Fragility Lurks Behind Canada’s $217 Billion Stock Market Bounce

Written by
Addison Kliewer
Written by

Addison Kliewer

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(Bloomberg) -- Capping their best quarter since 2009, Canadian stocks have made a remarkable comeback as the nation went from a full shutdown to a gradual reopening amid the coronavirus pandemic. While some corners of the market participated in the recovery, many were destroyed.

The S&P/TSX Composite Index amassed about C$297 billion ($217 billion) of value in the second quarter after a brutal selloff in March with historically volatile peaks. A slowdown in virus cases and proactive stimulus measures from federal governments and central banks have helped boost investor sentiment.

But look closer and the benchmark is still down close to 10% this year, with eight out of 11 sectors in the red. Tech and gold miners surged as investors lapped up work-from-home winners and sought safe haven assets, while energy and banks plunged amid a collapse in economic activity.

As trading in the first six months of the year comes to a close, jitters can still be seen everywhere as the Canadian economy crumpled in an historic April contraction, U.S. Sun Belt states wrestle with mounting coronavirus cases and tensions between China and America continue to ratchet up.

“While early indications of increased consumer activity are encouraging, uncertainty remains regarding the ultimate impact of reduced government support later in the year, elevated unemployment and continued virus-related restrictions,” said RBC Global Asset Management portfolio managers Sarah Neilson and Irene Fernando in a report.

Here is a look some who benefited and others that have suffered in the first half of this year:

Burgeoning Tech

Shopify Inc. (+150%) -- now the largest publicly-traded company in Canada -- has seen its shares jump as Covid-19 lockdowns led to an increase in online purchases with more brick-and mortar businesses joining the platform. Its shares also got a boost after partnering with retail and tech behemoths Walmart Inc. and Facebook Inc. to enhance their online-shopping platforms.

Real estate application software platform Real Matters Inc. (+114%) also saw a large gain since the beginning of 2020, followed by supply-chain software provider Kinaxis Inc. (+93%).

Ballard Power Systems Inc. (+126%): The hydrogen fuel cell company took the No. 2 spot after Shopify as investors continue to pile money into ESG trades.

Transport Boom & Gloom

Cargojet Inc. (+55%): With fewer commercial airplanes carrying cargo and more consumers shopping online, Cargojet has experienced a surge in volumes for all of its segments with strong first quarter sales and profits.

Air Canada (-65%): Among the worst performers this year, the airline carrier had to cancel most of its international flights when the pandemic first hit and after the U.S.-Canada border shuttered. To get back to normal operations, it announced on Monday that it'll drop its seat-distancing measures that have kept flights below full capacity starting July 1 and replace them with a flexible re-booking policy.

Stuck at Home

Canadian movie theater company Cineplex Inc. (-76%) experienced closures brought on by the pandemic, and took an added hit after Cineworld Group Plc backed out of its deal to buy the company earlier this month. The stock is the worst performer on the TSX after reporting a first quarter profit slump.

Safe Haven

Gold miners: The virus outbreak pushed investors to seek haven assets, leading to a surge in the price of gold and miners of the precious metal. Semafo Inc. (+75%), Teranga Gold Corp. (+76%), Dundee Precious Metals Inc. (+62%), Kinross Gold Corp. (+60%) and Alamos Gold Inc. (+61%) all ranked as top performers on the benchmark.

Energy Implosion

The pain for oil and gas investors continues and companies muddle their way through plunging crude amid price wars and a slump in fuel consumption during the lockdown.

Among the worst performers were Vermilion Energy Inc. (-72%), Seven Generations Energy (-64%), Crescent Point Energy Corp. (-62%), Enerplus Corp. (-59%), Whitecap Resources Inc. (-60%), Husky Energy Inc. (-57%) and Cenovus Energy Inc. (-52%) all ranking in the benchmark's bottom 10 companies.