Stock market declines effect on Canada

After four days of decline, Toronto’s stock market picked up on Thursday morning, as did the Canadian dollar, but that may not be the end of the downward trend. There are two main reasons for the declines, according to Alison Coffin, an economist and consultant who teaches at Memorial University in the eastern province of Newfoundland and Labrador.

ListenOversupply of oil blamed

The first is an oversupply of oil, due in part to the United States exploiting shale deposits. That has driven the price of oil down, which is bad for industries which use and produce oil. Canada is a big oil producer and deposits from the western oil sands are very expensive to exploit.

Slowdown in world economies blamed

The second reason for market declines is the slowdown in economies throughout the world, says Coffin. There are reduced growth rates in countries like China, Japan, Germany and the BRIC nations. At the same time Canada and the United States had some mixed indicators. “Job markets are good, but consumer confidence is bad,” she adds. “So when we hear that, people are hesitant to invest in the market because they don’t see an immediate return.”

Canadian exports may grow

However, a low Canadian dollar can be good news. “Canadians are net exporters,” says Coffin. “So if we have a manufacturing industry that are selling to other countries, as the markets are down and the Canadian dollar is down a little bit, the rest of the world looks at Canada and says ‘hey, we can get their stuff at a deal.’ So we’re going to see an increase in our export markets which is excellent.”

Canadians who invest for the short-term are concerned by market dips, but those who look at the long-term are able to pick up stocks at a good price, says Coffin.

Pension plans affected

Not all Canadians invest in the stock market, but many are affected because of their pension plans. Government and company pension plans are managed by professionals and beneficiaries leave decisions up to them.  Some are defined-contribution funds where the benefits will depend on how the investments do. Others are defined-benefit plans where what pensioners get is stable. So there is less worry for them in market downturns.

Some Canadians have their own pension plans which they may manage themselves or through a broker.

Expect more of the same

Where the markets go next will depend.  The economic slowdown in several countries is not likely to change quickly and the oversupply of oil is not likely to change until OPEC countries decide whether they will change their output, says Collins. So, she thinks there will lower prices “for a little while.”