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Down 17% in the past month and 65% since 2011
The outsized gains and repeated record highs of the past few years on most global equity benchmarks still far outweigh the mounting losses of the past few weeks. Then there’s the SP/TSX Venture composite index.
Canada’s resource-heavy junior stock exchange is down a nightmarish 65% since peaking in early 2011, including a 17% drop in the past month alone, and it’s hard to envision much of a rebound anytime soon with oil, gold and other commodities still on the skids.
“The underperformance of the Venture will likely continue,” said Arthur Salzer, chief executive at Northland Wealth Management in Markham, Ont. “While it may be a surprise to some investors, the commodity supercycle has ended.”
Historically, bull markets in commodities have lasted 15 to 20 years, but the cycle this time around, which began in the early 2000s, was much shorter.
Mr. Salzer said extreme amounts of capital were raised to finance mining projects around the world during the past 10 years, leading to a vast oversupply of many hard commodities, including iron ore, copper and nickel. “We may have experienced 20 years of financing within a decade’s worth of time,” he said.
As a result, the entire mining sector is having a very difficult time raising additional capital and has experienced declining margins, profits and stock prices.
“Small-cap companies have found it almost impossible to raise capital and have subsequently either stopped exploration or mothballed mines and potential projects,” Mr. Salzer said.
“To add insult to injury, the majors – Rio Tinto, Teck, Vale – are protecting their much-needed cash balances and are not acquiring assets by takeovers of smaller companies.”
Colin Cieszynski, market analyst at CMC Markets Canada, also said the end of the commodity cycle is having a huge impact on the Venture’s performance.
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