2009 year-end TSX target cut on recessionary outlook: CIBC World Markets
Dec 10, 2008
But 'more than reasonable' returns still expected over next 12 months TORONTO, Dec. 10 /CNW/ - CIBC (CM: TSX; NYSE) - The TSX composite index could generate total returns above 20 per cent in 2009, but investors should think twice before bulking up on stocks just yet, notes a new CIBC World Markets report "The near-term risks to the market from a contracting North American economy stand in the way of overweighting stocks at this point," says Jeff Rubin, CIBC World Markets chief economist and chief strategist, in his latest Canadian Portfolio Strategy Outlook Report. "We continue to expect the North American economy to contract over the first half of the year, with near-term punitive consequences for earnings," says Mr. Rubin, adding that investors "going long stocks now should be prepared for more jolts along the way." Citing an "increasingly challenging economic environment," Mr. Rubin has lowered his 2009 year-end TSX target by 1,000 points to 11,000. However, that still leaves room for a "more than reasonable" upswing from this year's expected close of 9,000. Meanwhile, Mr. Rubin says that whatever steps Washington takes to stem the economic crisis will have "huge ramifications on both sides of the border" and resuscitate growth by the second half of 2009. That spells a recovery in both earnings and commodity prices, particularly energy. "While demand destruction from the current recession has sent oil prices plunging below US$50 per barrel, supply destruction, including cancellations in the Canadian oil sands and offshore projects around the world, will see crude soar back to triple-digit territory toward the end of next year and into 2010." Weightings in Mr. Rubin's model investment portfolio have remained unchanged except for a one-point shift of weighting from gold stocks to telecoms. "With M&A deal risks effectively eliminated by recent developments, (the telecom) segment looks appealing as a defensive play." Mr. Rubin holds a modest "overweight" in bullion and energy stocks, and an above-benchmark exposure to staples and utilities stocks. The latter two sectors have "typically helped to provide portfolio stability in tough times," he says. By asset mix, Mr. Rubin remains "market weight" in equities, and "overweight" in cash as a defense against "near-certain" market volatility. He remains "underweight" in bonds given that the U.S. deficit is heading for 11 percent of GDP. The danger, he says, is that "Washington's already massive and growing fiscal deficit poses huge monetization and inflation risks down the road" if large fiscal imbalances are financed by "cranking up the printing press" rather than issuing debt. "After decades of fighting inflation, the (U.S. Federal Reserve) is about to actively seek its return. Not only will inflation ease the burden of the nation's debt, of which almost half is now owned by foreigners, but reflation will also raise asset prices and the value of many of those mortgage-backed securities, which now reside on the Fed's own balance sheet. In the past, the inflationary consequence of monetizing deficits has robbed bond investors of as much as 30 per cent of their real return." The complete CIBC World Markets report is available at: http://research.cibcwm.com/economic_public/download/psdec08.pdf CIBC World Markets is the corporate and investment banking arm of CIBC. To deliver on its mandate as a premier client-focused and Canadian-based investment bank, World Markets provides a wide range of credit, capital markets, investment banking, merchant banking and research products and services to government, institutional, corporate and retail clients in Canada and in key markets around the world.
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For further information: please contact Jeff Rubin, Chief Economist and Chief Strategist, CIBC World Markets at (416) 594-7357, firstname.lastname@example.org or Tom Wallis, Communications and Public Affairs at (416) 980-4048, email@example.com