February 1, 2009 / 3:31 PM / in 9 years

RPT-BAY STREET-A little bit of hope may be all it takes

(Repeats Friday column)

By Frank Pingue

TORONTO, Feb 1 (Reuters) - Corporate Canada will likely deliver a wave of dismal earnings reports in coming weeks, but market pros say that could open the door to a stock rally as investors have grown numb to bad news and are ready to pounce on any morsel of optimism.

In an environment where global economies are shedding jobs at an alarming rate, central banks are slashing lending rates and governments are pumping out multibillion-dollar bailout plans, it looks like weak quarterly reports might not be spanked as hard as they once were.

That’s welcome news for investors still stinging from the C$816 billion ($663 billion) that the Toronto Stock Exchange lost last year when the market went into a tailspin.

“We may be close to that point where, indeed, the news is still going to be bad. But if it’s not as bad, we can take some solace in that regard,” said Patricia Croft, chief economist at RBC Global Asset Management.

“An awful lot of bad news is already priced in, so at some point, even when bad news is not as bad as expected, stocks could have a bounce.”

Overall earnings reports from companies listed on Toronto’s blue-chip S&P/TSX 60 index .TSE60, which includes shares of bank, energy and gold-mining companies, are expected to tumble nearly 24 percent in the quarter, according to data compiled by Thomson Reuters.

With so many of the world’s economies stuck in a recession and a seemingly never-ending crisis in the financial industry, it really shouldn’t come as any surprise that companies are very likely to post either lower profits or steeper losses.

It’s that precise frame of mind that will likely keep the blue-chip index and the Toronto Stock Exchange’s broader S&P/TSX composite index .GSPTSE from revisiting multi-year lows hit in November.

“In terms of surprises, most people are not surprised if there is more bad news to come. People are surprised if there is good news and clearly the market is not discounting any good news,” said Irwin Michael, portfolio manager at ABC Funds.

“Naturally, everything is colored right now by the weak economy and obviously the turmoil in financial markets, but on balance there are certain companies that are coming through with decent earnings.”

Toronto’s main index ended the week down 0.8 percent, a move that was largely influenced by commodity prices, while the TSX 60 index .TSE60 ended the week 0.9 percent lower.

Key companies due to report earnings this coming week are energy players TransCanada Corp (TRP.TO) and Husky Energy (HSE.TO), but the pace will pick up in the following two weeks when other big-name energy companies, plus banks and insurers unveil their results.

LIMITED VISIBILITY

Some positive surprises could come from companies that rely heavily on exports as the 12.6 percent drop in the Canadian currency in the fourth quarter of 2008 made their goods that much more attractive to foreign customers.

That leaves auto parts makers like Magna International MGa.TO and lumber firms like West Fraser Timber (WFT.TO), to name a few, to maybe deliver upbeat surprises.

One sure area that could disappoint is the likelihood that companies won’t offer much, if anything in the way of an outlook for the remainder of the year, given the limited visibility in terms of where the economy is headed.

According to the Bank of Canada, the domestic economy will emerge from its recession later this year, and on a stronger footing than most other major economies.

But for Canadian companies that rely heavily on exports, improved conditions in other countries are just as important to their performance.

And not everyone agrees that the domestic economy will bounce back as quickly as some forecasts suggest.

“Most people feel that this is a two-quarter thing and that everything will be fine in the second half of 2009 and the world will be a better place,” said Paul Harris, portfolio manager at Avenue Investment Management.

“I think that’s hard to believe and I think analysts are way off. Same thing with economists.”

$1=$1.23 Canadian Editing by Rob Wilson

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