Share volumes tumble in market slump

When people can’t sleep at night worrying about their investments, they tend to stay out of the stock markets, says Fred Ketchen, director of equity trading at Toronto- based ScotiaMcLeod Inc. According to Ketchen, events in 1990 gave the man on the street little reason to want to park his money in anything other than fixed income vehicles like treasury bills and mutual funds.

As a result, share volumes slipped substantially in the first 11 months of 1990 from 1989 levels and the market slump is expected to continue now that Canada is officially in a recession.

Figures released by The Toronto Stock Exchange show that the value of shares traded in the first 11 months of 1990 was $59 billion, down 23% from last year. The volume of shares traded through to the end of November also slipped by 13% from last year. During the same period share values dropped on the Montreal Exchange to $14.3 billion from $19.1 billion while volumes declined to 1.27 billion from 1.5 billion.

On the more retail-oriented Vancouver exchange, both the dollar value and volume of shares traded in through November increased marginally to $3.8 billion from $3.6 billion and 3.9 billion from 3.7 billion respectively. But a VSE spokesman attributed the slight increase to high interest in summer drilling programs at the Eskay Creek gold camp in northern British Columbia. Adrian Resources (VSE) and Prime Resources Group (VSE), two of the key players in the Eskay camp, were among the three most active issues in Vancouver throughout the first 11 months of 1990.

While Iraq President Saddam Hussein’s decision to release all hostages sparked a mini-rally in Toronto during the first week in December, Ketchen does not expect to see any significant recovery until the latter half of 1991. “We have been in a downturn since the October, 1987, market crash and it’s tough at the moment to persuade people to come back into the market,” he says. “They have to be able to sleep at night.”

Even if the Persian Gulf crisis is resolved and oil prices continue to fall from their Oct. 11 high of US$40.85 per barrel, analysts say low commodity prices and high interest rates will continue to keep investors out of the market.

Without exception, metal prices including gold, nickel, copper and zinc were down significantly in early December from trading levels at the end of December, 1989. Platinum is the biggest casualty. It traded recently at US$429.75 per oz. compared with US$509.25 a year ago.

Gold is down to US$377.30 an oz. from US$409.45 last December and analysts say the yellow metal could test the US$350 mark should the Persian Gulf crisis be settled peacefully.

Market watchers were reminded of just how serious the current slump has become when Toronto brokerage companies released their third-quarter results. After reporting a $25.5-million cumulative profit in 1989, the TSE’s 70-member firms had a combined third-quarter loss of $46.6 million which brought losses for the first nine months of 1990 to $175.5 million. Of the 70 member firms owning seats on the exchange, 45 were losing money in the third quarter.

Not surprisingly, the number of member firm employees has dropped to 19,386 from 20,168 in June and 26,138 before the 1987 stock market crash. At the height of the last recession, employment among TSE member firms dipped to 15,940.

“If the Middle East situation is resolved, the markets will refocus their attention on the economy,” said Ketchen. But he says the banks must clip a couple of hundred basis points from their prime lending rates before investors begin to see equities as a viable alternative to fixed income vehicles. At the beginning of December, interest rates eased slightly to 13.25% from a high of 14.75%.

For the record, by Nov. 30, Inco (TSE) was number one in the mining sector in terms of value of shares traded on the Toronto exchange. More than $1.7-billion worth of Inco shares traded during that time. Placer Dome (TSE) ranked second with over $1.6 billion and American Barrick Resources (TSE) was third with almost $1.4 billion.