energy producer in a C$356 million deal to increase its Canada production.

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