STOCK MARKETS — Separatist fears pummel volatile market

The Toronto Stock Exchange was lower this week on fears that the upcoming Quebec referendum might back the separatist cause. The TSE 300 fell a total of 163.41 points in the five trading days ended Oct. 24, landing at 4352.19 points, 3.6% below its level the preceding Tuesday.

In its worst single day in six years, the index lost 122.84 points or 2.8% on Monday. (By comparison, the crash of October 1987 hit the market for a 25% loss.) The market was reacting to poll results released on the weekend that showed 50.2% of respondents planned to vote for the Quebec government’s proposal. A rally on Tuesday allowed it to claw back 36.7 points, as large institutional investors moved into the market to pick up bargains.

Similar panic gripped the currency market, with the Canadian dollar closing at US72.99 cents, a loss of US0.88 cents on Monday. The Bank of Canada’s Tuesday auction of Treasury bills set the annualized yield of 3-month T-bills at 7.398%, sending the bank rate to 7.65%, up 98 basis points from the previous week. Commercial prime, now set at 8%, was expected to rise to accommodate the new bank rate.

The Loony recovered about a quarter of its Monday loss the following day, as buyers moved in. Among the buyers were the Quebec government, Hydro-Quebec, and the provincial pension and insurance fund, ostensibly to take advantage of an undervalued dollar. Analysts suspected the Quebec government and its proxies had moved into the market to stabilize the dollar and calm fears that a positive referendum vote would hurt the currency.

Comparatively few observers noted that the stock and currency markets both traded very lightly during the panic phases, increasing the volatility of both markets and allowing comparatively small interventions to move the dollar substantially. In the stock market, the large investment funds may be staying on the sidelines for the moment, waiting for a clearer idea of what the future holds.

London gold was fixed at US$382.40 per oz. on Wednesday morning, a drop of $1.35 on the week. Silver was unchanged at US$5.35 per oz., following an unsettled week, and platinum was US$1.85 lower at US$411.50. The precious metals stocks were also lower, at least partly because of weakness in the whole stock market. The TSE gold and precious metals index fell 310.76 points or 3.1% to close Tuesday at 9,580.68.

Heavily traded Placer Dome lost 62 cents to close at $30.88 Tuesday, and Barrick Gold was right behind, losing 25 cents to end the report period at $32.75. The next most active trader among the golds was Quebec-based Cambior, which lost 50 cents to close at $13.50. Agnico-Eagle, another gold with Quebec interests, was down $1.38 to $16. Gold miners with interests elsewhere fared better: Hemlo Gold fell 13 cents to $12.75, Goldcorp was down 38 cents to $12, and Royal Oak shed 50 cents to close Tuesday at $4.88.

Base metals were stronger on the London Metals Exchange. Nickel led the way with a gain of 32 cents on the week for a Wednesday spot price of US$3.84. Lead and copper, both in backwardation on London futures markets, posted gains as well. Lead’s spot price of US31 cents was 2 cents higher on the week and copper, at US$1.26 was up 3 cents. The TSE metals and minerals index heard a different drummer, falling 162.28 points to 4520.92, a loss of 3.5%.

Big miners lost heavily. The biggest trader was Inco, down $2.25 on the week to $42.88. Noranda took a loss of $1.63 per share to fall to $25, Cominco was off $1.88 to $24.50, and Teck’s B-series shares were off $2.25 to $24. Nickel-sensitive issues did better, perhaps reflecting price strength: Falconbridge lost 63 cents to close Tuesday at $28.12 and Sherritt, with little Quebec exposure, was up 38 cents to $18.88.

Exploration issues showed strength in the weak market. Montreal-listed Bresea Resources rode its 24% interest in Bre-X Minerals to a price of $38, up $9.75 from the previous Tuesday. The market is still enthusiastic about reserve estimates at Bre-X’s Busang property in Indonesia.

Among Toronto junior listings, South American Gold was up 30 cents to $1, Cornucopia Resources rose 50 cents to $1.50, and Southern Africa Minerals lost 55 cents to close at $1.05. On the Montreal Exchange, Diabex Resources was up 15 cents to 25 cents and Canspar Resources’ Class A shares tacked on 19 cents to 45 cents, while Boralex was off 13 cents to 30 cents.