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To: Terry Whitman who wrote (80774)	12/22/1999 8:27:00 AM
From: re3	Respond to of 86076

from our financial post today...we have been kind of a 3 stock market up here, nortel, bce and jdsu...but i think our resource sector is undervalued...i.e. NICKEL !!! HO HO HO Nortel balancing act cramps market Funds dump other assets: Resource stocks may finally benefit from cash inflow next year Stephen Miles Financial Post The explosive growth of Nortel Networks Corp. and BCE Inc. stock may have been good for the Toronto Stock Exchange 300 composite index but it is squeezing the liquidity out of the Canadian market, a leading analyst says. Portfolio managers trying to keep pace with an exponential increase in the weighting of the two telco giants in the Bay Street benchmark have been forced into a fire sale of underperforming assets to buy more Nortel and BCE, says Martin Roberge, quantitative strategist at National Bank Financial. Hardest hit have been resource stocks. Despite strong commodity price gains in the past six months, stocks in the group have lagged, weighed down by selling pressure from fund managers. But Mr. Roberge says price divergences are likely to close in the new year when new cash pours into the market as the registered retirement saving plan season hits top gear. As the liquidity crunch eases, resource stocks could enjoy a sizable pop. Mr. Roberge says although the resource sector has outperformed the TSE 300 so far this year, it should have done better. "When you combine the superior positive earnings revisions of resource stocks and the positive fundamentals associated with the rebound in Asian imports, fourth-quarter performance has been frustrating," he says. The TSE's metals, gold, paper and oil and gas sectors are all mired in underperformance while underlying commodity prices have advanced strongly. Perhaps the worst offender is the oil and gas group. While the TSE subindex has dropped 25% from its peak of 2900 in August, the price of a barrel of oil has climbed more than 30%, from $20 (US) to $26 (US). Mr. Roberge says the divergence between commodity prices and resource stocks began to emerge only in summer -- coinciding with net redemptions in equity mutual funds. As the weighting of Nortel and BCE rose in the TSE 300, "cash poor" fund managers were forced to sell holdings in other sectors. "The unloved resource stocks bore the brunt of the crunch." In the third and fourth quarter Nortel and BCE's combined index weighting averaged 20% for a market cap of about $140-billion, Mr. Roberge says. The total weighting of the resource and energy sectors also was about 20%. "Therefore, whenever on any given day NT and BCE would rise by 3%, $4.2-billion in market capitalization had to be sold by portfolio managers in other TSE sectors just to keep up with the weightings of NT and BCE in the TSE 300," the analyst says. He sees no relief in sight for beleaguered resource issues if Nortel and BCE "do not take a rest." However, if the exponential rise in the shares begins to flatten, then resource stock price divergence is likely to close as new cash comes into the market in RRSP season. "The RRSP campaign will alleviate the liquidity needs of portfolio managers in their fight for constant sector rebalancing, and reduce selling pressures on the non-tech and non-telco sectors," Mr. Roberge says. "Should there be no routs in the overvalued technology sector, a simple linear rise in these stocks would suffice to close resource stock price divergences, assuming that portfolio managers buy the compelling top-down and bottom-up backdrop of resource stocks, and act accordingly."