The Canadian markets suffered their biggest drop since the 1987 Crash today, causing the TSX Venture to hit a new all-time low of 465.95 just 20 minutes after market open. The TSXV closed even lower at 463.15 by the end of the day. With the Dow and other major US stock indices in a downward spiral since February 19, pressure against the TSX Venture has been mounting for weeks. Now, it appears that the Saudi-Russia oil price war (in addition to the continued spread of Covid-19) could be pushing the junior exchange to its breaking point.
“The slump in oil will exact another heavy toll on the natural resource-dependent country [Canada], which generates about 9% of its gross domestic product from energy and has the biggest exposure to the sector on its stock market at 15%.”
According to data from the TMX Group, there were 100 energy companies listed on the TSXV as of January 31, 2020 — 37 more than the TSX. Fortunately, there’s a chance the TSX Venture could be spared further erosion given its significant weighting of gold stocks.
“Spot gold surged above $1,700 an ounce overnight for the first time since late 2012. . .”
“. . .the metal [gold] fell back, with several analysts citing profit-taking as the reason for the move. Plus, as was the case one-and-half weeks ago when gold was falling with equities, analysts said some market participants were selling gold positions to raise money for margin calls and/or offset losses in other markets.”
In other words, the rising price of gold may do little to buoy the TSX Venture index in the near term, given just how volatile the global financial markets currently are.
New All-time Lows for the TSX Venture May Lie Ahead
The collapse in the price of oil combined with market headwinds from Covid-19 suggest that new all-time lows for the TSX Venture could be in sight. While TSXV investors could normally take solace in the rising price of gold, gold’s incremental gains have failed to support the TSX Venture index thus far. Despite gold rising 9.83% in the past 2 months, the TSX Venture has fallen approximately 20%. Investors may have to get used to new all-time lows for the TSX Venture in 2020…