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TORONTO – Current market conditions aren’t as bad as the global financial crisis for Canada’s micro-cap companies — they’re worse.
The S&P/TSX Venture composite index sunk to a low of 675.10 on Tuesday morning. That’s the worst level the index has ever traded at, dating back to when TMX Group Inc. bought the Canadian Venture Exchange in 2001. Prior to now, the lowest it ever reached was in December 2008, when equity markets around the world were bottoming out after the financial crisis. (It closed slightly higher at 684.88.)
The dreadful performance of the Venture index reflects the fact that junior resource plays have fallen badly out of favour with investors. More than 70% of the 406 companies in the Venture index are either mining or energy plays.
“The juniors have been in the garbage can, and they’re now falling through the bottom of the garbage can,” said John Kaiser, an analyst and small-cap specialist.
As with so much of the current market pain happening this week, blame the drop in oil prices as the catalyst that finally pushed the index to a record low, leading to a capitulation in tiny energy stocks. That’s on top of the nearly two-year-long depression experienced by mining equities, with weak metal prices and few companies able to raise decent amounts of capital. The Venture has plunged 33.1% since the start of September, mirroring a 33.5% drop in oil prices over that period.
When markets turn volatile, small-cap stocks tend to get hit the hardest as investors make a collective “flight to quality” and get out of more speculative names. These tiny resource firms need capital to keep their projects moving forward, and investors simply do not want to give it to them.
“There was a period when capital was available to any and all, given out without bias,” said Martin Ferguson, a small-cap portfolio manager at Mawer Investment Management in Calgary.
For the rest of this article, click here: http://business.financialpost.com/2014/12/09/falling-through-the-garbage-can-tsx-venture-sinks-to-record-low-amid-resource-sector-woes/