Volatility in Emerging Markets Leads TSX Venture Into Sustained Summer Low


This period (August 1 – 15), the TSX Venture broke rank from the 700s—further confirming its bearish trend to reach as low as 667 by August 15, 2018. For many investors, this new 52 week low comes as little surprise: overall volume on the TSX Venture has fallen dramatically since January 2018, and uncertainty regarding the global trade war has been escalating for months. Even the growing tensions between Saudi Arabia and Canada over differing stances on human rights—and the ensuing sell off of Canadian assets by Saudi Arabia’s central bank—has done little to distract investors from the more pressing, and more grim state of Canadian-U.S. trade relations; after all, bilateral trade between Saudi Arabia and Canada is but a fraction of the trade that occurs between Canada and the United States. But that’s not to say Canada is entirely immune from the ramifications of weakened trade dynamics in the Middle East. With the Turkish lira plummeting, investors are concerned about the potential for contagion effects in the currencies of other emerging markets… chain reactions across the markets of these developing countries could introduce further volatility into the TSX Venture, especially considering that a number of Venture constituents (ie. mining companies) have operations in countries that are a part of the MSCI Emerging Markets Index.

Sinking Turkish Lira Could Have Consequences for TSX Venture

 

Turkey doesn’t contribute a substantial amount to the MSCI Emerging Markets Index (an index of 24 emerging market countries that represents 10% of world’s total market capitalization). So why are investors worried?

Enter the contagion effect, whereby the currencies of other emerging markets are dragged down as the lira plummets (and foreign investors head for the door).

In a recent article, CNBC suggests that

“In the bipolar investment markets post-financial crisis, emerging market assets — both stocks and bonds — have always been among the first assets to suffer when things get volatile.”

Moreover, according to a June 2018 report by the TMX Group, 59% of constituents on the TSX Venture are listed as mining companies. And although not all of these companies have operations in emerging markets such as Mexico, Chile, China, or Taiwan—many do, and many more (be it mining, chemical production, or technology companies) depend on emerging markets for their supply chains… it is these very supply chains that could be disrupted by increased volatility in the currencies of emerging markets, volatility that could then spill over into the already uneasy Canadian junior exchange.

 

3 Of The Best Performing Dollar Active Stocks On The TSX Venture

 

1. Gold Reserve Inc. (TSXV: GRZ) 3.10 to 3.69 (+19.03%) — 10 Day Average Trading Volume: 7,325

On August 14, 2018, Gold Reserve Inc. announced an update on their previously announced settlement agreement with Venezuela whereby the company received a total of approximately US $1.032 billion from the Venezuelan government.

(See more here)

2. Golden Ridge Resources (TSXV: GLDN) 0.13 to 0.30 (+76.92%) — 10 Day Average Trading Volume: 3,484,629

Golden Ridge Resources announced a “new aklkalic Cu-Au porphyry discovery at its William Zones prospect” on August 14, 2018, spurring a record day of trading volume for the company with over 15,000,000 shares being traded.

(See more here)

3. Aben Resources Ltd. (TSXV: ABN) 0.17 to 0.37 (+117.65%) — 10 Day Average Trading Volume: 4,639,583

Aben Resource Ltd. continued its uptrend following an announcement on August 9, 2018 that detailed the discovery of “multiple high-grade zones”.

(See more here)

 

3 Of The Worst Performing Dollar Active Stocks On The TSX Venture

 

1. Garibaldi Resources Corp. (TSXV: GGI) 2.71 to 2.33 (-14.02%) — 10 Day Average Trading Volume: 170,774

2. Plateau Energy Metals Inc. (TSXV: PLU) 1.45 to 1.00 (-31.03%) — 10 Day Average Trading Volume: 145,782

3. GT Gold Corp. (TSXV: GTT) 0.79 to 0.47 (-40.51%) — 10 Day Average Trading Volume: 321,416

GT Gold Corp. announced an extension of their “Saddle South Zone” that encompassed additional high-grade gold intercepts on August 8, 2018.

(See more here)

Two Types of Contagion: Financial and Mental

 

As fears over a protracted global trade war continue to eat away at the investments of TSX Venture traders, new concerns over currency contagion (and a subsequent economic meltdown in emerging markets, in the most hellish vision of the future) doesn’t exactly come at a good time. However, despite the fear mongering and general sense of unease that the word contagion elicits, it’s important to note that “contagion” is often defined as the mere transference of an emotional state across a group of people.

The smart investor knows how to think for himself.