KORNER REPORT / Closing Canadian Markets
Toronto Stocks Close Lower On Weak Resources
Toronto stocks closed in negative territory on Wednesday knocked down by the double whammy of slumping resource-based stocks and signs from U.S. Federal Reserve chairman Alan Greenspan that he has no intention of lowering interest rates in the near term.
The Toronto Stock Exchange's key 300 Composite Index fell 46.56 points, or 0.7 percent, to 6712.34, with the oil and gas index contributing 21 points to the decline. Volume was 112.7 million shares worth C$2.31 billion. Advancers lagged decliners 440 to 571 with another 240 issues unchanged.
Similarly, the S&P/TSE 60, an index of blue chip stocks, fell 2.21 points, or 0.6 percent, to 390.45.
In New York, the Dow Jones Industrial Average was off 19.31 points, or 0.2 percent, to 9335.91.
The New York market took investors on a rollercoaster ride after Greenspan, who was testifying before the U.S. House of Representatives Ways and Means Committee, said turmoil abroad and falling exports posed risks to the "sparkling""U.S. economy and suggested he was in no rush to cut interest rates.
Greenspan sounded a cautious note on the near-record level of U.S. stock prices, which he said may be difficult to sustain because of weaker corporate profits.
"While there are risks going forward, to date domestic demand and hence employment and output in the United States certainly has remained vigorous," he said in his first testimony of the year. "Though the pace of economic expansion is widely expected to moderate as 1999 unfolds, signs of an appreciable slowdown as yet remain scant."
Greenspan did not comment on the direction of U.S. interest rates. The fed meets next in early February to discuss rates.
The New York market plunged in the last hour of trading dropping from a positive showing of 104 points, to its close of more than 19 points lower following Greenspan's remarks. U.S.-based traders blamed computer drive sell programs for the sudden declines indicating disappointment that no rate cuts were coming.
Toronto stocks plunged even lower, affected not only by Greenspan's comments on interest rates but also by the continued depressing outlook for the country's resource-based stocks.
With commodity prices near record lows, many Canadian companies have been hit hard by the slumping demand for their natural resources. Copper, nickel and oil prices continue to disappoint.
"It's the same old story with commodity price pressures," said Rick Hutcheon, president at centrePost Mutual Funds, in Toronto. "If we can't get some kind of a lift out of our underlying commodity prices our market's going nowehere. Today's a classic example of that."
Big losers in TSE trading was ATS Automation Tooling Systems, which dived $5.30 to $13.70 after issuing a profit warning. Among other losers, Northern Telecom sank $1.90 to $82.85, Suncor $3.20 to $40.40, Alberta Energy $1.80 to $34.25, Imperial Oil $1.30 to $22.80 and Alcan $1.30 to $41.
Among gainers, TD Bank climbed $1.95 to $60.80, Seagram $6.10 to $71, CN 5 cents to $81.60, Sears Canada 85 cents to $21 and MPACT Immedia $2.75 to $22.50.
Overall in Toronto, eight of the TSE 300's 14 subindexes closed in negative territory led by a 3.9-percent dip in the oil and gas index and a 3.2-percent fall in the metals and minerals group. The gold index dropped 1 percent.
Nickel miner Inco Ltd. led the metal stocks lower falling C$1.30 to C$17.10 and base metals producer Rio Algom Ltd. was off C$1.05 to C$16.15.
Gold miner Barrick Gold Corp. slipped C$0.15 to C$30.00 as the price for an ounce of gold in London fell $0.50 to $286.00.
In individual stocks ATS Automation Tooling Systems Inc., a leading North American automated assembly line maker, led decliners lower dropping C$5.30 to C$13.70 on volume of 5.6 million shares. Yesterday, the Cambridge, Ontario-based manufacturer warned investors that revenues from a key client would be substantially lower than expected next year. ATS cannot disclose the name of the client for reasons of confidentiality.
Bucking the negative trend was the consumers product sector which rose an impressive 4.1 percent, fuelled mostly by Seagram Co. Ltd. which climbed C$6.10 to C$71.00.
In Montreal, the market portfolio index slipped 2.12 points to 3,480, while Vancouver's composite indicator sank 3.62 points to 418.6.
Canada bonds end lower
Canadian government bonds ended weaker on Wednesday, but cut most of earlier losses as North American stock markets fell.
Optimism that lawmakers would approve Brazilian government's fiscal reform plans had prompted equities buying overseas and at the start of the North American session.
Testimony by Federal Reserve Chairman Alan Greenspan at a House committee touched upon both the upside and downside risks of robust U.S. economic growth and stock market performance, and thus provided little direction as to which way U.S. official interest rates are going.
Comments by Bank of Canada Governor Gordon Thiessen on the Canadian dollar had little impact on the market.
Canada's benchmark 30-year bond due June 1, 2027 fell C$0.12 to C$138.90, yielding 5.325 percent.
The U.S. 30-year bond, after plunging more than a point earlier in the day, was down 9/32 to yield 5.167 percent. The Canada-U.S. yield spread narrowed further to 15.6 basis points from 17.1 at the previous close as Canada's loss was limited.
U.S. housing starts data, released this morning, showed a sharp rise of 3.5 percent to an annual rate of 1.72 million units in December, the highest level since March 1987, after a revised 1.8 percent fall in November.
Canada's inflation picture remained benign. The December consumer price index rose 1.0 percent year on year and fell 0.3 percent month on month. The core rate rose 1.5 percent from a year earlier, and was unchanged from November.
Canada will also release international trade data on Thursday and retail sales data on Friday, both for November. (see Canada indicators survey Jan 18-22 by hitting ECI/CI and F9).
At the shorter end, Canada's two-year bond due December 1, 2000, fell C$0.08 to C$100.27, yielding 4.843 percent. The Canadian yield curve flattened a bit. The two-year to 30-year yield spread, after an initial widening, narrowed to 48.2 basis points from 49.8 at the previous close.
The money market was flat to weaker in narrow ranges.
Canada's three-month when-issued T-bill yielded 4.68 percent after 4.66 at the previous close.
Investing
Opportunities In Canadian Stocks
Stock picking style works: Selection, timing can bear domestic fruit, Fidelity's Radlo says
Mutual fund investors may be down on Canada, but Alan Radlo, portfolio manager with mutual fund giant Fidelity Investments Canada Ltd., is still excited about opportunities in the true north.
With Canadian stock markets performing dismally in 1998 compared to other developed markets, domestic equity funds are a tough sell this RRSP season. Yet with foreign content in a registered retirement savings plan limited to 20%, the funds still will figure prominently in most RRSP portfolios.
Mr. Radlo, who manages Canadian equities from Fidelity's head office in Boston, believes there is much opportunity in Canada, and reason for investors to buy here. "We have continued to find very exciting companies," he says. "I think there will still continue to be problems in the Far East, and Brazil and Latin America . . . It has had effects on Canada and the growth trends, but as people know there are so many domestic companies that are completely independent of what is occurring."
As commodity prices tumbled last year, so, too, did the the resource-heavy Canadian stock market. That combined with the sagging Canadian dollar dragged down Canadian equity funds, which had an average return of minus 3.8% in 1998. That was far below the average gains of 25.3% by U.S. equity funds and 17.1% by international equity funds.
Mr. Radlo says he understands investors' hesitation about Canada. But by jumping in at the right time, he says he has been able to find many opportunities. "Only several months ago we were buying hundreds of thousands of shares of stocks such as JDS Fitel, at one-fourth the price it is today. It has been these types of periods where I've been very opportunistic, as I must with the funds the size they are."
Mr. Radlo manages Fidelity True North, Fidelity Canadian Growth Company, and the equity portion of Fidelity Canadian Asset Allocation. All three funds comfortably outpaced the competition last year, achieving positive returns in negative markets.
The trick is looking beyond the usual fare to win the returns, he says. "I have never been a Canadian investor who has just bought Canadian Pacific, Bell, and Noranda . . . ," he says.
Instead, Mr. Radlo looks for good value stocks in Canada that are positioned to benefit from global trends. He uses U.S. market valuations as a benchmark, and then looks for comparable Canadian companies with solid growth prospects that are cheaper. And many of those companies do business beyond Canada's borders.
Last year, his selective stock picking produced some impressive results. Canadian Growth Company returned 4.5% in 1998, compared with minus 13.6% for the average Canadian small-cap fund. The fund has avoided the resource sector, with the exception of natural gas stocks, which Mr. Radlo expects will benefit as pipeline capacity to the U.S. continues to expand. His favorite stocks at present are broadcasting and film companies.
Mr. Radlo's outlook for Canada this year is generally positive. He expects earnings to remain in the low single digits, but thinks there are tremendous bargains for selective investors.
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