Trading tops $1 trillion

Toronto Stock Exchange trading value surpasses previous record set in tech bubble

The Toronto Stock Exchange hit a milestone yesterday, when trading value surpassed $ 1 trillion for the year.

This eclipses the previous record set in 2000 during the technology bubble, when trading value hit $ 944.2 billion.

By the end of the day, the trading value rose to $ 1.003 trillion, as mining and energy companies fed the insatiable appetite of investors for basic resource stocks.

“We’re the global leader in mining listings,” says Richard Nesbitt, chief executive of TSX Group Inc., operator of the Toronto Stock Exchange and the Toronto Venture Exchange.

“ We list more energy shares than any other exchange around the world.”

Driven by higher prices for oil ( around $60 U. S. a barrel) and gold ( above $500 U. S. an ounce), more companies are raising money on the Toronto exchange.

Last year, the TSX saw a record 204 initial public offerings. IPOs are running at the same rate again this year — to the end of the third quarter.

“ In dollar terms, we’ve had a robust year in Canada for new financings,” Nesbitt says. “ We’re third in the world in new capital raised, behind only New York and London.” Mining and energy stocks are not the whole story. Income trusts are a big hit with Canadian investors, as are exchangefunds. Another sign of hectic TSX activity is the 50 million trades so far in 2005, the most ever for a year.

This compares to 40.3 million trades last year.

Toronto’s total trading volume is 59.2 billion shares so far this year. That’s still short of the record 61.2 billion shares traded in 2004. The S&P/TSX composite index rose 88.04 points ( or almost 1 per cent) to reach 11,096.82 yesterday, driven by enthusiasm for energy and gold stocks. The Toronto composite index is up 20 per cent so far this year, Nesbitt points out.

That’s much stronger than the U. S. market performance. The Dow Jones industrial average, a key U. S. benchmark, is up just 0.2 per cent this year.

Canadians have most of their pensions and tax-sheltered retirement funds invested in domestic stocks and mutual funds.

That’s because of the 30 per cent cap on foreign investments — eliminated just a few months ago — as well as the rising Canadian dollar.

Five years ago, the higher trading volumes on the Toronto Stock Exchange led to bottlenecks and system crashes. But TSX Group, which went public in 2002, has made big investments in technology to accommodate more frequent trades.

“ We doubled our trading capacity last year, then doubled it again this year,” says Steve Kee, a TSX spokesman.

“ And no doubt, we’ll have to double it again, then again and again.”

There’s no single stock dominating TSX trading this year, as Nortel Networks Corp. did during the dot- com boom.

While energy is the largest sector — at 27 per cent of the overall market value — trading is spread among 400 oil and gas companies. Mining and mineral companies account for another 9 per cent of the total market value.

Toronto has the seventh largest stock exchange in the world in terms of domestic market capitalization, says Kee.

We’re ahead of Germany, for example, though its economy is more than twice the size of Canada’s and its population is nearly three times ours.

Besides operating the Toronto Stock Exchange and the Toronto Venture Exchange, which serves smaller, more speculative companies, TSX Group last year bought the Natural Gas Exchange, an electronic market that trades natural gas and electricity contracts.

“ We were the first exchange in North America to go public,” Nesbitt says. The Chicago Mercantile Exchange and the Nasdaq Stock Market have since followed suit. And the New York Stock Exchange is taking steps leading to a public issue of shares. When TSX Group did its share offering in 2002, it had an annual trading value of just under $650 billion ( compared to today’s $ 1 trillion). The number of trades was 26.5 million ( compared to 50 million).

Investors in TSX Group shares have enjoyed excellent returns. ( Disclaimer: I bought some in 2003 and have held on.) The stock came out at $ 18 during the initial public offering and went through a two- for- one split earlier this year.

It closed at $ 43.90 yesterday, up 11 cents. This means investors who bought at the IPO have more than doubled their money The shares started paying dividends in January 2003 and yield 2.2 per cent. The dividend has been raised five times.

In 2003, TSX Group paid a special dividend of $5 a share.

“ We’ve tried to be very responsive to shareholders,” says Nesbitt, who joined in 2001 and took over as CEO last December.

“ If we don’t have a good use for the money, we’ll give it back to you.” As long as stock trading volume and prices remain high, investors can do worse than owning TSX Group shares.

This is one way to play the trend of increasing participation in capital markets by ordinary Canadians, who are investing for their retirement. Ellen Roseman’s column appears Wednesday, Saturday and Sunday. You can reach her by writing Business c/ o Toronto Star, 1 Yonge St., Toronto M5E 1E6; by phone at 416-9458687; by fax at 416-865-3630; or by email at erosema@thestar.ca.