Good news

Long overdue is good news in this column.

After about one year of relatively dismal performance, the Canadian stock market could change with much better behaviour this year.

In 2013 the Canadian stock market, measured by the TSX Index, was among the worst of any in the world. Most markets generated strong growth; our market lagged badly. Thus, the U.S. Dow Jones Index had a stellar year with a 28 per cent gain and the broader S&P 500 Index higher by 29%.

The stock market here was comparatively lacklustre – only a rise of 9%. Yet, for several years our economy and stock market were among the leading gainers of any in the globe. What happened and why this disparity?

The image of the Canadian economy is that we are resource-based, and that our economy is very dependent on the demand for our natural resources and their prices.

While volume generally was maintained, prices for most commodities fell precipitously. For instance, while the physical appetite for gold remained brisk, notably from China, the price declined by about 28%. The same occurred for other commodities.

The non-resource sector had a good year, but not as spectacular as in the U.S. The banking industry south of the border suffered from 2008 until 2013, and the recovery was very pronounced thereafter.

The Canadian banks experienced nothing like that roller coaster, so the recovery was less pronounced.

In fact, the banking sector here is something in which Canadians should take pride. We engaged in nothing like the speculative shenanigans in the United States. The shares of well-known U.S. banks fell drastically.

So what will take place in the current year? So far, the auguries are favourable for Canada.  The gold prices appears to have stabilized and gold mining companies’ shares seem to have bottomed.

It should be noted that the gold mining sector is selling at the same level as it was when gold was $400 per ounce, compared to $1,200-plus nowadays.

The Chinese economy had to adapt to slower growth this year; an exuberant 7% expansion, below the around 8% previously. Still, this should continue to draw in heavy volumes of our exports.

Agricultural prices fell significantly last year. Favourable growing conditions entailed huge crops and thus lower prices, unlikely to be repeated soon. There is every reason to believe that strong demand with better prices will occur this year.

The Financial Post recently wrote that, “The trade that has brought investors favouring U.S. oil and gas producers over their Canadian counterparts may finally be starting to unwind … Canadian energy stocks are poised for a ‘turnaround’.”

Then too, the lower-valued Canadian dollar should stimulate our exports, notably for manufactured goods, such as automobiles.

Thus, the outlook for our stock market on a relative basis should be very good.



Bruce Whitestone