December 8, 2014 / 3:43 PM / in 3 years

Energy selloff fuels biggest TSX drop in almost 18 months

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

TORONTO (Reuters) - Canada's main stock index recorded its biggest single-day percentage drop in nearly 18 months on Monday as a selloff in oil sent shares of energy producers tumbling and raised fears about a wholesale retreat from Canadian equities.

With world oil prices showing no signs of slowing their decline to five-year lows, Canada's large number of energy stocks were among the hardest hit but were by no means the only ones.

They were joined by banks, part of the single largest constituent of the index, and almost every major sector ended in the red. The measures for market volatility surged about 20 percent.

The benchmark TSX index slumped to a seven-week low and has fallen nearly 10 percent since hitting a record high in September.

“It’s a sell on a global basis. If you’re a money manager in New York or London, right now you’re saying ‘Sell Canada’,” said Bill Harris, portfolio manager at Avenue Investment Management.

“’Just sell it. And we’ll wake up and pick up the pieces later when we can see what’s shaken out.’”

The energy sector, which has been a casualty of the oil-markets bloodbath, gave back 6.5 percent. It has lost more about 40 percent of its value since the middle of June.

The energy sector forms more than 20 percent of the Canadian equity market and a significant part of the country’s gross domestic product. Worries that the oil price selloff will hurt the commodity producers’ bottom lines further escalated, and so did a sense that other sectors were becoming more vulnerable.

“This is a big-enough move (in the oil price) that will have a knock-on effect on everything,” said Harris.

The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE closed down 329.53 points, or 2.28 percent, at 14,144.17. Nine of the 10 main sectors on the index were in the red.

Investors worried about global economic growth: concerns fueled by weakness in China's imports and slowing export growth, and separate weak data out of Japan.

"The psychology is extremely negative. We’re back into panic mode," said David Cockfield, managing director and portfolio manager at Northland Wealth Management. "The market in Canada is becoming more and more irrational."

Financials lost 1.5 percent, with Toronto-Dominion Bank (TD.TO) losing 2.8 percent to C$52.72 and Bank of Nova Scotia (BNS.TO) giving back 1.7 percent to C$65.07.

In the oil and gas group, Suncor Energy Inc (SU.TO) fell 5.7 percent to C$33.70 and Canadian Natural Resources Ltd (CNQ.TO) dropped 4 percent to C$35.64.

Among biggest mining decliners, First Quantum Minerals Ltd (FM.TO) fell 5.5 percent to C$16.95.

Precision Drilling Corp (PD.TO) said it expected capital spending to be lower in 2015, sending its shares down 7.3 percent to C$6.35.

Editing by Peter Galloway, Steve Orlofsky and Tom Brown

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