While the S&P/TSX composite index is up about 2% year-to-date and down more than 4.5% since peaking in February 2012, the TSX Venture Index has declined more than 25% from its highs that month.
This suggests there are plenty of opportunities for investors to sell losing positions to minimize tax exposure and potentially recoup capital gains taxes paid in previous years, according to Nicholas Campbell at Canaccord Genuity.
“For investors looking for a reprieve from recent selling pressure, tax loss selling could prolong the discomfort,” the analyst said.
However, he also noted that investors with cash on hand could use this opportunity to buy shares at discounted valuations.
Canadian investors have until Dec. 24 to record a capital gain or loss for the 2012 tax year on their domestic stocks. They have until Dec. 26 to do so for U.S. equities. Dec. 31 is the last day to record a capital gain or loss for U.S. investors for this tax year.
“These are key dates to be aware of,” Mr. Campbell said in a research note. “Leading up to these dates, we could see increased selling pressure, which can often, but not always, lead to a bounce in equity valuations after the date of record has been passed as investors repurchase equities sold for a tax loss.”
Junior mining stocks have seen plenty of volatility in 2012, despite relatively resilient commodity prices. This is primarily due to the risk aversion being driven by the current macro-economic environment.
Mr. Campbell warned that frustrated junior mining investors could see more selling pressure in the next month, regardless of a company’s underlying fundamentals.
However, he noted that the TSX Venture Index often rebounds at the end of December when the tax loss pressure subsides.
So having some cash on hand to take advantage of this short-term window by accumulating positions in junior miners might produce a happy ending to the year.