The Bulls Haven't Been Corralled On the Toronto Stock Exchange

BUCKING Canada's economic doldrums, the bulls aboard the Toronto Stock Exchange express surprised nearly everybody by roaring through 1993 at full throttle.

Powered by a combination of slowly reviving corporate earnings, falling interest rates, and burgeoning exports of raw materials like lumber and steel, the Toronto exchange's performance forecast a national industrial revival. But other signs of renewal were hard to spot last year.

The market's TSE 300 index of leading stocks ended the year with a bang, reaching 4,321.43 points, a 29 percent rise from 3,350.44 at the end of 1992. That compares with about a 14 percent gain for the Dow Jones industrial average.

On July 6, the value of trades broke the $1 billion (Canadian; US$758 million) barrier for the first time. Average daily volume of $575 million was almost double 1992 levels.

``Last year was one of the best years on record for the TSE,'' says TSE chairman Fred Ketchen. ``Canada is coming out of the most difficult recession since World War II. I think the market's performance is helping put confidence back into the minds of the Canadian consumer.''

But it is clear that falling interest rates were also a big factor in the market's 1993 performance, as individuals abandoned bank accounts and other instruments in favor of mutual funds and individual stocks.

``People weren't getting the kind of returns people were accustomed to,'' Mr. Ketchen says. ``Treasury bills that were paying 10 percent are now just 3 to 3.5 percent. That's quite a come-down. They also are realizing that the government isn't going to be able to look after them in their old age as they might have expected a few years ago.''

Signs of economic revival are not quite as hard to find this year as they were last year, despite the onerous 11 percent unemployment rate. Investors appear to be gradually gaining confidence as profits return to big and small companies, analysts say.

Will 1994 be a repeat of 1993? Many analysts say they do not think so. The bull will be a little tired after the rush of last year. Still, many economists expect the Canadian economy to lead the industrialized world in growth of gross domestic product between 2.5 and 3 percent. Some expect 4 percent growth.

That growth, combined with predictions of continued low interest rates and low inflation, lead many to conclude that 1994 will be a solid if less spectacular year for the TSE.

``We could have a correction in the second quarter if we reached the 4,800 level and didn't see reasonable corporate earnings,'' says Josef Schachter, market strategist at Richardson Greenshields of Canada Ltd, a Toronto brokerage firm.

Corporate restructurings, despite adding to widespread unemployment, will continue to boost markets in 1994 as earnings improve, many analysts say. A number of market watchers predict that if interest rates continue to decline, the TSE 300 will reach 4,800 points.

Unlike the New York Stock Exchange where stocks are considered highly valued or overvalued, Toronto analysts are not worried about a severe correction. ``While stocks aren't cheap like they were in 1974 and 1982 [after earlier recessions] they're still fairly priced,'' Mr. Schachter says.

One wild card that could bring a market cooling in Toronto, however, is Canada's close economic ties to the United States. American economic growth is drawing steel and lumber exports down from Canada to feed a housing and automobile buying boom in the US.

If US growth gets too heated and inflation picks up, the Federal Reserve may raise interest rates, Ketchen says. That would spoil the party on Wall Street and probably dampen the TSE's performance by cooling US imports of Canadian goods. ``We have to be careful if growth gets out of control in the US and is followed by a trend toward higher interest rates,'' he says.

Hottest among the hot sectors in Canada's resource-based economy were the gold-mining stocks that led the exchange last year, riding the crest of higher gold prices globally. The TSE's gold and silver index posted a 108 percent gain over the previous year.

Running strongly but behind were paper and forest products companies whose TSE index posted a 39 percent gain. Also registering increases were indexes of conglomerates at 38 percent; oil and gas at 34 percent; industrial products at 30 percent.