'Panic' grips global markets

'Panic' grips global markets

John Heinzl
Thursday, September 04, 2008
Enjoying September are you? Didn't think so.

Living up to its reputation as one of the cruellest months for stocks, September has a perfect score so far: Three days, three gut-twisting losses.

In the span of just 72 hours, the S&P/TSX composite index has plunged 957 points or 7 per cent, including a 324-point tumble Thursday that could have been much worse: At one point, the index was down as much as 428 points before a few brave – or reckless – bargain hunters stepped in.

“The sentiment has gone from euphoria to panic,” said John Stephenson, senior vice-president and portfolio manager at First Asset Investment Management.
“Right now people want out at any price.”

For the S&P/TSX index, the September freefall is worse than in virtually every other market globally. The S&P 500 is off just 3.6 per cent, Britain's FTSE 100 is down 4.9 per cent and Japan's Nikkei has shed 3.9 per cent. (All figures in local currency.) One exception is the 7.7-per-cent skid on Brazil's Bovespa index, which, like Canada's, is stacked with commodity producers.
Until a few months ago, having a commodity-rich market made you the envy of the world. Even as the U.S. housing downturn was worsening and subprime bombs were exploding all over Wall Street, investors could count on China, India and other emerging economies to prop up demand for oil and metals.

Now that the global growth is slowing and China's sizzling economy is expected to cool, being a resource-rich market has suddenly become a curse.

“There's just so much uncertainty out there,” said Ian Nakamoto, director of research at MacDougall MacDougall & MacTier in Toronto.
“It seems to be a loss of faith in the economy,” Mr. Nakamoto said.

Stoking worries about a U.S. recession, the Labour Department said claims for unemployment insurance rose last week, reversing course after three weeks of declines and surprising economists who were expecting a small drop. The jobless data, combined with mixed August sales results from U.S. retailers, helped send the Dow Jones industrial average down 344.65 points or 3 per cent to 11,188.23.

Adding to the global economic concerns, factory orders in Germany unexpectedly dropped in July, raising recession fears for Europe's biggest economy.

Apart from slowing global growth, commodities have been hammered by a resurgent U.S. dollar, which has gained for six consecutive days against the euro. Exacerbating the commodity rout was Ospraie Management LLC's decision to close its biggest hedge fund, which at one point was worth $4-billion (U.S.) but has suffered steep losses after its bets on resource stocks backfired.
Fearing that Ospraie will liquidate its portfolio of natural gas, oil, metals and other commodity holdings at fire-sale prices, many investors are selling their resource equities now in an attempt to minimize their losses. But the pre-emptive selling is only pushing prices lower.
“You've got people saying, ‘We've got to get out in front of this before we get crushed,'” Mr. Stephenson said.

On Thursday, the price of oil continued to slide, dropping $1.42 to $107.93 a barrel on the New York Mercantile Exchange. Gold and copper also fell. So did former market darling Potash Corp. of Saskatchewan, which has tumbled for five days in a row and is off 35 per cent from its high in June.

But it's not just commodities that have suffered September's wrath. All 10 S&P/TSX sector indexes are down on the month, ranging from a 1.5-per-cent dip for financials to a 12.3-per-cent wipeout for materials.

Just three days in, this is already shaping up as a September to remember – but for all the wrong reasons.
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