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How short sellers are building up a new front in their war on Canadian stocks

As if Canadian fund managers didn’t have enough to worry about this year, a new pressure is beginning to weigh heavily on the country’s stocks: foreign short sellers.

Shares on the S&P/TSX Composite index fell for the seventh straight day Monday, down 1.3 per cent to 14,001, adding to what is the longest losing streak since 2011. Steep declines in energy companies, miners and banks — the latter being a popular target for shorts — were the main source of the selloff.

Fund managers say that foreign bets against Canada are set to add to the country’s stock market woes this year as the country faces recession and concerns linger about the housing market.

“Resources have weighed for a while, but now a lot of negative sentiment is growing toward the banks as well, especially from foreign investors,” said Robert Kavcic, senior economist, BMO Capital Markets. “I mean look at what the big six Canadian banks have done, even over the past six months, they’ve come down quite a bit.”

It has become increasingly clear that the collapse in oil prices is doing much more damage to the Canadian economy than initially predicted. Gross domestic product contracted by 0.6 per cent on an annual basis in the first three months of the year, with a broad pullback in many sectors, including oil and gas, wholesale trade and manufacturing.

Economists at the start of the year forecasted that the Canadian economy would bounce back in the second quarter, but now contend that it likely contracted then as well. If that pans out, Canada will have entered into its first recession, defined as two consecutive quarters of economic contraction, since 2009.

Statistics Canada this Friday will release May GDP numbers, which are expected to add clarity about whether the economy is now in a recession.

Resource By : http://business.financialpost.com/investing/how-short-sellers-are-building-up-a-new-front-in-their-war-on-canadian-stocks?__lsa=2abc-f75d

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