December 7, 2008 / 3:31 PM / 11 years ago

RPT-Bay Street Week Ahead-More political turmoil to come

(Repeats Friday column)

By Jennifer Kwan

TORONTO, Dec 7 (Reuters) - In their battle over who can best bring stability to the Canadian economy, politicians have added another element of instability to the Toronto stock market.

The political drama that saw Prime Minister Stephen Harper persuade Governor General Michaelle Jean on Thursday to suspend Parliament until the new year may have put the constitutional crisis on a back burner.

But it’s merely delayed any direct impact the political fighting might have on equity markets, and thrown one more complication into the mix faced by market players.

Indeed, most analysts agree if there is any impact on Toronto stocks to be felt from the Ottawa stalemate it is the added uncertainty it brings to a market already battered by tumbling commodity prices and gloomy economic data.

“Investors hate uncertainty,” said Bob Gorman, chief portfolio strategist at TD Waterhouse.

“I think this is going to reinforce the tendency among a lot of investors to adopt a wait-and-see approach because they don’t know what the heck is going on,” added Gorman.

“I think it will just put more people on the fence. I would say this negative sentiment and lack of buying support is going to be continued here in the near term.”

Battling to stay in power, Harper avoided a no-confidence vote scheduled for Dec. 8 by winning a suspension of Parliament until Jan. 26 and buying some breathing room for the minority Conservative government.

The opposition Liberal, New Democratic and the Bloc Quebecois parties signed a deal this past week to bring down the Conservatives and replace the government with a Liberal-NDP coalition supported by the Bloc.

The S&P/TSX composite index .GSPTSE, which swooned for four straight days this past week saw steep losses on Monday when political tensions began to boil over, dropping 9 percent for its biggest one-day percentage loss since October 1987.

The index rose 59.21 points, or 0.73 percent, to 8,117.03 on Friday, but it was down just over 12 percent for the week.


This past Monday’s big retreat was not all due to constitutional battling however, as sliding commodity prices, gloomy U.S. economic news and an urge to lock in profits after six days of gains all contributed to the big selloff.

That led some analysts to surmise it would be difficult, if not impossible, to isolate the direct influence the Ottawa fighting has had, or will have, on the market.

So far, the impact on the market appears to be “minimal,” said Elvis Picardo, an analyst and strategist at Global Securities in Vancouver.

“It might cause some very short-term uncertainty that complicates an already complicated situation,” he said. “There are so many moving parts in the market the political crisis is just another unfortunate addition to the mix.”

But chart watchers agree that prolonged uncertainty is not a positive for the market.

Patricia Croft, chief economist RBC Global Asset Management, called the entire saga a “distraction” but said the TSX could be jolted into action when the market has more details to trade on.

“It could have some implications for various sectors depending on what government ends up producing a budget,” she said. “There could be targeted relief for the lumber industry, the auto sector, so that would have an impact on some of the sectors of the TSX.”

Tension will likely rise ahead of Parliament’s return and the scheduled Jan. 27 budget, when the Conservatives will again face the threat of being brought down in a no-confidence vote.

Opposition politicians have threatened to keep up the pressure on Harper and to push forward with their coalition plan.

“You can run but you can’t hide,” said senior Liberal legislator Bob Rae after Parliament was shut down. He predicted the opposition would topple the Conservatives early next year. (Reporting by Jennifer Kwan; editing by Rob Wilson)

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