COLUMN

Tidings of discomfort

The Bottom Line

Deirdre McMurdy December 22 1997
COLUMN

Tidings of discomfort

The Bottom Line

Deirdre McMurdy December 22 1997

Tidings of discomfort

The Bottom Line

Deirdre McMurdy

For Canadian investors, it may be a challenge to feel jolly this Christmas season. Uncertainty about Asia is depressing world commodity markets. Worries about corporate exposure to the region have diminished the once-ravenous appetite for equities, making the traditional “Santa Claus rally” in late December an unlikely prospect. The same unease has caused a flight to security among currency traders, leaving the loon adrift and exerting upward pressure on interest rates. That, in turn, is a bad omen for stocks. Corporate earnings remain strong, but their growth has slowed markedly.

It is a flat note upon which to end a year that began with high-flying securities and upbeat forecasts for economic growth. And as Canadians retreat to their burrows over the holidays, there is cause for reflection—if not comfort or joy.

Bah Humbug: Modernday wise men need a substitute for gold if they arrive bearing gifts this year.

Frankincense and myrrh may still be welcome in some cultures, but few currently want gold. The precious metal’s price is down about 20 per cent from its 1997 high. Gold stocks, a major component of the Toronto Stock Exchange, are down about 50 per cent. (See central bankers, below.)

The Christmas tree is now a cruel reminder of hard times in Canada’s forestry sector. MacMillan Bloedel and Canfor have each announced lumber mill closures. George Weston Ltd. and Harmac Pacific Inc. withdrew planned equity offerings because share prices in the sector are off about 30 per cent since August.

A cozy hearth offers little solace. The oilpatch is haunted by the spectre of increased production by OPEC, and lower crude prices.

Jungle Love: The Bre-X Indonesian gold fraud had it all: an exotic jungle location, rogue stock promoters, a sinister foreign government, greedy investors and scheming multinational corporations. And there was a tidy moral at the end: if it

sounds too good to be true, it probably is. Canada’s junior mining companies will take years to recover from the blow to their credibility, and regain their access to public capital.

The Men in the Grey Flannel Suits:

Central bankers consolidated their grip on financial markets in 1997. Canadians tried to read Gordon Thiessen’s lips—even when they were not moving. International capital markets hung on every word uttered by the U.S. Federal Reserve Board’s inscrutable Alan Greenspan. Central bankers decided this year that gold reserves are no longer chic. That unquestioned fashion decree has hammered gold prices.

Bre-X investors suffered the hardest fall, but there were plenty of other losers in 1997

Molten Markets: Global equity markets caught the shivers in October because of Asia’s financial crisis. The ensuing “correction” gave financial journalists an opportunity to find dramatic new descriptives for the market carnage. It also served as a reminder that even investors who dutifully diversify their portfolios are not bulletproof.

If You Can’t Beat ’Em, Join ’Em: After years of nagging from investors and sluggish share prices, Noranda and Nova got the message. Both conglomerates announced plans to break themselves up into more digestible chunks.

Merger Maniacs: The feverish pace of takeover deals accelerated in 1997—even accounting firms got in on the act. In Canada, the number of mergers and acquisitions in the first nine months of the year was up 15 per cent from a year earlier. The value of those deals was 30 per cent higher, at $69 billion. And counting.

Spin Cycle: Eager to cash in on the demand for new stock offerings, Canadian companies launched the equivalent of a garage sale. They cashed in by spinning off assets as separate public entities. Among them: BCE, Gulf Canada, Magna International and Rogers Communications.

With the holidays here, what do you give a market that has everything? The answer, alas, is already evident: an economy-sized case of the jitters.