Stock prices rally in Toronto, New York Bargain-hunters rush in, following market crash

After several days of losses in stock markets around the world, stock prices began to rally on Oct. 28.

The recovery was fuelled first by announcements that a number of large companies were planning to buy back shares on the market. Several funds also moved back into the market, shifting their allocations in favor of equity. Fund managers cited low interest and inflation rates and stable corporate earnings as their reasons for believing the market is no longer overvalued.

The Toronto Stock Exchange’s TSE 300 composite index rose 2% on Oct. 28 and, by presstime on Oct. 29, had added another 1.6% to recover to 6,858.90 points. The New York Stock Exchange had bounced back 4.7% on Oct. 28 and was marginally higher at presstime, with the Dow Jones industrial average at 7,546.70.

At presstime, Pacific Rim markets had caught the same wave, with Hong Kong up almost 19%, the Australian All-Ordinaries up 6%, and Tokyo adding just over 3%. Most of the major European markets had closed significantly higher, with the Frankfurt and Paris indices both up by more than 6%. The London FTSE 100, which had recovered much of its losses the day before, was fractionally lower.

The first clear sign of trouble on the world’s equity markets came on Oct. 20, when the Hong Kong Exchange began a slide. Southeast Asian currencies have been under attack since mid-summer, and an announcement by the Hong Kong Monetary Authority that it would defend the Hong Kong dollar’s current exchange rate of US$0.129 raised fears that the Authority would increase interest rates.

By the end of the week, the Hong Kong market’s principal barometer, the Hang Seng Index, had fallen more than 22%. When trading opened again on Oct. 27, it lost a further 16%, carrying many of the Asian markets with it. The European exchanges followed suit, with Frankfurt off 4%, Paris off nearly 3% and London down more than 2%.

Later in the day, the TSE 300 fell 434 points — its biggest one-day drop ever. The Dow average was down 554 points, breaking its 508-point record set on Oct. 19, 1987. The NYSE’s cool-down rule kicked in once the Dow had lost 350 points in mid-afternoon, but the mandatory half-hour halt in trading only gave way to another half-hour of panic selling that sent the index plunging another 200 points, and triggered a second, one-hour halt, extending past closing and so shutting down the exchange for the day. The TSE and other major North American exchanges declared halts at the same time as the New York exchange, limiting their one-day losses.

As a fraction of value, though, the declines in the indices did not rival the 1987 crash, when the TSE 300 lost 11% and the Dow nearly 23%. But the breadth of the effect was perhaps measured best by the other major U.S. stock index, the Standard & Poor’s 500; a total of 499 stocks on the S&P lost ground.

As a backdrop to the action on currency and equity markets, the precious metals market collapsed — again — with investors declining to move into gold from the imploding stock markets. Then, when a panel of monetary experts delivered a recommendation to the Swiss National Bank that it liquidate just over half of the country’s 2,600-tonne gold reserve, bullion dived almost US$14 to US$308.50 per oz., a price not seen since early 1985.

The initial shock subsiding, gold bounced to the US$311-per-oz. range and was trading around US$313.85 per oz. in New York at presstime.

Troubles in gold, of course, always resound on the Toronto market, and the big gold producers all fell heavily on Oct. 27. Barrick Gold (ABX-T) slid $2.55 to close at $27.90, and Placer Dome (PDG-T) was off $2.90 at $20.50. Kinross Gold (K-T) was down $1 at $5.45 and TVX Gold (TVX-T) fell 65cents to $6. And a long list of gold producers touched 52-week lows: Agnico Eagle Mines (AGE-T), Aurizon Mines (ARZ-T), Cambior (CBJ-T), Dayton Mining (DAY-T), Echo Bay Mines (ECO-T), Goldcorp (G-T), Teck (TEK-T) and William Resources (WIM-T).

On the New York Stock Exchange, Newmont Gold (NGC-N) and Newmont Mining (NEM-N) were the big losers for the week. Each lost more than US$6 per share in the big selloff on Monday, and each posted slight gains the following day to close down US$6.90 for the week.

Homestake Mining (HM-N), another gold stock hit hard, was off US$2 for the week to close at US$12.25. Asarco (AR-N) closed at US$27.19, down US$3.31 for the week. Phoenix-based copper-producer Phelps Dodge (pd-n) dropped US$3.67 for the week to close at US$75.88.

Getchell Gold (GGO-X) was the big loser on the American Exchange, losing US$4.75 on Monday, down US$4.90 for the week.