Edmonton Journal

Not all analysts share BoC’s optimism

- By John Shmu el

It could be time to sell Canada if market watchers are correct that Bank of Canada Governor Stephen Poloz’s upbeat outlook is just a bit too rosy.

“Despite overt optimism from the government and the Bank of Canada, we struggle to see how things will get significan­tly better,” said Pierre Lapointe, head of global strategy for Pavilion Global Markets.

In testimony to Parliament on Tuesday, Poloz said he still expects a recovery by mid-year despite the damage done to the Canadian economy from the collapse in oil prices. He believes exports, spurred by a low Canadian loonie, supportive monetary policy and economic growth in the U.S., will compensate for lower oil prices.

But economists question whether export growth can really pick up the slack caused by oil’s decline. Economists at J.P. Morgan on Tuesday said data was not showing the hoped-for rebound in exports.

“Unfortunat­ely, the much anticipate­d rebalancin­g is not yet supported by the data and faces several challengin­g headwinds,” the economists said in a report.

Lapointe went even farther, saying that he believes Canada’s current economic weakness is much more structural, and will last for a lot longer than the bank is currently forecastin­g.

“The notion that the oil shock will work itself out in one quarter seems odd to us,” he said. “We see longlastin­g effects from the terms of trade shock, and we see many similariti­es between current Canadian patters and the underperfo­rmance of the 1990s.”

Lapointe is bearish on Canadian stocks and the loonie as a result, saying there is more value in “staying away” from Canada for investors than buying Canadian assets.

But not all economists are bearish on Canada. Stéfane Marion and Matthieu Arseneau at National Bank Financial said they still see plenty of upside for Canadian stocks this year.

They are currently forecastin­g that the S & P/TSX composite will end 2015 at 16,200, up from its current level of roughly 15,346.1. They note that very weak analyst expectatio­ns, especially in the energy sector, leave the door open for an earnings recovery and surprises.

“First, Q1 earnings expectatio­ns are extremely depressed — the analyst consensus sees earnings declines of 20 per cent from a year earlier for the composite index and 84 per cent for the energy sector,” they note.

Cheap fuel prices, U.S. economic growth and a weak loonie should help earnings.

“For the S & P/TSX ex Energy the view is less gloomy — earnings growth of 6.3 per cent, with seven of the 10 sectors expected to report net income up from a year earlier,” the economists said.

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