Recession fears may catch up to Canada companies

Sun Oct 16, 2011 10:37am EDT
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By Claire Sibonney

TORONTO (Reuters) - With fears of a global recession in the air, investors are getting anxious about what's ahead for Canada's biggest companies, many of which are tethered to the ups and downs of the world economy.

That means the outlooks offered by the nation's CEOs during the coming reporting season will assume even more importance that usual as investors are already counting on another round of robust results for the recently completed quarter.

But with expectations running so high, negative surprises are likely to sting, sending a clear signal that earnings growth will slow during the rest of the year and in 2012, say equity strategists and money managers.

"I don't think the big story right now is going to be Q3 earnings as much as a fixation on these big macro issues starting with Europe," said Garey Aitken, chief investment officer of Bissett Investment Management in Calgary, referring to the fallout from the euro zone's festering debt crisis.

"How that evolves will be much more of a significant driver of short-term equity returns in Canada."

Canada's third-quarter earnings season kicks off next week, on the heels of some distressing signals from the United States with profit misses and cautious words from Alcoa (AA.N: Quote), an industrial bellwether, and JPMorgan Chase & Co (JPM.N: Quote), a global financial powerhouse.

Among the blue-chip resource companies on the Toronto Stock Exchange's S&P/TSX 60 index that will report results over the next couple weeks are EnCana Corp (ECA.TO: Quote), Teck Resources TCKb.TO, Potash Corp (POT.TO: Quote) and Barrick Gold (ABX.TO: Quote).

Companies whose shares comprise the blue-chip TSX 60 index are expected to report average earnings growth of 28.0 percent from a year earlier, according to Thomson Reuters StarMine SmartEstimates. Fourth-quarter estimates call for 12.8 percent growth.   Continued...