TSX slips on Fed's stimulus cut, emerging-market fears

Wed Jan 29, 2014 4:42pm EST
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By John Tilak

TORONTO (Reuters) - Canada's main stock index retreated on Wednesday after the U.S. Federal Reserve trimmed its monetary stimulus program and worries about emerging-market economies weighed on investor sentiment.

The Fed said it was cutting its monthly bond purchases by another $10 billion, citing an improvement in economic activity in the United States, even as the crisis in emerging markets flared.

Investors remained concerned about slowing economic growth and increasing credit risk in China, as well as perceptions of instability in emerging markets. Doubts about China, coupled with extreme volatility in the Argentine peso and the Turkish lira, have raised questions about the risks of investing in emerging markets.

The Fed "obviously felt there was nothing in the U.S. data that would give them cause to pause," said Stephen Wood, chief market strategist, North America, at Russell Investments. "The Fed, while it may be easing up on the accelerator, will not be looking for the brake pedal anytime soon.

"There's a momentum right now towards a risk-off strategy, and emerging markets are at the forefront of that global sentiment," added Wood, who noted the Fed's mandate was a domestic one.

The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE closed down 44.56 points, or 0.33 percent, at 13,643.10.

The benchmark index, with its high concentration of resource shares, lost about 2.5 percent in the last week.

Despite the selloff, Wood said it would be wise to remain cautious about natural resource shares as China's economic growth slows down.   Continued...

A Toronto Stock Exchange (TSX) logo is seen in Toronto November 9, 2007. REUTERS/Mark Blinch