Canadian Stocks Enter Bear Market as Energy Selloff Deepens

  • S&P/TSX tumbles 20 percent from September 2014 record
  • Global markets slump as China halts trading 2nd time this week

Canadian stocks sank a seventh straight day, entering a bear market and ending a bull run that lasted two years.

The Standard & Poor’s/TSX Composite Index sank 2.2 percent to 12,448.21 at 4 p.m. in Toronto, falling 20 percent below its September 2014 record to meet the definition of a bear market. Canada is the second Group of 7 country to see its benchmark equity gauge enter a bear market, after Germany’s DAX Index in August.

“The cat’s out of the bag in terms of avoiding Canada,” said Ian Nakamoto, director of research at MacDougall MacDougall & MacTier Inc. in Toronto. His firm manages about C$5 billion. “It’s hard to be positive. There doesn’t seem to be any stabilization coming. When markets continue to fall, you can’t help but lose some confidence.”

Canada’s resource-rich benchmark has been one of the worst-performing markets in the world in the past year, caught at the center of a commodity price storm and growing fears economic growth from China to Europe is slowing at the same time as the prospect of rising U.S. interest rates boosted the dollar.

A glut in crude supplies collapsed prices to decade-lows, leaving Canada’s oil the cheapest in the world. Energy shares in the S&P/TSX slumped 26 percent last year, the worst-performing among 10 industries. Investors seeking a non-resource haven amassed around health-care stocks until leader Valeant Pharmaceuticals International Inc. plunged amid government scrutiny of its pricing practices.

The S&P/TSX has posted its longest losing streak since November, with global stocks extending a three-month low and New York crude plunging to a 12-year nadir, pushing closer to $30 a barrel. Valuations for Canadian stocks have tumbled about 15 percent to 19.2 times earnings, from a high of 22.7 in April.

China’s CSI 300 Index plunged 6.9 percent, triggering the second full-day trading halt this week. The country’s securities regulator later suspended the new stock circuit-breaker system after an emergency meeting to discuss the nation’s tumbling stock market. That’s after the nation’s central bank lowered the reference rate for the yuan, pushing the currency to a five-year low and raising concern about the health of the world’s second-largest economy. China is Canada’s second-largest trading partner after the U.S.

“There’s a lot of nervousness out there,” said Som Seif, chief executive officer of Purpose Investments Inc. in Toronto. His firm manages about C$1.8 billion ($1.28 billion). “China devalued the yuan and the pace is scaring people.”

Broad losses among Canada’s banks, energy producers, industrial and consumer stocks paced declines with the S&P/TSX. Royal Bank of Canada and Toronto-Dominion Bank, the largest lenders in the nation, lost at least 1.8 percent as financial shares dropped to a four-month low.

The Canadian market will continue to struggle until oil prices rebound, as many of the largest and most important parts of the economy including banks are tied to the industry, said David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates Inc. in an interview in Toronto.

“Canada has a ‘For Sale’ sign on the front lawn,” Rosenberg said. “The key to any turnaround will be the price of oil, and not just for the energy sector.”

Crescent Point Energy Corp. slumped 12 percent, among the biggest decliners in the S&P/TSX Energy Index. The oil producer cut its planned capital spending in 2016 by as much as 39 percent compared with 2015 estimates. Fifty-three of 55 members in the group declined.

Base metals producers joined the retreat, with First Quantum Minerals Ltd. slumping 8.2 percent and Teck Resources Ltd. declining 8.7 percent as copper futures fell to less than $2 a pound for the first time in more than six years.

Smartphone maker BlackBerry Ltd. sank 8.9 percent, the biggest retreat in a year, after the company said it will unveil at least one more Android device this year.

Meanwhile, gold producers have been a relative island of calm in the Canadian market with the S&P/TSX Gold Index rallying 14 percent so far this year as the metal climbed above $1,100 an ounce. Barrick Gold Corp. jumped 10 percent to the highest level since July.

“Gold is finally looking more positive than negative,” Kerry Smith, an analyst at Haywood Securities Inc., said by phone from Toronto. “The stocks have been beaten up for so long. It’s kind of a safe haven trade.”

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