As Canadian stocks continued their week long decline, the S&P/TSX Composite Index met the definition of a bear market to put an end to a two year long bull run.
At close in Toronto, the index dropped over 2 percent to 12,448.22 equating to 30 percent below its previous worst performance in late 2014. Canada follows Germany, which was the first G7 country to witness its benchmark equity index fall into a bear market.
Ian Nakamoto, chief analyst at MacDougall & Mac Tier Inc., said that it was hard to continue “avoiding the Canadian issue” and that there is “no stabilization on the horizon.”
The S&P/TSX index has had a particularly bad run in the last fiscal year ending January. Crude inventories hitting record highs resulted in a price war that left the country’s oil the cheapest on the global market. And even though rumours of a hike in the U.S. raised the Canadian dollar slightly, low prices and the gloomy global economic outlook have shredded confidence.
Energy shares included in the index fell by 25 percent last year, making the oil industry the worst performing out of 10 sectors. When investors dumped crude and looked for safety in the pharma industry, they got burnt again when bright light Valeant Pharmaceuticals International Inc. shares took a nosedive over controversial sales and pricing strategies.
Oil has hit $30 per barrel for New York crude after its decline to a 13-year low, pushing global stocks to a four month low and extending the S&P/TSX losing streak. As a result, Canadian stocks sank 20 percent to 19.4 times earnings compared to a 22.8 high in Q1 of last year.
The outlook is not much rosier in Asia, with China’s CSI 300 Index declining 7 percent on Wednesday, and authorities calling a halt to trading for the second time in seven days. CITIC Tokyo International, an investment company with several interests on the Chinese exchange, was forced to pull out of a $300 million purchase due to the halt.
Purpose Investments Inc. chief executive, Som Seif, remarked recently that “investor nerves are wearing thin on the Canadian trading floors and a bear market comes as no real surprise. It was a great 2 year run but we all need to dig in now and wait for commodity prices to level out. We prepare for times such as this.”
