Key Takeaways
- The decline of stock markets in Canada is a concerning trend that affects the country’s economic growth and productivity.
- The number of public companies listed on stock exchanges in Canada has fallen by 34.2% since 2008.
- The decline in stock exchange listings is attributed to factors such as mergers and acquisitions, increased access to private capital, and rising regulatory costs.
- The growth of index investing has contributed to the decline in public listings, particularly among smaller companies.
- Private equity has grown significantly in Canada, but this alternative source of capital is not easily accessible to most Canadians.
Introduction to the Decline of Stock Markets in Canada
Stock exchanges play a crucial role in facilitating the growth of domestic firms and providing investment opportunities for residents. A well-functioning stock market is essential for economic and productivity growth, as well as innovation. However, the declining size and vibrancy of stock markets in Canada are causing concern, as they impose real costs on average Canadians and limit the country’s prosperity. The number of public companies listed on stock exchanges in Canada has been declining since the early 2000s, with a 34.2% decrease between 2008 and 2024. This trend is not unique to Canada, as many advanced countries have experienced a similar decline in the number of public companies listed on their stock exchanges.
Factors Contributing to the Decline
The decline in stock exchange listings in Canada can be attributed to several factors, including the impact of mergers and acquisitions, greater access to private capital for many companies, and increasing regulatory and governance costs facing publicly-traded businesses. The number of new public stock listings (IPOs) on Canadian exchanges has also plummeted, with an average of 47 IPOs per year between 2008 and 2013, compared to 16 between 2014 and 2024. This trend reflects a broader challenge in the Canadian economy, including a decade-long stagnation in business investment, including investment in new and updated plants, machinery, equipment, and research and development.
The Impact of Index Investing
The growth of index investing has also played a significant role in the reduced number of public listings, particularly among smaller companies. In 2008, there were 1,232 listed companies on the TSX Composite and 84 exchange-traded funds, compared to 709 listed companies on the TSX and 1,052 exchange-traded funds in 2024. The average market capitalization of a listing on the TSX has increased from $1 billion to $6 billion over the same period, illustrating how larger companies are dominating the market while smaller companies are disappearing. This trend is concerning, as all big companies start as small companies, and the decline of smaller companies does not bode well for Canada’s economic future.
The Growth of Private Equity
One offsetting trend to consider is the growth of private equity in Canada, which has skyrocketed from $12.8 billion in 2008 to $93.2 billion in 2024. While private equity represents an alternative source of capital for growing companies, it is not easily accessible to most Canadians. This means that the vast majority of Canadians trying to save have dwindling investment options, which inevitably affects the returns on their savings. This is particularly important for those Canadians trying to save for retirement, as lower rates of return effectively mean lower living standards in retirement.
Broader Implications
The decline of stock markets in Canada has broader implications for the country’s business environment. Canada has historically relied more heavily on public equity markets to finance domestic businesses, and the reduced level of capital available through Canadian public equity markets means that there are fewer resources available for businesses to expand and innovate. This can have long-term consequences for the country’s economic growth and productivity. Revitalizing Canada’s stagnant stock markets requires policy reforms, particularly regulatory changes to reduce costs to issuers, as well as policies to improve the conditions for private-sector investment and business growth more broadly.
Conclusion
In conclusion, the decline of stock markets in Canada is a concerning trend that requires attention and action. The decline in stock exchange listings, the growth of index investing, and the limited accessibility of private equity are all contributing factors to this trend. To revitalize Canada’s stagnant stock markets, policy reforms are necessary to reduce regulatory costs, improve the conditions for private-sector investment, and promote business growth. By addressing these challenges, Canada can promote economic growth, productivity, and innovation, and ensure a more prosperous future for its citizens.