Investors should be concerned about liquidity on the TSX Venture — if they aren’t already.
“I do ring the alarm bell on not to be too invested in illiquid assets . . . We are very comfortable with our risk models and what we would do in various lurches down markets, but I do worry about the expansion of a lot of funds like us around the world into private illiquid assets.”
While typical illiquid assets include private equity, real estate, and collector’s items like paintings and antiques, lower volume microcap and nanocap stocks can also be considered illiquid assets.
And with average volume on the TSX Venture declining significantly since 2011 (the TSX Venture traded approximately 930 million shares on January 21, 2011 compared to roughly 64 million shares on January 21, 2020), more and more junior issuers face increasing liquidity risk. Worse, there appears to be little chance that liquidity on the TSX Venture will be able to recover in the near term, given the growing economic pressures facing Canadian retail investors.
“Half of Canadians are on the verge of insolvency . . .”
“. . .Our findings may point to a shift among some Canadians from debt apathy to debt hopelessness. Feelings of hopelessness can make people feel like giving up on ever paying down their debt or, worse, ignoring the debt as it piles up higher. . .”
One has to look no further than the Financial Crisis of 2008 to understand the seriousness of this situation. Insolvency always precedes illiquidity…
A Breaking Point for Liquidity on the TSX Venture Could Be Approaching
As liquidity on the TSX Venture continues to drop, the value of liquid assets (i.e. precious metals such as gold and silver,
securities listed on major exchanges) appears to be increasing. Although growing demand for liquid assets could add further pressure to the TSX Venture’s liquidity problems in the coming years, opportunity on the TSX Venture will always exist — it will just require investors to lean more on the “risk” side of the risk / reward spectrum.