June 29, 2015 / 2:24 PM / in 2 years

Modest rise for Canadian stocks seen before 2016 rebound: Reuters poll

A sign board displaying Toronto Stock Exchange (TSX) stock information is seen in Toronto June 23, 2014. REUTERS/Mark Blinch

TORONTO (Reuters) - Canadian stocks are likely to edge higher in the second half of the year before picking up further in early 2016, as the country’s influential energy industry struggles to deal with stubbornly low oil prices, a Reuters poll showed.

The survey was conducted last week, when Greece and its international creditors took deliberations to the eleventh hour, yielding no deal and the likely prospect of a technical default on Tuesday, followed by a referendum on Sunday.

The Toronto Stock Exchange’s S&P/TSX composite index .GSPTSE is expected to reach 15,200 by the end of 2015, the poll showed. Sentiment for year-end was little changed from a March poll.

The median forecast of 23 strategists was for the TSX to rise to 15,863 by the middle of next year, which would represent a more than 7 percent gain and a record high. The index closed at 14,808.09 on Friday.

But variance in opinion was wide - a 3,500 point gap between the most optimistic and pessimistic outlooks, with participants split on whether the global economy will bounce or drag in 2016.

“I think there is a chance that the global economy will stumble in 2016 because a few Fed rate hikes and a rising U.S. dollar will hit the emerging markets hard, causing them to slow even more, slowing the world economy and pushing commodity prices and equity prices lower,” said John Johnston, chief strategist at Davis-Rea.

Canada has lagged most global equity indexes so far this year, up just 2 percent after a late-2014 slide that coincided with crude’s troubles. Oil and gas companies, one fifth of the TSX’s weight, are down almost 3 percent.

Johnson said U.S. oil will likely sell at between $45 and $55 a barrel a year from now. Most respondents said it would trade around the current $60 level, where it has held since early May.

“In this environment, we find it difficult to get too excited about domestic equities and deem 15,000 as ‘fair value’,” said Shailesh Kshatriya, director of Canadian strategies at Russell Investments.

He said household spending could be constrained as job growth lags, hurting consumer spending, and that a lower Canadian dollar and improving U.S. economy won’t be enough to cancel out the negatives.

Those expressing more optimism are putting faith in the cheaper currency and U.S. recovery as ingredients that would help bolster growth outside of the energy industry.

“Over the next year, the lower loonie will help the Canadian economy to rebalance, diversifying away from a reliance on energy and growing exports of manufactured goods and other products,” said Colin Cieszynski, chief market strategist at CMC Markets.

Reporting by Alastair Sharp; editing by John Stonestreet

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