By Fergal Smith
TORONTO, November 21 (Reuters) – Canada’s main stock index will rise less than previously thought over the next year as a slowdown in the global economy weighs on the outlook for corporate earnings, with investors favoring value over growth stocks, a Reuters poll found.
The median prediction of 21 portfolio managers and strategists in the Nov. 10-20 poll was for the S&P/TSX Composite Index. .GSPTSE to advance 3.7% to 21,000 by the end of 2024, compared with 21,800 expected in a previous poll in August.
It was then expected to climb to 22,000 by mid-2025, stopping just short of the record closing high set in March 2022 of 22,087.22.
“Our forecast includes a significant slowdown in the US and world economies in the coming months as well as a recession in Canada in the first half of 2024,” said Lorenzo Tessier-Moreau, senior economist at Desjardins.
“In this context, investment focus should change from long-term interest rates to the direct impact of the economic outlook on income.”
Canada’s economy is flirting with recession and the decline could worsen now that a period of rapid growth in the United States is expected to end.
The International Monetary Fund said last month global growth remained low and uneven, and forecast to slow to 2.9% in 2024 from an expected 3.0% this year.
The Toronto market has advanced 4.4% since the beginning of the year, held back by a lower weighting in technology stocks than some other major indexes, such as the S&P 500, and by declines in banking and mining stocks.
So-called bond proxies, such as utilities and telecom stocks, were also a drag, hit by the sharp rise in bond yields.
“We see an opportunity for laggards to catch up as the headwinds of rising yields diminish. These include bond proxies initially, and small caps along with value-style investments later,” said Angelo Kourkafas, investment strategist at Edward Jones.
Money markets are betting that the Bank of Canada’s tightening campaign is ending and the central bank will switch to cutting interest rates as soon as April. 0#BOCwatch
The Canadian 10-year yield has fallen more than 60 basis points from the 16-year peak it posted in October at 4.29%.
Value stocks, many of which are in the heavily weighted energy and financial sectors, tend to trade at more attractive valuations than high-flying growth stocks.
Six out of seven investors who answered a separate question said value stocks will outperform growth over the next six months.
“We continue to favor value stocks over growth stocks, particularly quality at a reasonable price and high dividend payers,” said Ben Jang, portfolio manager at Nicola Wealth.
(Reporting by Fergal Smith; Additional polling by Pranoy Krishna, Rahul Trivedi and Sarupya Ganguly in Bengaluru; Editing by Sharon Singleton)
((fergal.smith@thomsonreuters.com; +1 647 480 7446))
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