Canada Stocks' Six-Day Decline Tempered by Gold-Haven Trade

  • Global markets drop to 3-month lows as China weakens yuan
  • Gold producers gain as metal climbs; WTI slumps below $34

The materials trade that battered Canadian stocks through much of last year is proving to be the equity market’s saving grace at the start of 2016.

A 7.2 percent rally among gold producers in the Standard & Poor’s/TSX Composite Index so far this year has softened the impact from waves of negative news that have roiled major markets elsewhere. The benchmark Canada stock gauge is still down for the sixth straight day as energy shares led losses.

Investors seeking a haven from turmoil in the market are turning once again to gold as the metal posted its longest winning streak since October, buoyed by the selloff in equities and North Korea’s nuclear test. Barrick Gold Corp. jumped 4.6 percent. Gold producers in the S&P/TSX have declined for five straight years.

“People now are getting legitimately concerned and wondering where can you go?” said Bruce Campbell, a fund manager at StoneCastle Investment Management in Kelowna, British Columbia. His firm manages about C$100 million. 

Campbell is keeping his cash positions out of the market for now while waiting for more economic stability. “You start to wonder what the consensus trade is and you have to start looking the other way and what’s going to change,” he said. “‘Treasuries are low and the stock markets are down so let’s hold gold.”’

The Canadian benchmark, one of the worst-performing markets in the developed world in 2015, has lost only 2.2 percent in three days of trading, outperforming stock gauges in Germany and the U.S. The index has posted the sixth-smallest loss this year out of 24 developed equity markets tracked by Bloomberg. Valuations of Canadian stocks have fallen 13 percent from an April high, to 19.7 times earnings.

The S&P/TSX dropped 193.34 points, or 1.5 percent, to 12,726.80 at 4 p.m. in Toronto, about 30 index points away from a two-year low. Global stocks retreated to a three-month low as Brent crude plunged to an 11-year nadir. The Bloomberg Commodity Index slid a third straight day.

China’s central bank lowered the reference rate for the yuan, pushing the currency to a five-year low and raising concern about the economic health of the world’s second-largest economy. China rocked financial markets when it last devalued the currency in August, sparking a rout in emerging-market currencies and stocks. Canada’s dollar touched a 12-year low as bets mount the Bank of Canada will drop interest rates to a record low this year. China is Canada’s second-largest trading partner after the U.S.

Encana Corp. and Canadian Natural Resources Ltd. fell at least 4.3 percent as all 55 members of the S&P/TSX Energy Index retreated. The industry, the worst-performing in the broader S&P/TSX last year, fell 3.2 percent today, for the most in three weeks. Crude in New York dropped to less than $34 a barrel after supplies at the U.S. hub rose to a record.

Royal Bank of Canada and Toronto-Dominion Bank fell at least 1.6 percent as financial services stocks sank 1.7 percent as a group, for a three-month low.

Magna International Inc., the largest North American auto-parts supplier, fell a seventh straight day to match the longest losing streak since April, and Linamar Corp. tumbled 5.2 percent to a November low. U.S. automakers Ford Motor Co. and General Motors Co. fell in New York yesterday after missing December sales estimates, and extended declines Wednesday.

Valeant Pharmaceuticals International Inc. rose 2.1 percent for a second day of gains. The drugmaker named former Chief Financial Officer Howard Schiller to run the company while Chief Executive Officer Michael Pearson remains hospitalized with severe pneumonia. Pearson is on medical leave and the timing of his return remains uncertain, the company said in a statement.

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