By Alastair Sharp
TORONTO, June 24 (Reuters) - Canada's currency and shares of
most of its largest companies weakened in the wake of Britain's
vote to leave the European Union on Friday, while government
bond yields slipped as investors bet the Bank of Canada will cut
interest rates.
The threat to global growth that the so-called 'Brexit'
presents will prove a headwind for an economy that relies on
energy and other commodity exports, analysts and investors said.
"It increases the risk that deflation could take hold," said
Patrick O'Toole, vice president of global fixed income at CIBC
Asset Management, adding that the result called into question
the EU's existence.
Oil prices, which have doubled since February, fell about 5
percent after the vote and Canadian energy stocks shed more than
3 percent. O/R
To be sure, some equity analysts saw the sharp decline as a
buying opportunity.
"This is just a bump in the road," Brian Pow, an equity
analyst at Acumen Capital Partners in Calgary. "I still think
the trend is upwards in crude prices, it just might take
longer."
Banking and other financial stocks joined energy stocks in
taking the brunt of the selling pressure in Canada, while gold
miners benefited from investors fleeing to the safety of
bullion. .TO GOL/
Gold stocks helped Canada outperform, with the market down
roughly 1.5 percent compared to 3 percent for major U.S.
indices.
Some saw the retreat as a buying opportunity, noting that
limited direct exposure to Europe and a strong trade
relationship with the United States should help Canadian assets
weather the storm.
"We remain at the ready to swoop in and buy stocks in these
volatile times," said Stephen Carlin, head of equities and
portfolio manager at CIBC Asset Management.
Canada's currency was heading for its sharpest move lower
against the greenback in more than a year. CAD/
It also retreated against the Japanese yen and Swiss franc,
traditionally seen as safe havens, though it surged almost 8
percent against the British pound and climbed against the euro.
Yields on two-year government bonds, seen as particularly
sensitive to potential monetary policy shifts, fell as low as
0.386 percent before recovering somewhat.
Overnight index swaps moved to imply a 27 percent chance of
a Bank of Canada rate cut this year, after having been priced
for no change in policy before the Brexit result.
Bond prices were much higher across the maturity curve in
sympathy with Treasuries as investors rushed into safe-haven
assets.
(With additional reporting by Fergal Smith in Toronto)