Difference between the Canadian and American Markets Relative to Their Economies.

October 6, 2008 1:17 PM

On the Financial crisis: If the Canadian economy is in a stronger state than the American economy then why is the TSX posting larger point and percentage losses than the Dow and Nasdaq?

Is it about investor whim or the make-up of each individual index?

posted by Toto_tot to work & money (10 comments total)

Assuming that Canada's economy is stronger (I'd like to see evidence), it could be because 76% of her exports go to the US. If we're in a recession, then we'll probably be buying fewer things.
posted by sbutler at 1:27 PM on October 6, 2008

I am far from an economist, but I believe it has something to do with the fact that oil prices are dropping at the same time as the US economy goes to the crapper.

We are, after all, an oil producing country and a lot of our economy's strength comes after several years of record high oil prices.
posted by elkerette at 1:34 PM on October 6, 2008

You seem to be assuming a tight short-range correlation between market prices and the economies in which they run. That's never been the case, and that kind of unexamined assumption is a big part of what led this mess.
posted by Coventry at 1:35 PM on October 6, 2008

Here's a Canada factsheet from the Economist on Canada. The only thing I gathered from reading that is their government has been operating at a surplus, which may be one reason why the value of their dollar is ok, compared to ours which has been going down.

I'm going to quote something I just read from Krugman on this, talking about Brazil:

"One point I think is really important in understanding the crisis is that there has been a huge increase in financial globalization just in the last few years — basically since 1995. The chart above shows rest-of-world assets in the United States (red) and US assets abroad (blue) as a percentage of non-US GDP; while we talk a lot about the US as a debtor nation, what’s really striking is the surge on both sides of the balance sheet. This has made the global financial system a lot more tightly linked, so that big economies are now experiencing the kind of contagion previously associated with emerging markets caught up in the 1997-1998 crisis. We’re all Brazilians now.

via NYTimes.
posted by hazyspring at 2:41 PM on October 6, 2008

Coventry has it. There isn't a direct correlation in the daily fluctuations. Also, elkerette's point about oil prices, combined with the declining US dollar (decrease in US imports) are both likely to be contributing factors in the mid term.
posted by Pants! at 2:54 PM on October 6, 2008

Three of the biggest stocks on the TSX have seen rather intense speculative buying over the past year or so. One is Encana, which is an energy company. People bought this stock thinking about $200/barrel oil. Not any more. Another is Potash corp. They mine fertilizer. Again, with the commodity boom there was lots of speculative buying. Now that prices are off their peak, people are asking wether the boom is over. The third is Research in Motion, which makes the blackberry. I have no idea why this went up so much. Every cell phone maker out there plus Apple is making a smartphone, and RIM's only real advantage is it's excellent compatibility with big corporate networks. Beyond that, it's a bit of a one trick pony.

There was speculative buying on the upside, which is now unwinding the other way.
posted by thenormshow at 3:52 PM on October 6, 2008

Energy, Financials, and Materials have much higher weight in the TSX composite index, compared to the major US indices. At year-end 2007, those three sectors were nearly 75% of the total, though it'll be somewhat less now...
posted by sfenders at 7:01 PM on October 6, 2008

Canada crashing worse than the U.S. makes perfect sense. What shocked me was Europe!!
posted by jeffburdges at 7:13 PM on October 6, 2008

First poster is totally correct. Combine that with Canada's heavy commodity-based economy (btw, commodities took a severe downswing recently). Basically, canada sells raw materials and trinkets to the US, and the US solely, and they aint buying. I mean, its as if some kid who has been selling lemonade suddenly found out his neighborhood all contracted diabetes - he cant sell shit anymore! And who wants to invest in his lemonade stand? Thus the price for a share in the shitty canadian lemonade stand are diving.

Also, A lot of this is perception - remember, stock prices are purely driven by perception. If it even LOOKS like these buisnesses are going to be selling less crap soon, everyone gets the hell out of dodge, driving stock prices through the floor - even if things still seem the same within canada. Also, Europe is in the same pot - in fact, their moron banks are the ones that shat the bed, making themselves unprofitable with subprime backed securities that they thought were tantamount to US treasury bonds.
posted by wuzandfuzz at 7:51 PM on October 6, 2008

Is subprime exposure worse in Europe, mideast Asia, etc?
posted by jeffburdges at 8:41 PM on October 8, 2008