Well, it finally happened. The TSX Venture Composite dropped below 10 million shares in total daily volume. On November 24th, 2022, 9.69 million shares exchanged hands on the beleaguered exchange. While I’ve been tracking the decline in liquidity for years on the exchange, this sudden drop surprised me.
Volume Drops 65% in 3 Days
While low-volume days in the teens and even low teens are familiar, the almost instant decline shows the vulnerability of the exchange. For example, before the 9 million shares traded day, the exchange-traded 16 million shares and 24 million shares the day before that. Even within 72 hours, we can see a nearly 65% decline in volume on the exchange. There is such limited interest in most issuers that it almost boggles the mind. Remember that the Venture can average more than 200 million shares daily in a bull market. Additionally, the exchange is typically double or triple the current value when looking at past bull markets – making the 150 to 200 million daily shares traded equivalent to about 600 million shares traded at current values. So, to see it fall below 10 million is historical and a sign of the times.
Canada’s other junior stock market exchange, the CSE, known mainly for its cannabis-related issuers, is in the same boat.
CSE Volume Declines Also Astonishing
Let’s take the month of November and look back over the past few years. Below is data taken from thecse.com website, highlighting the monthly market summary:
November 2022:
Trades: 308,326
Total Volume: 1,276,237,264
Total Value: $501,802,005
Avg Volume per Trade: 4,139
Avg Value per Trade: $1,628
Avg Price per Share: $0.3932
November 2021:
Trades: 916,804
Total Volume: 2,638,951,157
Total Value: $2,043,503,520
Avg Volume per Trade: 2,878
Avg Value per Trade: $2,229
Avg Price per Share: $0.7744
CSE Total Value of Shares Traded Down 75% November 2022 vs. November 2021
So, from one year to the next, we see a clean 75% drop in the total value of traded shares. Stunning. But perhaps the most astonishing is the 66% year-over-year decline in trades. Every metric is down huge.
While 2022 might feel like the worst year in a long time for small-cap investors, and it is, things can get worse. Think back to the bear market of 2012-2015. The markets (TSX Venture) bottomed in January of 2016, but in the years prior, conditions were terrible. Likewise, for the CSE, 2015 marked a period before the marijuana boom. And while the below is not entirely relevant, it still shows how far the exchange has come. Check out the numbers:
November 2015:
Trades: 23,289
Total Volume: 277,330,362
Total Value: $39,267,271
Avg Volume per Trade: 11,908
Avg Value per Trade: $1,686
Avg Price per Share: $0.14
And worse still…
November of 2014:
Trades: 14,295
Total Volume: 176,336,844
Total Value: $25,765,756
Avg Volume per Trade: 12,336
Avg Value per Trade: $1,802
Avg Price per Share: $0.15
Click here to see more stats from thecse.com.
CSE Liquidity Seizure Tied to Higher Rates
So, while November 2022 total trades are down 66% from November 2021, and it doesn’t feel good, the exchange has grown by many multiples in less than ten years. The 308,326 trades in November of 2022 are 22 times the number in November 2014.
The 75% year-over-year liquidity on the CSE indicates an entire country seizing up under the weight of higher interest rates.
Interest Rates, High Debt Levels are Killing Venture Markets
The sad reality is that millions of investors face a liquidity crisis. With interest rates soaring, money is becoming more expensive, and in a nation addicted to debt, asset prices must fall. Small-caps are highly speculative and have been cannon fodder for the Bank of Canada as rates soar. Remember, Canada has the highest household debt in the G7 – a whopping 185% of disposable income. With the cost of all debt rising, from HELOCs to mortgages and credit cards, Canadians are in for a rude awakening, and the TSX Venture and CSE are seeing it in the trading volumes.