Canada Stocks Fall, Erasing Weekly Gain as Valeant Shares Slide

Updated on
  • Embattled drugmaker has plunged 62 percent in week to forget
  • TransCanada slips after $10.2 billion deal for U.S. firm

Canadian stocks fell, halting a two-week rally, as Valeant Pharmaceuticals International Inc. slid further in a week to forget, while TransCanada Corp. declined amid a deal to buy Columbia Pipeline Group Inc. for $10.2 billion.

The Standard & Poor’s/TSX Composite Index fell 0.9 percent to 13,497.13 at 4 p.m. in Toronto, drifting to a 0.2 percent loss for the week. The prospect for lower interest rates sank the U.S. dollar, boosting the prices of resources from oil to copper, lifting Canadian equities in the previous two sessions.

Valeant fell 9.1 percent, extending a five-day slide this week, the longest since August, that included a record 51 percent drop on March 15. The stock has lost 62 percent this week. Embattled Chief Executive Michael Pearson reassured his employees, saying in a Wednesday memo to workers the company won’t go bankrupt and apologizing for the recent turmoil.

Briefly the largest company in Canada by market capitalization last year, Valeant has lost 90 percent of its value from an August peak after the company announced a weaker 2016 outlook, leading analysts to slash their price targets. It also remains under investigation by U.S. lawmakers and regulators over its business practices.

The collapse in Valeant shares this week is one of the central themes that have driven the S&P/TSX this year, as a rally in raw-materials and energy stocks have propelled the benchmark equity gauge at the expense of health-care stocks, said Brian Belski, chief investment strategist at BMO Capital Markets.

“We continue to maintain that 2016 is not 2015, with Canadian stocks poised for surprise outperformance,” Belski said in a note to clients. “This stance also equates to the ‘Valeant effect.’ The stock helped the index last year and is now a detriment to even better performance so far in 2016.”

The S&P/TSX has jumped 14 percent after reaching a two-and-a-half year low in January, making it one of the best-performing developed markets in the world this year and posting returns ahead of the U.S., Germany and U.K. 

The rebound has been led by gold mining companies, with the price of the metal near the highest in a year after the Federal Reserve dialed back expectations for rate increases this week, driving the dollar lower. The S&P/TSX now trades at 21.6 times earnings, roughly 14 percent more expensive than the valuation of the U.S. equity benchmark, the Standard & Poor’s 500 Index, data compiled by Bloomberg show. 

TransCanada Corp. slipped 0.7 percent after agreeing to purchase Columbia Pipeline Group Inc. in its biggest-ever deal, expanding its reach into the U.S. natural gas market. AutoCanada Inc. lost 6.7 percent after fourth-quarter sales and earnings fell short of analysts’ expectations. The company also appointed Steven Landry as their new chief executive, amid a series of changes to senior management.

BRP Inc., maker of Ski-Doo snowmobiles and Sea-Doo watercraft, soared a record 18 percent after providing an outlook for earnings and revenue ahead of analysts’ estimates. The company’s fourth-quarter earnings also topped forecasts.

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