'Sucked for Canada': Shopify’s 70% plunge almost single-handedly dragged the TSX into the red
Without it, the index would be down less than two per cent this year, rather than six per cent
Shopify Inc.’s 70 per cent plunge has almost single-handedly dragged the Canadian stock market into the red this year, taking the shine off what would otherwise be one of the world’s top-performing major equity benchmarks.
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'Sucked for Canada': Shopify’s 70% plunge almost single-handedly dragged the TSX into the red Back to video
The e-commerce software provider has lost $161 billion in market value in 2022, causing a 978-point drag on the S&P/TSX composite index. Without it, the index would be down less than two per cent in Canadian dollars this year, rather than six per cent.
Shopify was down 0.2 per cent to $52.52 at 9:35 a.m. in Toronto on Monday. It ended last week on a six-day losing streak.
It’s not the first time a single tech stock has been a huge anchor on the key Canadian index. Nortel Networks Corp.’s collapse was a 353-point drag in 2001, the index’s inaugural year. BlackBerry Ltd., then called Research in Motion Ltd., was the S&P/TSX composite’s biggest negative contributor in 2008, pulling the index down more than 300 points.
Despite Shopify, Canadian stocks have outperformed the S&P 500 Index by more than 11 percentage points this year. Unlike some equity gauges in Europe and the United States, the S&P/TSX composite did not enter an official bear market this year: its peak-to-trough decline was 17.6 per cent.
Soaring oil and metals prices have lifted energy and mining stocks, which make up about a 30-per-cent weighting. At the same time, U.S. megacap tech stocks have been pummelled by the relentless rise in interest rates: seven FANG+ stocks are responsible for about half the S&P 500’s 17.5 per cent decline in 2022.
“Concentration risk matters in an index,” said Craig Basinger, Purpose Investments Inc.’s chief market strategist. Shopify’s problems “sucked for Canada” but the tech sector makes up a smaller proportion of the index here, he noted. There’s only one other tech company on the S&P/TSX composite with a market capitalization of more than $40 billion.
For longer-term holders of index funds, Shopify has had a less meaningful impact. The stock has had almost no influence on the benchmark over a three-year period, as this year’s losses have essentially given back two years of big gains. The S&P/TSX composite is up 17.7 per cent over three years, with banks, commodities and railways having the biggest upside impact.
Some investors see the S&P/TSX composite outpacing the S&P 500 as long as higher rates continue to pressure technology shares.
“With Shopify being a smaller component, there’ll be more room to continue to outperform as long as we’re in a tightening cycle with rising interest rates,” Martin Pelletier, senior portfolio manager at TriVest Wealth Counsel Ltd., said
Bloomberg.com
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