The U.S. market has been soaring hot for nearly seven years.
On the other hand, the Canadian market has been ice cold.
In the last five years, the TSX has climbed 25% while the S&P 500 has climbed over 70%.
Yet, the TSX Venture has done nothing but drop since its peak in 2011, losing over 70% of its value.
For many of you involved in the Canadian capital small cap markets, I don’t need to tell you just how bad things have been. Some of you may have already left for greener pastures.
But for you retail investors who may not completely comprehend what’s been happening, this Letter is a snapshot of the reality our small cap market is facing.
Nearly two years ago, I wrote a series of Letters about the potential demise of the Canadian public small cap capital markets.
Via “Why the TSX Venture is Failing“:
“Most of you probably invested in a company listed on the commodities-focused TSX Venture within the last year, which means most of you probably lost some money.
On a year-over-year basis, the TSX Venture is down 30%, trading volume down around 25%, and transactions are down more than 45%.
While the commodities and precious metals market have slumped due to falling prices and rising costs, many of the companies that have fallen have not dropped because of core fundamentals.
The TSX Venture as a whole has succumbed to more than just a down-dip in metal prices or the rises in costs of production and exploration. This letter is intended to address some of the issues that have led to the crash of the TSX Venture.
These issues include how the big banks are forcing juniors out of the market, just like they have in the US, and also how one regulation has turned into a death spiral event leading to other regulations that collectively are crushing our Canadian market.
…This downturn has forced both investors and smaller institutions out of the market, leaving room only for the big boys to play.
The Canadian investment market is being changed to reflect large institutional firms that are only looking for yield products. Independent brokerage firms are drying up because funding for junior projects are drying up as investors have lost too much money to want to play again.
Much of the money remaining is now being filtered to bigger banks and bigger companies.
Juniors on the TSX Venture don’t stand a chance.
For the average junior, it costs on average around $200,000 just to maintain their listing and legal fees to keep up with regulators. That means a small junior, who just raised a million dollars, will need to take 20 cents out of every dollar to comply with security regulations.
It’s no wonder why analysts are predicting that at least 500 companies on the Venture will run out of money before the year is over. Many of these companies have less than $250,000 in the bank. Considering that it takes around $200,000 a year just to comply with regulations, there is a great chance that the analysts are right.
All of this is leading to the demise of the TSX Venture if things don’t change. All over the country, there are town hall meetings to address the issues. But who’s listening?”
It’s been two years since I wrote that piece, and sadly things have unfolded as predicted: the Canadian speculative small cap market is practically non-existent – except for a few exceptions. I’ll talk about these exceptions in an upcoming Letter.
How Bad is Bad?
One look at the TSX Venture, Canada’s small cap speculative market once thriving with capital, and you can see just how bad things have become: less liquidity, less volume, bigger spreads, and hundreds of stocks trading at less than five cents.
What’s worse is that many of the companies listed may not have the capital to pay even their auditors, which means hundreds of companies listed on the TSX Venture may not survive beyond this year. Many of them might have already crumbled if it weren’t for some leniencies granted by the exchange on which they trade on.
This is especially true for the mining and resource community, which just so happens to make up the majority of Canada’s small cap market.
In January, the TMX Group published its monthly financing statistics and noted that the TSX Venture Exchange listed 56 issuers in 2014 compared to 76 in 2013. What it didn’t talk about is the amount of companies being delisted.
But that’s not hard to find out.
Here are the total listings for the TSX Venture by year:
Based on those numbers:
-
- 60 companies disappeared from the TSX Venture between March 2013 and March 2014.
- 119 companies disappeared between March 2014 and March 2015.
Since the beginning of this year, 57 companies have already delisted from the TSX Venture, 50 have been suspended, and only 12 new listings have been added.
We’re not even halfway through the year, and we’ve already witnessed almost the same amount of delistings for the TSX Venture than we did between all of 2013 and 2014.
….continue reading HERE (scroll down to “We are not alone” & “David & Goliath
