By Fergal Smith
TORONTO (Reuters) – Canada’s main stock index will continue its rally this year and hit a record high in 2024 as the Bank of Canada becomes less hawkish and China’s reopening boosts demand for commodities, according to a Reuters poll, but the rebound will be weaker than previously thought.
The median forecast from 21 portfolio managers and strategists in the Reuters poll of February 10-21 was that the S&P/TSX Composite Index will rise 6.2% to 21,500 by the end of 2023, compared to 22,000 in the previous one survey were expected in November.
It was then expected to rise to 22,500 by mid-2024, beating last March’s record high of 22,087.22, but less than the November forecast of 23,000.
The TSX index has given up some of its gains over the past few days but is still up 4.5% since the start of 2023.
“Equity markets have shown remarkable resilience and scaled a wall of concern toward higher common stock prices,” said Brandon Michael, senior investment analyst at ABC Funds.
“Key drivers for higher stock prices include slowing inflation, central banks easing their tightening efforts and increasing investor risk appetite.”
The Bank of Canada was one of the first major central banks last month to signal a pause in its tightening campaign, saying it will take time to assess how well rate hikes are helping to bring down inflation.
Canada’s annual inflation rate slowed to 5.9% in January after peaking at 8.1% in June, data on Tuesday showed.
“My expectations for this year are based on the expectation that a reopening in China will lead to a recovery in material demand and boost commodity prices and resource inventories,” said Colin Cieszynski, chief market strategist at SIA Wealth Management.
The energy and materials sectors together account for about 30% of the Toronto market’s weighting. Oil prices are up 9% since December, when China abandoned its zero-COVID policy and reopened its economy.
Still, eight out of 12 analysts who answered an additional question said the likelihood of a correction in the coming three months is high or very high.
“We expect a correction in the near term as the year-to-date rally in global equities has decoupled from a realization, better reflected in bond markets, that (interest) rates need to stay higher for longer,” said Chhad Aul, Chief Investment Officer and Head of Multi-Asset Solutions at SLGI Asset Management Inc.
Canada’s 5-year yield has risen about 80 basis points to 3.59% since mid-January, following the rally in US Treasury yields.
(More stories from the Reuters Q1 global stock market survey package 🙂
(Reporting by Fergal Smith; additional polls by Aditi Verma, Milounee Purohit and Mumal Rathore; editing by Kim Coghill)
