September 29, 2011 / 5:18 PM / in 6 years

Canadian stocks seen making 9 percent loss in 2011

TORONTO (Reuters) - Canadian stocks are expected to rise modestly from current levels but end 2011 down from a year earlier as troubles in Europe, worries about U.S. growth and lower commodity prices weigh, a Reuters poll found.

<p>People walk by a Bay Street sign at the financial district in Toronto in this October 10, 2008 file photo. REUTERS/Mark Blinch</p>

The forecast for Canada’s main stock index also suggests only minor gains in early 2012 as global woes persist, continuing the trend of meager growth compared to the impressive double-digit returns of the last two years.

The Toronto Stock Exchange’s S&P/TSX composite index .GSPTSE, has fallen about 14 percent this year and at one point was more than 20 percent down from its high in March.

It is seen ending 2011 9.2 percent lower at 12,200, according to the median forecast of 24 analysts and fund managers in a poll taken over the past week.

That is well below the median end-2011 target of 13,775 in a June poll, and would mark a sharp slowdown compared to the 14 percent advance for the TSX in 2010, and nearly 31 percent gain in 2009.

“Global recession fears have intensified in the third quarter, as the U.S. recovery stumbles and the European crisis threatens growth in the region,” said Elvis Picardo, strategist and vice president of research at Global Securities in Vancouver.

“With the TSX skirting official bear market territory, we are cutting our end-2011 and mid-2012 forecasts by 1,000 points and 1,250 points respectively, based on our view that earnings estimates are still too high and will need to come down significantly.”

The common definition of a bear market is a pullback of 20 percent.

Global stocks plunged last week as policymakers on both sides of the Atlantic struggled to show they can solve the crises facing their economies.

The U.S. Federal Reserve’s announcement of Operation Twist failed to reassure markets that there is enough stimulus to stave off recession. European leaders remain locked in talks on avoiding debt defaults by members such as Greece.

Meanwhile, Canadian expectations for a rebound in growth in the third quarter after a negative second quarter are being tempered by the knowledge that the country cannot post outsized growth if its largest trading partner fails to recover.

Commodity prices, as measured by the Thomson Reuters/Jefferies CRB index .CRB, have also fallen more than 15 percent from the year-to-date high reached May 2. Energy and materials stocks, including gold and base metal miners, make up about half of the composite index’s value.


There is no shortage of other risks ahead, particularly in Europe, where fractious members of the euro zone are debating the bailout of members to avoid sovereign debt default -- an event that could restart a global banking crisis.

“We’ve priced in a Greek default but I don’t think we’ve priced in a banking crisis in Europe or a banking crisis in America all related to the European sovereign,” said John Stephenson, senior vice president at First Asset Investment Management in Toronto.

“I don’t think we’ve priced in an Italian default or Spanish default or a Portuguese or an Irish default, and all of these are highly probable events. If you get more than one then you are in a scenario where markets are going to shoot first and ask questions later.”

But not everyone was as grim.

“I think the market will rebound as the uncertainty related to Europe and how slow the global economy will be will be resolved over that period,” said Kate Warne, Canadian market strategist at Edward Jones in St. Louis, Missouri.

By next June, the poll predicts the TSX will edge up to 12,250, only 0.4 percent higher than the end-of-year target.

Estimates for the index heading into the end of the year ranged from 9,250 to 13,500 -- reflecting significant uncertainty and potential volatility ahead. The discrepancy was even more pronounced in the mid-2012 forecast, from 8,500 to 15,000.

Many of the analysts polled said recently punished energy and bank stocks will lead the way higher.

“The drivers would be mostly energy, lifecos and financials just given some of the oversold conditions developing on a week to week basis,” said Sid Mokhtari, director of institutional equity research at CIBC World Markets.

Additional reporting by Claire Sibonney and Trish Nixon in Toronto; Additional polling by Ruby Cherian and Shaloo Shrivastava; Editing by Jon Loades-Carter

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