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TORONTO (Reuters) - Canadian stocks will probably set record highs this year and next, lifted by strength in the energy sector and an improving global outlook, a Reuters poll showed on Thursday.
Buoyed by an increasingly stable global economy and easy monetary policies across the world, stock markets have been steadily advancing. The Canadian equities market, which lagged behind its global peers in 2013, has finally caught up.
The Toronto Stock Exchange's S&P/TSX composite index is expected to build on recent strong momentum to end 2014 with double-digit growth, but the advance from current levels will be somewhat muted.
The median forecast in the poll of 38 market analysts showed the index reaching 15,300 by the end of 2014, up 12 percent from the start of the year and 2 percent from Wednesday's close.
The data also projected the index would hit 15,850 by the middle of 2015.
"The broad theme for the rest of this year is a modest but continued rebound," said Edward Jones strategist Craig Fehr. "I have a fair amount of confidence that the global economy is on the upswing.
"The fact that the TSX has finally started to get some legs this year is a reflection of the rebound in energy and materials," he added.
The Canadian benchmark, up about 10 percent this year, has outperformed most major equity indices so far. It hit a record closing high last week but failed to crack the all-time intraday high of 15,154.77 touched in June 2008.
"The flip side to the good news story is that people are worried we've had such good returns over time that the valuations look stretched," said John Stephenson, president of Stephenson & Co Capital Management.
Given the recent run-up in share prices, some fund managers expect the Toronto market to pull back at some point.
"I wouldn't be surprised to see a correction along the way in the next few months," said Michael Sprung, president of Sprung Investment Management. "It's getting very difficult to find really good value when you look at individual securities."
Other dangers for the market include the prospect of higher interest rates, which would be negative for both Canadian equities and commodity prices, said Matt Skipp, president of SW8 Asset Management. He sees the market slipping to 14,500 by year-end.
But the biggest risk for Canada would be significant weakness in China, he said. China is a major consumer of commodities exported from the resource-sensitive Canadian market.
Others are more optimistic that what is driving Toronto shares is optimism about Canadian companies, not just liquidity from global central banks.
"This rally is earnings-driven," said Elvis Picardo, strategist at Global Securities. "And because it's earnings-driven and because those earnings estimates don't look out of whack, valuations are still quite reasonable for this cycle of the economy."
The TSX is trading at a price-to-earnings multiple of 18.10, compared with 18.76 for the S&P 500. [EPOLL/US]
The driving force behind the TSX rally has been the energy sector, which has climbed about 24 percent this year.
The industry has benefited from stronger oil prices, a narrowing of Canadian crude's discount to global benchmarks, solid earnings and an expansion in production.
The flaring of tensions in Ukraine and Iraq in recent months has also provided a boost to both oil prices and energy shares.
Editing by Lisa Von Ahn