Canada’s dismal stock market performance has just about run its course, according to Quebec’s biggest independent fund manager, which predicts a 13 percent rally by year-end.
Fiera Capital Corp., with C$129 billion ($102 billion) in assets under management, sees the S&P/TSX Composite Index hitting 17,300 by the end of 2018 as global growth finally gives the resource-heavy benchmark a kick. That’s up from an earlier forecast of 16,900 at the beginning of the year and Tuesday’s close of 15,262.
“The TSX has not been this cheap versus the S&P 500 since the depths of the financial crisis,” said Candice Bangsund, vice-president and portfolio manager of global asset allocation at Montreal-based Fiera. “When you take that in the context of robust global growth, accelerating earnings expectations and firm commodity prices, this argues for a nice reversal and a period of catch-up for the TSX, particularly as some of those lingering headline risks fade.”
Canada is the second worst-performing stock market in the developed world this year after Switzerland, according to data compiled by Bloomberg. It’s down 5.8 percent versus a decline of less than 1 percent for the S&P 500 Index. But Bangsund sees that changing as Canadian corporate earnings grow 15 percent this year, slightly ahead of consensus and beating expected 10 percent growth in the U.S.
“Market sentiment remains extremely fragile” as investors obsess about every development in the U.S.-China trade spat, but any progress on the North American Free Trade Agreement negotiations and a strong first-quarter earnings could see markets resume their climb, Bangsund said. “The earnings season could be a huge potential catalyst to get the markets refocusing their attention on fundamentals.”
Canadian stocks should benefit more than most as a rotation from growth to value boosts financials and resources, which together make up two-thirds of the benchmark, she said. Bangsund also sees oil prices hitting $70 by year-end, up from about $66 now.
Fiera is overweight Canada and emerging markets and underweight the U.S. and Europe. It’s neutral on equities after taking some profits in December, but is looking for the right moment to reestablish its long position.
“As fundamentals start to matter again, we could see equity markets resume that positive trend we saw in 2017,” Bangsund said. “We’re just going to need this political noise to recede somewhat.”