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By John Heinzl
The Globe And Mail
Report on Business
Friday, January 2, 2004
Markets faced a litany of woes, but stocks shook off everything thrown at them, JOHN HEINZL reports
Hey, where did that big, black creature with the claws go?
After ripping its way through stock markets for three years, the bear vanished in 2003 and equities came roaring back. With indexes posting double-digit gains around the world, ebullient investors heralded the start of a new bull run, while some observers warned the bear was only resting up for another surprise attack.
Adrian Mastracci, investment counsel and president of Vancouver based ‘fee-only’ KCM Wealth Management, says, “Opening statements is no longer a scary thought. We have come a long way from the doom and gloom of a year ago.”
Whether the rally was a trap remains to be seen, but the furry guy with the sharp teeth picked a curious time to make his exit. Markets grappled with an abundance of bad news, yet sensed that sunny days lay around the corner -- even if the economic data weren't always resoundingly positive.
"Although faced with a war, a spike in energy prices, fears of deflation and news of corporate misconduct, investors coped with the periods of extreme volatility and became steadily more optimistic about the economic and financial outlook," Craig Alexander, senior economist at Toronto-Dominion Bank, said in a report.
Canadian financial markets had to contend with a litany of domestic woes, from severe acute respiratory syndrome and bovine spongiform encephalopathy to a power blackout and a soaring loonie that hammered exporters.
But apart from a few isolated disasters, stocks shook off everything thrown at them. The Standard & Poor's/Toronto Stock Exchange composite index finished 2003 at 8,220.89 -- up 24 per cent -- as metals and mining, technology and real estate stocks led all 13 TSX sector indexes into the black.
The S&P/TSX's first winning year since 2000 came as a relief to investors whose retirement nest eggs had been getting crushed.
"Opening statements is no longer a scary thought," said Adrian Mastracci, president of KCM Wealth Management Inc. "We have come a long way from the doom and gloom of a year ago."
Picking winners was child's play. Of 223 stocks on the S&P/TSX index, 186, or 83 per cent, finished higher. Leading the pack was promoter Robert Friedland's Ivanhoe Energy Inc., an oil and gas explorer with a potentially big play in China, which soared 574 per cent.
Other top gainers included TLC Vision Corp., up 368 per cent, Telesystem International Wireless Inc., ahead 334 per cent, and Tundra Semiconductor Corp., up 331 per cent.
Among the biggest losers were Air Canada, whose shares sank 72 per cent as the airline plunged into insolvency, and struggling steel maker Stelco Inc., whose class A shares were down 35 per cent. Both were kicked off the S&P/TSX composite index in September.
Drug maker Biovail Corp., meanwhile, dropped 34 per cent as the company reported disappointing results and the U.S. Securities and Exchange Commission launched an inquiry into its accounting and financial reporting.
For income trusts, it was another year to celebrate. After sailing through the bear market without a scratch, trusts kept going up as yield-hungry investors gobbled up one financing after another. The highlight was the $935-million Yellow Pages Income Fund deal -- the biggest initial public offering in three years and the largest yet for an income trust.
Even as analysts warned that the sector was overheating and some trusts suspended distributions -- among them Atlas Cold Storage and Legacy Hotels REIT -- the S&P/TSX capped income trust index jumped 24 per cent.
The stock market party was a global phenomenon.
In the United States, stocks snapped a three-year losing skid, powered by rising corporate profits, the lowest interest rates in more than four decades and President George W. Bush's tax cuts. The Dow Jones industrial average pushed through 10,000 in mid-December and didn't look back, closing at 10,453.92 for a 25-per-cent gain.
"The major macro driver for the U.S. economy in 2003 was the Bush tax-cut package. The major driver for 2004 will be the Bush tax-cut package," predicted Avery Shenfeld, senior economist at CIBC World Markets Inc.
Not even a mutual fund scandal or mounting U.S. casualties in Iraq could blow the market off course. Historians weren't surprised by the market's resilience; stocks have rallied consistently in the third year of a presidential term since the Second World War, as presidents primed the economic pump in a bid to get re-elected.
History was repeating itself in more ways than one.
Technology stocks, left for dead after the tech bubble burst in 2000, caught fire again as the Nasdaq Stock Market's composite index surged 50 per cent. One of tech's brightest stars was Research In Motion Ltd., the Waterloo, Ont., maker of the hot BlackBerry wireless e-mail device. RIM shares jumped 320 per cent as it left Wall Street forecasts in the dust.
With tech shares once again zooming skyward, some observers warned that exuberant markets were setting themselves up for a nasty fall. "I think this bear market has a long way to go, much more than most people imagine," said Robert Prechter, a technical analyst and author of Conquer the Crash: You Can Survive and Prosper in a Deflationary Depression.
But investors were having none of it, especially after the U.S. economy grew at an annual rate of 8.2 per cent in the third quarter -- the fastest clip in nearly 20 years.
For Canadian investors, the loonie's 22-per-cent rise against the U.S. greenback all but wiped out the juicy gains in U.S. stocks. But there was plenty of coin to be made on other foreign bourses. In Japan, signs that the economy may be reviving after more than a decade of gloom pushed the Nikkei 225-stock average up 24 per cent. Germany's DAX gained 37 per cent, Hong Kong's Hang Seng rose 35 per cent and Brazil's Bovespa leaped 97 per cent.
Then there was gold, which jumped nearly 20 per cent to $414.80 (U.S.) an ounce as the tumbling U.S. dollar sent investors scurrying for the perceived safety of the yellow metal.
Base metal prices soared as well, with the booming Chinese economy and strengthening demand in Europe and North America boosting prices of nickel, copper, zinc, lead and aluminum.
Canadian producers were among the beneficiaries. Shares of nickel giant Inco Ltd. gained 54 per cent, aluminum producer Alcan Inc. shot up 31 per cent and integrated metals producer Noranda Inc. added 44 per cent.
In a year when virtually everything went up -- stocks, gold, real estate, commodities -- investors who tucked their money under a mattress or into T-bills missed out big-time.
"Cash proved to be the poorest-performing financial asset class," Mr. Alexander said.
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