IN THE NEWS / Stocks Gain As Brazil Worries Ease; Oil, Gold Prices Hurt Producers ---- Morning Update
TORONTO (CP-AP) -- With U.S. exchanges closed Monday for the Martin Luther King Jr. Day holiday, stock markets around the world finished higher as fears of a Brazilian economic disaster continued to recede.
Canada's big banks, industrial firms and utility companies lifted the Toronto Stock Exchange composite index 63.40 points higher to end the day at 6,822.82.
"I was kind of surprised that the market was as strong as it was, overall," said Fred Ketchen, head of equities trading at Scotia Capital Markets in Toronto.
"The natural resources sector fell back into its old ways, but the rest of the market didn't fare too badly."
It was helped by high-tech companies like ATI Technologies, which is still reaping the rewards of stronger-than-expected profits reported last week. ATI gained $1.30 to close at $25.20.
Royal Bank, Canada's largest, gained $2.20 to $79.50, while Northern Telecom Ltd. climbed $1.70 to $87.90. BC Telecom and Telus Corp., Canada's two westernmost phone companies, also gained ground on the eve of shareholder meetings to approve their planned merger.
Oil and gas stocks suffered heavily Monday as major producers prepare to release earnings reports this week that are expected to show just how hard the sector has been hit by oil prices that hover near 12-year lows. Gold, silver and mining companies were also weaker.
A strong U.S. dollar made life difficult for the Canadian dollar, which traded in a narrow range all day but managed to gain 0.02 cent to finish at 65.47 cents US.
Asian stock markets gave a powerful start to the day, and European exchanges joined in as confidence grew that Brazil's government could navigate through the biggest South American economy's sea of troubles.
Brazil's government announced Monday it will continue to let its currency, the real, trade freely. Prices on the Sao Paulo stock exchange rose eight per cent, following Friday's gain of 33 per cent.
The moves in Brazil quelled worries that instability in Latin America could spread; Brazil had caused a selloff in world financial markets Wednesday when it devalued its currency by eight per cent.
London's blue-chip Financial Times Stock Exchange index soared 3.1 per cent, or 182.9 points, to 6,123.9. But experts were warning that stability has not returned to world markets by a long shot.
"There is still a lot of uncertainty out there and I would not advise people to be investing in shares right now," said Michael Derks, senior market strategist for Nomura Securities in London
"These gains are simply not sustainable."
Brazil caused a panic in world financial markets Wednesday when it devalued its currency by 8 per cent, sparking fears that if the country could succumb to an Asian-style currency crisis. A crisis in its economy, the largest in Latin America, could drag down other countries in the region.
Stocks made strong gains across Europe. Frankfurt's DAX index rose 1.8 per cent, the Paris CAC 40 index ended 2.4 per cent higher, Milan's MIBtel index rose 4.6 per cent, and Madrid's IBEX-35 index was up five per cent.
Market-watchers credited the gains to a recovery last week on Wall Street and other world stock exchanges following moves by the Brazilian government to stabilize its economy.
On Friday, the Dow Jones industrial average gained 2.4 per cent when it became apparent Brazil's government would stop spending its dwindling foreign reserves defending its faltering currency.
Tokyo's benchmark 225-issue Nikkei Stock Average opened up but lost much of its steam, finishing up 0.48 per cent.
The Hang Seng Index opened sharply higher in Hong Kong. By the end of trading, the blue-chip index had soared to a gain of 2.5 per cent.
And the Korea Composite Stock Price Index in Seoul closed up by 1.27 per cent.
Markets gained a hefty 4.4 per cent in Manila, Singapore's Straits Times Index was up 2.7 per cent, and New Zealand's NZSE-40 capital index finished up 2.2 per cent.
One weak spot was China, where the two stock markets opened largely unchanged Monday. Traders said prices could fall because of growing numbers of Chinese companies warning of low profits.
Shares in Taiwan also ended lower on profit-taking following two sessions of government-led stock fund purchases.
Morning Update; Toronto stocks open flat in directionless trade
Toronto stocks opened flat in light trading on Tuesday as the markets struggled to find direction.
The Toronto Stock Exchange's key 300 Composite was up 3.43 points, or 0.05 percent, to 6826.25. Volume was a light 9.1 million shares worth C$148.6 million. Advancers outnumbered decliners 276 to 161 with another 185 issues unchanged.
The TSE's index of blue chip issues the S&P/TSE 60 was down 0.73 points, or 0.2 percent, to 396.32.
In New York, the Dow Jones Industrial Average was up 54.06 points, or 0.6 percent, to 9394.61.
"We are looking for something local to drive the Canadian markets," said Jeff Milligan, an investment specialist at Priority Brokerage, in Toronto.
Overall in Toronto, nine of the TSE 300's 14 subindexes opened in positive territory, led by a 0.72-percent climb in the merchandising group and a 0.68-percent hike in the transportation sector.
In the merchandising group, Weston Ltd. was up C$0.65 to C$60.50 and Sears Canada Inc. was C$0.35 higher at C$20.45.
In the transportaion group, Canadian National Railway Co. was up C$0.40 to C$79.90.
Among those sectors bucking the positive trend were the gold and precious minerals group, which was down 0.6 percent, and the consumer products group, which was off 0.3 percent.
Gold and precious minerals were deprressed by a drop in the price of gold in New York of $0.10 to $287.30.
In the gold group, Placer Dome Inc. was off C$0.40 to C$18.20.
Defensive Bent To Top 10 picks
Blue-chip stocks
By DAVID THOMAS The Financial Post
In releasing his top 10 stock picks for the year this week, John McColl, portfolio strategist at Scotia Capital Markets, said the selections were the most conservative in recent memory.
That defensive approach falls in line with the outlooks of several other brokerages, which have advised their clients to increase their exposure to consumer staples such as tobacco, drugs, and liquor.
The resource sector remains "terrible," Mr. McColl said, and equities as an asset class will likely be a dangerous place to be.
"I think the market will continue to show wide mood swings," said Mr. McColl.
He is looking for a return of about 10% to 15% from the Toronto Stock Exchange 300 composite index in 1999.
By comparison, David Adamo, Scotia's managing director of fixed-income research, is forecasting returns of close to 10% -- with much less risk -- in the bond market.
The gains could be even higher if bond yields tumble more than expected on central bank interest rate cuts and upheaval in emerging markets.
"Our bias is very much in favour of bonds over stocks at this point," said Mr. McColl.
The current portfolio weighting at Scotia is 50% stocks, 45% bonds and 5% cash.
Warren Jestin, the bank's chief economist, said inflation will remain dormant and interest rates are headed down, as central banks contend with an inevitable slowdown in the North American economy and strains in the global financial system.
Against that backdrop, Mr. McColl said several of his top stock picks were large blue-chip stocks that pay healthy dividends: BCE Inc., Royal Bank of Canada, and Westcoast Energy Inc.
Other picks designed to round out a portfolio to outperform the wider market include two fast-growing technology stocks (Celestica Inc. and CGI Group Inc.) that benefit from a trend to outsourcing.
He likes a few resource firms, which allow investors to position themselves for a rebound later this year: Abitibi-Consolidated Inc., Imperial Oil Ltd., and Noranda Inc. Bombardier Inc. and Loblaw Cos. Ltd. are included to offer growth with low or moderate risk.
Several brokerages in Canada and the United States have made similar recommendations for their clients to get more defensive.
In some cases that has meant buying shares in firms that cater to consumer standbys, on the assumption people will still want to eat, drink and smoke -- even if the economy tanks.
But if last year was any indication, there won't be easy money to be made, according to a study by John Manley, equity strategist at Salomon Smith Barney. He found nearly all of last year's 27% gain in the Standard & Poor's 500 index was made by only 10% of the firms on just 2% of the trading days.
For the top gainers this year, he suggests investors look for the few pockets of earnings growth. In particular, he singles out the pharmaceutical sector. "We avoided cheap commodity-based areas for much of 1998 and expect to do so in most of 1999."
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