Canada's TSX seen topping 20,000 on higher commodity prices: Reuters poll

By Fergal Smith

TORONTO (Reuters) - Canada's main stock index is forecast to climb above the 20,000 threshold for the first time by the end of this year as a recovery in the global economy from the coronavirus crisis boosts the outlook for resource stocks, a Reuters poll found.

The median prediction of 26 portfolio managers and strategists was for the S&P/TSX Composite index to rise to 20,050 by the end of 2021, up 2.7% from May 21's close and above February's forecast of 19,650. It was then expected to advance to 21,750 by the end of 2022.

"The cyclical upturn in the global economy will support commodity prices and translate into a strong earnings outlook for the TSX," said Angelo Kourkafas, investment strategy analyst at Edward Jones.

In April, the IMF projected the global economy would expand 6% this year, helped by the rollout of COVID-19 vaccines.

"The reopening is still ahead, further employment gains are expected as the labor market slack is gradually eliminated, and the outlook for personal consumption is strong," Kourkafas said.

The TSX has climbed 12% since the start of 2021, outpacing Wall Street. On Friday, it touched an intraday record high of 19,614.78.

Materials and energy shares account for 25% of the Toronto market's capitalization, compared with 5% for the S&P 500.

The heavier weighting in resource shares could help the TSX outperform U.S. markets over the next year, said Steve Palmer, chief investment officer at AlphaNorth Asset Management.

"Many resource commodities are in strong uptrends," Palmer said.

Copper prices climbed this month to record high levels, while the price of oil has nearly doubled since November to $64 a barrel.

Most investors that responded to some additional questions expected corporate earnings to rise over the rest of the year. Still, a slight majority said a market correction of more than 10% over the coming three months was likely or very likely.

"The pricing of the global economic recovery has been front-loaded," said Dominique Lapointe, a senior economist at Laurentian Bank Securities.

The withdrawal of fiscal stimulus by China and tapering of global quantitative easing has the potential to temporarily derail the rally this year in equities, Lapointe said.

Last month, the Bank of Canada became the first major central bank to cut back on pandemic-era money-printing stimulus programs. Some investors expect the Federal Reserve to signal a taper in the coming months if inflation heats up.

But the makeup of the Toronto market could offer some protection to investors.

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"The inflationary fears that are adding to volatility in global markets would not hurt the TSX as much as it would other less cyclical global stock markets," said Matt Skipp, president of SW8 Asset Management.

(Other stories from the Reuters Q2 global stock markets poll package:)