- S&P/TSX has third-best performance among developed markets
- China, U.S. manufacturing data spark selloff to start 2016
At least for one day, Canada’s stock market benefited from its resource-heavy tilt as a rally in gold producers helped minimize damage during the worst global equity selloff to start a year in at least three decades.
While broad losses among banks and railway operators paced a 0.6 percent drop in the Standard & Poor’s/TSX Composite Index, the benchmark had one of the best performances among developed-nation gauges tracked by Bloomberg. A global stock index tumbled 2 percent for its worst inaugural session since at least 1988, as weak manufacturing figures from the U.S. and China, the world’s two biggest economies, sparked concern that growth will slow.
Canadian shares still delivered their worst opening day since 2005, with the S&P/TSX falling 82.80 points to 12,927.15 at 4 p.m. in Toronto. The gauge pared earlier losses of 2 percent as energy shares clawed back most of a 2 percent rout and gold miners rallied 4.2 percent as the metal’s price rose on haven demand. Royal Bank of Canada and Toronto-Dominion Bank, the largest lenders, sank at least 1 percent.
The equities selling started in China, where investors scrambled for the exits after the CSI 300 Index plunged 7 percent, triggering a halt for the day after an earlier 15-minute suspension at 5 percent failed to stop the retreat. European shares lost 2.5 percent and the S&P 500 in the U.S. fell 1.5 percent.
“If you want to be bearish, there’s a lot to be concerned about,” said Greg Taylor, a fund manager at Aurion Capital Management in Toronto. His firm manages about C$7.2 billion. “It’s certainly not a good headline and it doesn’t help sentiment at all. But it does feel some of the worst news is priced in.”
The Canadian benchmark index sank 11 percent in 2015, the biggest annual slide since 2008 as a combination of slowing growth in China and Europe, a glut in crude production and the prospect of increasing U.S. lending rates buffeted Canadian stocks.
The Caixin factory index, a measure of manufacturing, came in at 48.2 in December, short of the median analyst estimate of 48.9 in a Bloomberg survey. The nation’s first official economic report of 2016 on Jan. 1 signaled manufacturing weakened for a fifth month, the longest such streak since 2009. Figures also showed U.S. manufacturing contracting at the fastest pace in six years.
Canadian stocks may finally be able to outperform their U.S. peer S&P 500 for the first time since 2010 this year if the price of resources from crude to gold rebounds, Taylor said. Geo-political risks such as the rising tension between oil producers Iran and Saudi Arabia, which had taken a backseat to supply and demand concerns in 2015, may return to the forefront, he said.
“The one thing Canadian investors had been hoping for last year was for a peak in the U.S. dollar,” Taylor said. “The Canadian market is starting to show some strength. Sell the winning trades and a reversion into lagging trades in gold and oil. If this trend were to hold then maybe Canada will start to outperform the U.S.”