Canada Stocks Fall 21% From Peak as Oil Drop Spurs Bear Market

By John Kipphoff

Sept. 18 (Bloomberg) -- Canadian stocks fell more than 20 percent from their June peak, becoming the last of the world's developed countries to enter a bear market, as the biggest two- month drop in commodities dragged down oil and mining companies.

Canada's Standard & Poor's/TSX Composite Index slipped 2.9 percent to 11,877.69 yesterday, extending its three-month retreat to 21 percent. Energy, metals and chemicals producers led the decline, falling more than 26 percent as the U.S. housing slump heightened speculation that global economic growth will slow.

The S&P/TSX's 14 percent retreat this year remains the best performance among countries in the MSCI World Index of developed markets. Canadian stocks are more than double their level at the start of the last bull market in 2002 after falling 14 percent so far in September, the worst two-week decline in seven years.

``The party's run its course,'' said Mike Lenhoff, who helps oversee about $36.4 billion as chief strategist at Brewin Dolphin Securities Ltd. in London. ``The commodities boom will probably not turn into an outright bust, but for the time being, the excitement is over.''

Oil fell 34 percent from a record $147.27 a barrel reached on July 3 on concern more than $500 billion of global bank losses will weaken growth and cut worldwide fuel consumption. The Reuters Jefferies/CRB Index of 19 commodities decreased 15 percent in July and August, led by a 12 percent slide in copper and a 10 percent retreat in gold.

Oil Fallout

EnCana Corp., the country's biggest energy producer, slid 29 percent from its June peak. The Calgary-based company said on July 24 that second-quarter profit fell 16 percent on lower values for contracts to lock in commodity prices.

Potash Corp. of Saskatchewan Inc., the largest producer of the food nutrient, has fallen 30 percent from a record on June 17. The Saskatoon, Saskatchewan-based company lost 7.1 percent on July 23 after receiving strike notices from three unions.

Technology stocks dropped the most in S&P/TSX since its record, led by a 32 percent plunge in BlackBerry-maker Research in Motion Ltd., which accounts for 83 percent of the industry's weighting.

Research in Motion, based in Waterloo, Ontario, fell 11 percent on June 26 after saying first-quarter profit trailed estimates on higher spending to compete with Apple Inc.'s iPhone.

Nortel Networks Corp., North America's largest maker of phone gear, fell the most in at least 25 years yesterday, losing more than half its value. The Toronto-based company cut sales and profit margin forecasts, saying customers are curbing spending as the economy slumps.

Bank Stocks

Canadian financial shares decreased 18 percent this year, putting them on pace for their worst retreat since 1990. Banks and brokerages in the S&P/TSX tumbled 9.4 percent in September after the U.S. government seized mortgage finance companies Fannie Mae and Freddie Mac on Sept. 7 and investment bank Lehman Brothers Holdings Inc. filed for bankruptcy a week later.

Sun Life Financial Inc., the country's third-biggest insurer, fell 8.1 percent yesterday to C$35.77. The Toronto-based company said it will record a writedown on investments with Lehman and American International Group Inc., which was seized by regulators.

``What we have right now is a crisis of confidence,'' said Juliette John, a portfolio manager at Bissett Investment Management in Calgary, which oversees about C$16 billion. ``We really need to see some element of confidence in the financial system return, because until we get that no one's going to be comfortable.''

Royal Bank of Canada, the nation's biggest lender by assets, slumped 9 percent this week, the Toronto-based company's steepest three-day drop in a decade. An index of banks in Canada fell 4.9 percent yesterday, the most in eight years.

Canadian Finance Minister Jim Flaherty said the country's banks and insurers are ``well capitalized'' and the economy is handling strains in global financial markets.

``After AIG, people's imaginations are running wild,'' said Ian Nakamoto, who manages $4.5 billion at MacDougall, MacDougall & MacTier Inc. in Toronto. ``Canadian financials are acting much better than those in the U.S., but they're not immune. The baby's being thrown out with the bathwater.''

To contact the reporter on this story: John Kipphoff in Toronto at jkipphoff@bloomberg.net.