Canadian stocks could be poised to shine in 2014, playing catch-up to stock markets elsewhere in the world that enjoyed strong gains in 2013, according to a CIBC World Markets report published Tuesday.
"There are reasons to believe that for investors, if not for the economy overall, 2014 could be Canada’s year to shine," the bank's chief economist Avery Shenfeld said in the report.
Canada's benchmark stock index lagged its U.S. counterparts in a banner year south of the border last year. Although it made modest gains for the year, the TSX's advance paled in comparison to gains of better than 20 per cent on New York's S&P 500 and Japan's Nikkei.
'By year-end, the loonie should be no worse than current levels.' - CIBC on the Canadian dollar
In each of the last six years that the global economy has expanded by four per cent, the TSX has outperformed the S&P. The bank thinks the global economy is poised to grow by at least that much this year, so the TSX could be poised to continue that streak.
The bank is calling for earnings growth among the S&P/TSX composite index companies to be about 13 per cent in 2014, compared with 7.5 per cent growth for S&P 500 listings in the United States.
CIBC's prediction for global growth is about a half a percentage point higher than what the International Monetary Fund is forecasting.
Although it makes it vulnerable during times of contraction, the TSX's well-documented reliance on the resource sector gives the stock index the leverage to outperform others when demand for commodities is strong as the global economy expands.
"To this point, sluggish activity has held back demand, in a period in which supply was expanding in such areas as natural gas, oil and base metals," Shenfeld said.
"Little wonder, then, that the resource sector has been largely responsible for a disappointing earnings recovery of late, offsetting steady gains elsewhere in the index."
The lower loonie, however, could be a drag on growth everywhere but exports. Shenfeld expects the Canadian dollar will fall below 90 U.S. cents by next summer, but bounce back to current or higher levels by the end of 2014 if the Bank of Canada hints interest rate hikes will rise 2015.
"By year-end, the loonie should be no worse than current levels," Shenfeld said.