IN THE NEWS / Fearless 1999 Prediction: Stocks Will Go Up...And Down
By The Canadian Press
Well, we told you so.
A year ago, analysts and commentators were more or less unanimous in warning that the double-digit annual gains in Canadian stocks of the previous three years were unlikely to continue through 1998.
The figures bear out, so to speak, those predictions.
The Toronto Stock Exchange 300 composite index, the performance benchmark for Canadian equities, is down about 3.5 per cent from its 1997 close of 6,699.44.
It's the first losing calendar year for the TSE 300 since 1994, though things looked sunnier in April when the index hit its all-time peak of 7,822.25 -- up 17 per cent in less than four months.
After a precipitous summer slide and a brief September upturn, the index fell to 5,336.15 on Oct. 5, its lowest point in two years.
From that low, it has gained more than 20 per cent. In all, the year has given many investors a crash course on the meaning of price volatility.
For 1999, analysts agree that the outlook is for a year of challenge and uncertainty -- again.
Forecasts for Canadian economic growth are around two per cent, down by about half from 1998.
Inflation is expected to remain low, largely because the economic slump encompassing Asia, Russia and South America will continue to depress demand -- notably demand for commodities. This means a significant increase in interest rates is unlikely.
Corporate profit growth is also predicted to be moderate at best -- leaving price-earnings ratios high by historical standards.
Even down from April's giddy high, when the TSE price-earnings ratio hit 35, it would still take more than a quarter of a century for earnings at current levels to cover the price of the average TSE 300 stock.
No one can say with certainty whether the revival since the dark days of October is based on real value.
It may be a sucker rally like the one in 1930, which drew in investors who had money left after October 1929, then trapped them in a plunge that lasted two years, into the vortex of the Great Depression.
If that reference strikes you as unduly alarmist, by all means load your money aboard the latest American Internet-stock rocket.
However, if you are disconcerted by prospects of spreading global recession and political instability -- along with imponderable factors like the millennium computer bug and the inevitable unpredictable -- here are a couple of defensive tips:
**Big, stable, dividend-paying corporations like utilities and consumer-products companies tend to hold up well when the economy turns down.
**Commodity prices won't stay low forever. For patient investors, substantial and well managed resource stocks with beaten-down share prices offer potential for long-term capital gains.
|
