CIBC Deput Chief Economist Benjamin Tal says investors should expand their gaze to include high beta stocks, which are more correlated with the cyclical element of the market. The TSX Composite Index will end its recent history of lagging the United States and outperform the S&P 500 in 2014, says one expert.
Benjamin Tal, Deputy Chief Economist at CIBC was on BNN this morning to talk about the Toronto Stock Exchange, which has been facing headwinds on various fronts, most notably in the commodities sector. Tal says several factors that have placed downward pressure on Canada are set to reverse, if they haven’t already.
“2013 is a transition year between something bad and something better,” says Tal. The CIBC economist says China’s soft landing and the recovery in the U.S. economy will be good news for the TSX.
Tal says energy stock valuations are now extremely attractive and credit conditions and yield curve are improving for financials. He also points out that the TSX composite is cheap compared to the S&P 500. “We are not expensive by any stretch of the imagination. So that is a good starting point,” he says.
The CIBC economist says investors should adjust their strategy in the coming year, and spread their interest beyond recently popular dividend paying stocks. He says they should instead look at high beta stocks, which are more correlated with the cyclical element of the market, because the Canadian economy is more closely tied to the global economy than the U.S.’s is.
Tal says the Canadian economy can’t depend on the government or the consumer for a lift, but will instead be buoyed by the Canadian corporate sector.
“The domestic economy in Canada will not be doing great. We know that the consumer is exhausted,” he says. “The government is actually going to be a negative, not a positive in 2014, given their aim to balance the budget in 2015.”
But Tal says there is a surprise coming for those who think Canada’s economy will be weak due to these factors.
“Corporate Canada is extremely ready to start investing when they see the green light, and I think this green light will come in 2014. The surprise will be how strong this rebound in corporate spending will be,” he said, adding: “they have never been more ready than today.”