This wasn't supposed to be the TSX Composite's year. Broad-based weakness in the commodity complex and the accompanying fears of banks overburdened with bad loans in the energy patch had muted expectations for the benchmark stock group heading into 2016; but a recovery in underlying commodity prices driven by stabilizing Chinese demand for base metals, a rise in gold prices due to geopolitical instability and a late-year pact among OPEC nations to deliver the first oil production cut in nearly a decade helped push the index to a near 20 per cent gain.
BNN takes a look back at the year that was for the winners and losers of Canada's multi-trillion dollar market. All percentage moves are based on Dec. 29 closing numbers.
Materials pace the TSX sector watch:
The materials subgroup was the best performer of the 11 groups over the course of 2016, as a ferocious rally in base metals fueled returns. Fear of a slowing Chinese economy proved overdone, with the world's second-largest economy continuing to be on pace for more than six per cent growth over the course of the year, thus supporting prices for zinc, metallurgical coal and copper. Gold bullion joined in on the rally, peaking in July before fading into year-end as the election of Donald Trump and his accompanying inflationary policy promises and the 25 basis point U.S. Federal Reserve rate hike in December helped take the luster off the yellow metal. The energy subgroup nearly matched the meteoric pace of materials, as a late-year pledge by OPEC to cut production to 32.5 million barrels per day in a bid to bring crude markets back into equilibrium helped drive the underlying commodity solidly above US$50 per barrel and concurrently lifted equity valuations in the group. Financials shrugged off fears of impaired loans from the energy patch to post the fourth-best showing of the year, with Canada's Big Five banks leaning on strength in the personal and commercial unit to help drive continue earnings growth.
TSX Materials: +39.0%
TSX Energy: +31.2%
TSX Industrials: +20.7%
TSX Financials: +19.3%
TSX Utilities: +12.7%
‘We're not done yet’: Teck Resources takes top spot for 2016:
"We're not done yet," Teck Chief Executive Don Lindsay declared in a November 10 BNN interview. The diversified miner posted a 414 per cent surge in 2016, riding a more than 150 per cent rise in metallurgical coal prices driven by a shortage in China for the key steelmaking ingredient. Chinese state restrictions on the operation of domestic mines in the face of a push to curb emissions in the world's second-largest economy helped propel prices higher, prompting Teck to hike its forecast for average realized prices as much as 11 per cent in the third quarter. Lindsay told BNN that at current commodity prices, the miner with roots ranging as far back as producing heavy water for the Manhattan Project could wipe out its debt in as little as 18 months.
Beat up energy names make a comeback:
Enerplus and Bonavista were among the top performing names in 2016, as the pair of previously beat-up energy names mounted a comeback in the year which saw oil bottom out near US$25 per barrel. Bonavista’s stock surged almost 165 per cent over the year as it refocused its operation through an asset swap in early September, divesting its Montney Blueberry assets in exchange for 7,200 barrels per day of oil equivalent in its core Deep Basin play. TD Securities forecasts the acquired properties will produce 8,500 barrels of oil equivalent in the year ahead, but Sprott Asset Management's Eric Nutall urged caution on Bonavista in early October, suggesting the hard work was still ahead of the company. Enerplus has taken an aggressive cost-cutting route, and Chief Executive Ian Dundas told BNN he’s optimistic the OPEC production cut will help buoy his company`s prospects.
Teck Resources (TECKb.TO): +403.2%
Ivanhoe Mines (IVN.TO): +316.4%
Enerplus (ERF.TO): +168.2%
Bonavista (BNP.TO): +164.3%
IAMGold (IMG.TO): +163.5%
Honourable mention: Marijuana stocks:
Canopy Growth (CGC.TO) helped pace the nascent group of marijuana stocks over the course of 2016, with shares rising more than 200 per cent as the company graduated from the Venture Exchange to the big board in Toronto. Canopy also went on the acquisition trail this year, picking up smaller player Mettrum for $430 million in an all-stock deal. Analysts and investors have urged caution for retail investors interested in the space, with GlobeInvest Chief Executive Christine Poole telling BNN that valuing marijuana stocks is tricky business, and that investors should be prepared for wild moves in the stock.
Valeant takes a beating:
The embattled drugmaker took more body blows than Bernard Hopkins over the course of a calamitous 2016, losing more than 85 per cent of its market value as its drug-pricing scandal deepened. The former CEO of specialty pharma unit Philidor, Andy Davenport, was arrested by New York authorities for his role in an alleged US$40-million kickback scheme, and investors in Sprout Pharmaceuticals, which Valeant bought for about US$1 billion in 2015, accused the company of failing to adequately market its female libido drug Addyi. Newly-installed Chief Executive Joseph Papa, a veteran of Perrigo, has thus far unsuccessfully shopped stomach-drug business Salix for about US$10-billion in a bid to ease the company’s massive debt load. That price tag would peg the unit at a discount to the US$11.1 billion Valeant paid for it just a year ago as part of former CEO Michael Pearson’s aggressive roll-up strategy. Piper Jaffray Analyst David Amsellum told BNN Valeant is the definition of an uninvestable stock in the wake of the broadening scandal.
Empire's Safeway bet sours stock:
The best laid plans of mice & men cost former Empire Chief Executive Marc Poulin his job in mid-2016, as the company's ill-fated takeover of Safeway Canada's operations cost the two-decade Sobeys veteran his post. The $5.8-billion acquisition was marred from the start by botched brand integration, as Sobeys ran into problems meshing its supply-chain software and in-house brand strategy with the largely western-focused grocer. Earnings at Sobeys plunged 70 per cent in the most recent quarter, sending shares 17 per cent lower and casting further doubt on its prospect after the transaction, which proved transformational in a way management neither expected nor wanted.
BlackBerry’s transformation pains
The smartphone pioneer continues to beat a retreat from the handset market, undergoing a painful transformation into a software and security provider. The company folded its security acquisitions, including Good Technology and AtHoc into a single platform, and cut the ribbon on a new autonomous vehicle test hub. It wasn’t enough to boost the stock over the course of 2016, as red ink continued to spill from the Waterloo, Ontario company. However, CEO John Chen told BNN he foresees a return to revenue growth in the year ahead.
Valeant Pharmaceuticals (VRX.TO): -86.2%
Empire Co. (EMPa.TO): -38.9%
Prometic Life Sciences (PLI.TO): -33.6%
DH Corp (DH.TO): -29.5%
BlackBerry (BB.TO): -28.0%
Valeant and Concordia send TSX healthcare reeling:
Sector heavyweight Valeant dragged the TSX healthcare index to the worst performance of 2016, but Concordia International did the subgroup no favours in mitigating a nearly 80 per cent drop. The pair helped drive the group to the only negative performance of any of the eleven components over the course of the year, as Valeant continued its precipitous drop from its one-time perch as the largest company by market cap in the Canadian market. Concordia, often characterized as a "mini-Valeant", saw shares plunge as low as $2.26 from an all-time high of $110, a decline that prompted the suspension of Concordia's profit forecast in September and the departure of Chief Executive Mark Thompson.
TSX Healthcare: -78.7%
TSX Real Estate: +4.1%
TSX Info Tech: +4.4%
TSX Consumer Staples: +6.2%
TSX Consumer Discretionary: +8.2%
Dishonourable mention: Hudson’s Bay (HBC.TO)
Canada’s oldest retailer continued to grapple with a dramatic shift in the domestic landscape, as the stock languished near all-time lows and the company swung to a $125-million loss in the third quarter. Steep same-store sales declines at its off-brand divisions, including Saks Off Fifth and Gilt, were a black eye for the company, prompting it to trim its full-year sales outlook. The retailer is hoping its new e-commerce distribution centre will help turn the tide in the year ahead.
Cuurency winners and losers of 2016
Brazilian real +22.0%:
The Brazilian real posted its largest increase in seven years in 2016, amid hopes newly-installed President Michel Temer would curb the public spending his predecessor, the ousted Dilma Rousseff, inflated under her watch. However, there are concerns a homebuilder implicated in graft allegations could reignite political instability by taking a plea deal in exchange for implicating a fresh round of politicians in the ongoing probe.
Russian ruble +20.1%:
The Russian ruble has rebounded strongly in 2016, as rising oil prices and the prospect of the central bank rebuying rubles to replenish reserves has boosted currencies. The ruble has also run-up in the wake of Donald Trump’s surprise march to the White House, as the prospect of a rosier relationship with the incoming U.S. president helps fuel speculation economic sanctions imposed over the annexation of Crimea could be eased.
South African rand +12.6%:
Firming precious metal prices and a return to economic growth after a first-quarter contraction have pushed the South African rand higher over the course of the last year. Labour disputes had earlier disrupted platinum output and exports in Africa’s largest economy, weighing on sentiment and dragging down economic growth.
Argentine peso -18.6%:
The Argentine peso was the worst performer on major currency markets in 2016, posting a series of record lows against the greenback in its first full year as a free-floating currency after President Mauricio Macri lifted currency controls shortly after taking office late last year.
Turkish lira -17.2%:
The Turkish lira tumbled in 2016 as political instability in the region paired with a deteriorating economic backdrop weighed on the currency. The Turkish economy contracted 1.8 per cent in the third quarter, the first drop in output in seven years. Turkey’s central bank raised rates for the first time since 2014 in an unsuccessful bid to ease the currency’s decline.
Mexican peso -17.0%
The Mexican peso bore the brunt of U.S. President-Elect Donald Trump's protectionist rhetoric, collapsing 12 per cent to an all-time low in the wee hours of the morning on November 9 when Trump's victory became assured. Mexican central bankers called an emergency meeting in the wake of the plunge, prompted by Trump's pledge to build a wall financed by the Mexican government along the border, and impose his will upon trade pacts including the possible renegotiation of NAFTA. Former Mexican President Vicente Fox was so incensed by Trump's demand Mexico pay for a wall that he let loose with an expletive in declaring his nation would not pay for such a barrier.
All returns are against the U.S. dollar, as of 2 p.m. ET on Dec. 29
Commodities year in review
A combination of curtailed production and the rising middle class in India and China helped send zinc surging over the course of the last year after the industrial metal suffered through a multi-year slide. Metals giant Glencore idled a half-million tonnes of capacity in response to the earlier slump, taking up much of the slack in the market. The surge has been aided by higher demand for galvanized steel, in which zinc is a key ingredient, in order to build more durable, rust-proofed cars for the Indian and Chinese markets.
Orange Juice +38.3%:
Orange juice futures have limped into the end of 2016, off their highs but still among the best-performing commodities of the year. Florida’s orange groves are continuing to battle a serious bacterial disease called citrus greening, which has weighed on yields. This year’s Brazilian crop was also hampered by higher than ideal temperatures during the growing season.
A confluence of factors emerging from Brazil helped lift sugar prices over the course of 2016, with the rising real pushing prices higher on an exchange-rate basis and a global sugar deficit supporting the rise. Years of underinvestment in Brazilian sugar mills have left the world’s largest producer scrambling to increase output to meet the rising demand, and the state agency overseeing the market cut its full-year production forecast earlier this fall.
Cocoa was the worst-performing commodity of 2016, as ideal growing conditions in West Africa yielded a banner drop, flooding the market with excess cocoa. Futures plunged to a three-year low in December, with the output gain erasing a production deficit and pushing oversupply to the highest level in six years.
Strong harvests in Ukraine, Russia and Argentina have pressured wheat prices in 2016, as increased use of fertilizers prompted an estimated 39 per cent rise in the Argentine harvest. Ukraine posted a modest increase, but is undertaking a more aggressive export policy, with the breadbasket of Europe boosting plans to sell the grain outside its borders by two million tonnes this year.
Record-high yields in the U.S. sent corn futures to their third consecutive year of declines, offsetting a weaker-than-expected Brazilian harvest. Lower input costs as a result of the decline in potash and other fertilizer prices have helped deepen the slump.
All returns are as of 5 p.m. ET on Dec. 29.