Worst of the credit troubles in rearview mirror: CIBC World Markets

Oct 4, 2007


    TSX should hit 15,000 by year-end, 16,200 in 2008

    TORONTO, Oct. 4 /CNW/ - CIBC (CM: TSX; NYSE) - Stock markets are showing
signs that the worst of the recent credit troubles have passed and a late
rally should push the TSX to 15,000 by year-end, finds CIBC World Markets in
its latest Canadian Portfolio Strategy Outlook report.
    "While some problems remain in the asset-backed commercial paper market,
we are becoming more confident that the worst in credit markets may now be in
the rearview mirror," says Jeff Rubin, Chief Strategist and Chief Economist at
CIBC World Markets. He notes that with liquidity improving, oil hitting record
highs, a base metals rally and good prospects for further rate cuts south of
the border, the TSX should not only hit 15,000 by year-end but close 2008 at
the 16,200 level. The TSX has already recouped nearly three quarters of the
summer's slide, with the previously hard-hit materials group up 20 per cent
from a low in August.
    Given this, Mr. Rubin remains 12 percentage points overweight in equities
and has also shifted two percentage points of weighting from cash back into
the bank's still-underweight bond position.
    "Despite an initial reluctance, the U.S. Federal Reserve Board signalled
clearly with September's aggressive 50 basis point cut that it now takes the
threat of housing contagion seriously, and is ready to adjust policy
accordingly," he adds. While Mr. Rubin notes that mortgage troubles in the
U.S. will certainly dampen growth in the country over the next year, he does
not think a full-blown U.S. recession is in the cards - in part because he
expects the Fed will make further rate cuts.
    He also states that with its almost 50 per cent resource capitalization,
the fortunes of the TSX are more intertwined with those of the global rather
than the North American economy. It is the resource hungry emerging markets in
Asia that are driving commodity prices and these economies have escaped
serious damage from the U.S. credit crisis. This will keep positive pressure
on resource demand and prices.
    West Texas Intermediate crude prices have already pierced the US$80/bbl
mark, which is CIBC World Market's forecast for the fourth quarter, even with
a comparatively uneventful hurricane season so far in 2007. The bank expects
an average US$90 wellhead price in the coming year with global demand climbing
by almost two per cent, nearly double its long-term trend. This growth will be
driven not only by buoyant Chinese demand, but also rocketing consumption in
oil exporters like Saudi Arabia, whose heavily subsidized motorists are using
10 per cent more fuel than a year ago. He also expects a rebound in natural
gas prices from recent weather-depressed levels.
    Mr. Rubin argues that while the strong likelihood of royalty hikes in
Alberta led to an almost immediate discount of Canadian oil stocks by domestic
investors, it does not alter the fact that the Canadian oil sands represents
over 50 per cent of the world's oil reserves open to private investment. As a
result, he does not expect the royalty increases to deter large scale foreign
acquisition of Canadian oil sands properties over the next 12-24 months.
    "Last month's bid by a Middle Eastern interest for a major energy
producer suggests international investor interest in Canadian oil patch assets
remains strong," says Mr. Rubin. "We remain four percentage points overweight
the energy sector not only on the expectation of rising oil and gas prices but
also for the M&A premiums they are likely to bring."
    CIBC World Markets has also added a half point of weighting to the gold
component of the materials sector - moving it a full percentage point
overweight. "Good prospects for further Federal Reserve Board rate cuts by
year-end, and the steady drag of a U.S. current account deficit that measures
over five per cent of GDP on the greenback, still leaves bullion prices a
one-way bet.
    "We are raising our target for bullion to US$800 per ounce by the end of
2008. While valuations of gold stocks do not always keep pace with bullion
price gains, potential consolidation in the industry should give gold stocks
another lift."
    The complete CIBC World Markets report is available at:
http://research.cibcwm.com/economic_public/download/psoct07.pdf.

    CIBC World Markets is the wholesale and corporate banking arm of CIBC,
providing a range of integrated credit and capital markets products,
investment banking, and merchant banking to clients in key financial markets
in North America and around the world. We provide innovative capital solutions
and advisory expertise across a wide range of industries as well as top-ranked
research for our corporate, government and institutional clients.



For further information:

For further information: Jeff Rubin, Chief Strategist and Chief
Economist, CIBC World Markets at (416) 594-7357, jeff.rubin@cibc.ca or Kevin
Dove, Communications and Public Affairs at (416) 980-8835, kevin.dove@cibc.ca


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