Canada's main stock index may stumble early in 2010 but will remain on an upward path as its heavy resource weighting should benefit from a steady economic recovery, a Reuters poll shows.
A Wednesday survey of 20 analysts and fund managers found the Toronto Stock Exchange's S&P/TSX composite index was expected to rise by mid 2010, with the median forecast at 12,000, compared with a close of 11,541.02 on Tuesday.
The median had the index ending 2010 at 12,500. But forecasts for end-2010 were in a wide range, from 9,000 to 13,500, reflecting investor uncertainty about the strength of the global economic recovery.
The overall results are roughly in line with the trend seen in September, when the median showed the TSX ending this year at 11,500, and ending mid-2010 modestly higher at 12,125.
Most of respondents surveyed in the past week expect the stock market would remain on an overall upward path since rallying 50 percent from a five-year low carved in March in the depths of a global financial crisis.
"The coming year will be one of growing global, U.S. and Canadian economies, increasing earnings alongside very low inflation and market yields," said John Johnston, chief strategist for Harbour Group at RBC Dominion Securities.
Johnston added, however, a correction appears likely in the coming year on worries about the sustainability of private demand as fiscal stimulus fades and short-term rates start edging up in several economies around the globe.
"A 15 to 20 percent correction appears the most likely scenario," he said, referring to a dip in the first half before heading higher again by end 2010.
Earlier this month, data showed Canadian employers hired five times more workers than expected in November in a stunningly upbeat jobs report that fueled expectations of a pickup in economic growth after a disappointing start to the recovery.
Several days later, the Bank of Canada announced it would keep its key interest rate near zero, as expected, and dampened any expectations of an early rate hike even though it said it sees economic recovery gathering momentum in coming quarters.
Even the calls for higher TSX levels were measured in their optimism.
"We'll begin to see the stimulus being withdrawn, tighter monetary conditions in some countries, and while I do think the underlying trend for the stock market is going to be positive it's going to mean the gains are going to be limited," said Kate Warne, Canadian market strategist at Edward Jones in St. Louis, Missouri.
Many agree the TSX's heavy weighting in energy and mining stocks will help carry the market higher as the global economy recovers and boosts demand for many key Canadian commodities.
"Technically, I think 12,200 is very feasible," Sid Mokhtari, director, institutional equity research at CIBC World Markets, who is an expert in technical analysis, referring to the index level seen around the middle of next year.
Mokhtari said the index could pierce the 13,000 level in 2010, in part, on demand from emerging markets.
"There's a good chunk of the TSX that is weighted toward the commodities," he said.
"We also have a very pro-cyclical approach to the market, which is basic industrials and consumer discretionary in Canada. We have seen a good flow of funds going into those sectors. When you put them together it would be very difficult not to carry a positive bias."
But there are some who say the index may fall back from current levels.
"All the growth projections for the first half of 2010 might be a bit too aggressive and I think there might be disappointment," said Francis Campeau, broker at MF Global Canada, in Montreal.
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