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Canada’s junior stock market is in crisis. Hundreds and hundreds of companies can’t raise money, do anything productive to create shareholder value, or get anyone to trade their stocks. But the biggest problem may be that most people just don’t seem to care.
Tell a Canadian market participant that the S&P/TSX Venture composite index hit an all-time low in December and you will likely be met with astonishment.
The once-mighty junior exchange, a place where issuers have raised more than $80 billion in capital during the past 13 years, has fallen so far off the investment community’s radar that most investors seem to have no idea it is plumbing such depths.
The raw numbers are grim. The index is down a whopping 73% since March 2011, and 80% from its all-time high in 2007. The total market value of the exchange’s nearly 2,000 companies is less than $30 billion.
By comparison, the market cap of companies on the Canadian Venture Exchange was more than $100 billion in 2001 before it was acquired by TMX Group Inc. and became the TSX Venture Exchange.
The decline has come despite plenty of things that have propelled global equity markets in recent years: an improving U.S economy, accommodative monetary policies, strong corporate profits, an M&A revival. None of them have made a lick of difference to the Venture, which is somehow lower than it was during the 2008 financial crisis.
A big chunk of the blame can be laid on the volatile commodity price environment. More than 70% of the stocks on the Venture are junior mining and energy plays, and many of them are unable to raise capital to advance their projects.
Investors have lost astounding sums of money in these companies over the past few years and, understandably, they don’t want to lose any more. Liquidity on most Venture stocks is very poor, which makes it difficult for them to be bid anywhere but down.
“It goes hand in hand with the level of activity that we’ve had serving those clients,” said Jay Kellerman, managing partner at law firm Stikeman Elliott LLP. “There’s no equity to be raised at all, period. So we’re not doing that. And I’ve always said there should be more M&A in the [junior] sector, but there never is.”
For the rest of this article, click here: http://business.financialpost.com/2014/12/27/can-the-once-mighty-tsx-venture-exchange-be-saved/