Market action slumps, but resource sector remains hot

(November 15, 2004) Stock market activity declined slightly in the third quarter of the year, with equity issuance reaching $10.6 billion, down 11% from Q2, the IDA says. Still, equity issuance remains at relatively high levels compared to last year, driven by Canada’s booming resource sector.

For the first nine months of the year, total equity issuance is up 10% compared to the same period last year, the IDA says in its quarterly review of equity new issues and trading.

Resources accounted for 83% of all common equity financing in Q3 as crude oil prices topped $50 a barrel and the federal government sold off Petro-Canada for a record $3.1 billion.

“Despite the quarter’s slowdown, positive forces are still in place for the market to end the year in the black,” the IDA says. Energy prices are expected to remain high, a bonus for Canada’s resource-heavy index. “The resource sector should continue to ignite growth and help offset the slowdown in other areas,” the IDA notes, such as the financial and real estate sectors.

The IDA report also suggests that the income trust market may be losing some of its momentum, after a period of solid growth. In Q3, income trust financing totalled $2.6 billion, down 37% from the previous three months and the lowest level in two years.

“The share of income trust units in total equity financing has steadily declined this year,” the IDA says, noting that there were 26 deals issued in the quarter, the lowest since the first quarter of last year.

Income trusts accounted for 25% of total equity financing in Q3, down from 36% in Q2 and 41% in Q1. Income trust issues peaked at more than $6 billion in the last quarter of 2003.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com