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TSX to hit 15,000 by year-end: CIBC World Markets

Last Updated: Wednesday, May 2, 2007 | 4:26 PM ET

CBC News

CIBC World Markets is forecasting that takeover fever will help to drive the benchmark index of the TSX to 15,000 by year's end.

That's up 750 points from an estimate it made just two months ago.

S&P/TSX composite index three-month tradingS&P/TSX composite index three-month trading

The S&P/TSX composite index ended Wednesday's trading at 13,579, up 172 points on the day.

A year-end level of 15,000 would represent a total return for the year of 18.5 per cent and would mark the fifth consecutive year of double-digit growth for the index. 

CIBC World Markets said last year's record M & A activity in Canada looks to be continuing at a "robust pace" this year.

"Premiums continue to hold up, with acquirers recently paying nearly 20 per cent above the market price, on average, to land their targets," chief economist Jeff Rubin said in a statement.

"Such activity has already had an appreciable impact on boosting performance in such sectors as utilities, telecoms, gold and base metals."

Rubin noted the recent resurgence of the leveraged buyout — where takeovers are accomplished by using debt. While shareholders in the companies that have been targeted benefit from the healthy premiums being offered by the buyers, bondholders often suffer as the prospect of additional debt drives down bond prices.

As a result, CIBC World Markets has lowering its expected returns from the bond market. It's boosted its recommended equity weighting from 66 to 68 per cent. Its recommended bond weighting is now 32 per cent.

In its equity portfolio, CIBC World Markets is trimming its overweight position in financial stocks by two percentage points because of the high Canadian dollar and the crumbling U.S. housing market.

Its weighting in base metals is rising by one percentage point, as soaring metals prices lead to more consolidation. CIBC World Markets is also boosting its utilities weighting by a percentage point in anticipation of more leveraged buyouts in that sector.   

It remains overweight in energy stocks by 3.5 percentage points and sees oil prices heading back above $70 US a barrel later this year.

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