TORONTO – Energy stocks led the Toronto stock market to a triple-digit drop Wednesday as investors weighed the potential impacts of the election of a majority NDP government in Alberta.
Experts say investors are reacting to the uncertainty over how an inexperienced government will balance the budget and whether policies affecting the energy sector will change.
“Sometimes it’s better to have the devil you know than the devil you don’t,” said Glenn Paradis, portfolio manager at Canoe Financial.
The NDP campaigned on a number of promises including corporate tax hikes and a review of the province’s royalty regime.
Colin Cieszynski, chief market strategist at CMC Markets Canada, said the oilpatch could be forced to take on a higher tax burden.
“All kinds of things could potentially change,” Cieszynski said. “It’s introduced an element of uncertainty after 44 years of Conservative rule where people had a pretty good idea of where they stood.”
But Craig Jerusalim, portfolio manager at CIBC Asset Management, said some of the NDP’s “harshest rhetoric” surrounding tax rates and oil and gas royalties came at a time when oil prices were around US$80 a barrel.
“The NDP government will likely refrain from kicking the industry when it’s down, and perhaps focus more on preserving jobs, at least in the short term,” he said.
Experts said it’s too soon to know the real impact of the leadership change, and trigger-happy investors are merely overreacting to the worst-case scenario.
“Investors tend to shoot first and ask questions later,” Paradis said.
The S&P/TSX composite index closed down 150.05 points at 15,023.89. The market’s energy sector was the lead decliner, losing nearly three per cent, even as crude oil climbed higher.
The election results are likely to hang over the TSX for a couple of days, Cieszynski said.
“Usually with politics it’s fairly short-lived,” Cieszynski said. “The biggest hit will probably come through over say the next day or two, and then it should work its way through — until you actually see them come into power and enact policies. So the expectations get built in, and then things should stabilize after that and it will probably go back to trading off the oil price again.”
In New York, markets were down after U.S. Federal Reserve chairwoman Janet Yellen called stock prices “quite high” and data from payrolls processor ADP showed the pace of private-sector hiring slowed in April.
The Dow Jones average lost 86.22 points to 17,841.98, the Nasdaq fell 19.69 points to 4,919.64 and the S&P500 was off 9.31 points at 2,080.15.
The loonie was up 0.22 of a U.S. cent at 83.06 cents, underperforming compared to the currencies of other oil-producing nations.
“The Canadian dollar is lagging behind some of the other oil currencies, on a day when oil is up pretty good,” Cieszynski said.
The June crude oil contract was up 53 cents at US$60.93 a barrel and the June gold contract was down $2.90 at US$1,190.30 an ounce.
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