TORONTO (Reuters) - Canadian stocks are set to rise next year, as recovering Chinese growth is expected to boost natural resource companies and deadlocked U.S. budget talks should be resolved, a Reuters poll of analysts predicted.
The median forecast in poll of 30 market strategists taken in the past week is for the Toronto Stock Exchange’s benchmark S&P/TSX composite index .GSPTSE index to climb to 13,000 by the end of next year.
It is expected to rise to 12,600 by mid-2013, not far above the 12,353 at which it closed on Wednesday and well below the 13,225 mid-year forecast in a poll taken in September when major central banks were stepping up efforts to boost growth.
But markets stumbled as U.S. Republicans and Democrats failed to gain ground in budget talks aimed at averting a “fiscal cliff” of steep tax hikes and spending cuts set for the end of the year.
“We believe the United States will come to terms with their fiscal cliff and the markets will rally marginally on the solution,” said Arthur Salzer, chief executive of Northland Wealth Management.
“This should be positive for financial stocks and a slight negative for areas such as the gold miners.”
Estimates were in a wide range, from 11,225 to 15,000 for mid-2013, and from 10,550 to 14,000 for the end of next year.
Salzer and other analysts said they thought energy stocks were especially cheap and the sector could get a boost from further acquisitions, helping to lift the broader market.
The Conservative government approved two major foreign takeover bids for Canadian energy companies last week, but indicated that state-owned enterprises would have a tougher time doing similar deals in future.
“Canadian energy valuations are exceptionally low ... they’ve been treading in the water of where we were in 2009,” said Craig Fehr, Canadian market strategist at Edward Jones in St. Louis, Missouri.
Fehr said once investors were confident that global growth could exceed 3 percent, mostly on the back of a rebound in Chinese economic growth, those valuations should improve.
“As we start to see better global data, prospects for returns out of the oil sands will improve,” he said.
The energy and materials sectors have slipped more than 7 percent each so far this year, while consumer staples and discretionary and real estate shares have been the strongest performers.
Dividend payouts are expected to remain a mainstay feature of many portfolios.
“Modest economic growth and low interest rates will mean that dividend growth stocks will again outperform, though the resource groups will demonstrate better relative performance than in recent years,” said Bob Gorman, chief portfolio strategist at TD Waterhouse.
Some are more pessimistic, predicting Canada’s high consumer debt levels and the sharp slowdown of activity in its housing market could hurt the outlook for equities.
“I’m still worried that there’s going to be some sort of a housing decline in the early part of the year and into the second quarter,” said Sadiq Adatia, chief investment officer at Sun Life Global Investments. “If that starts to happen we’ll see consumer confidence get hurt.”
Ratings agency Moody’s has warned of possible ratings cuts for Canada’s biggest banks, in part because of record-high consumer debt levels similar to those seen in the United States before its 2008 housing crisis.
Evidence has been mounting in recent months that the red-hot Canadian housing market is cooling.
With additional reporting by Claire Sibonney and polling by Namrata Anchan and Ashrith Doddi Rao; Editing by Jeffrey Hodgson and Helen Massy-Beresford