-- The chief strategist for Canada at BlackRock Inc., the world's largest money manager, doesn't see a single attractive sector in the local stock market because oil prices will stay low.
Shares will be cheap compared with U.S. equities only if crude climbs to the mid-to-high $50s or low $60s from about $49 now, but a supply glut makes that unlikely, Kurt Reiman said in an interview in Bloomberg's Toronto office Tuesday. Moreover, the S&P/TSX Composite Index is too dependent on banks exposed to an "overheated housing market" and earnings of volatile energy and materials companies, he said.
"The valuation discount is not sufficient," Mr. Reiman said. "There's virtually no representation in the market cap of healthcare and technology companies," which have been driving the global rally since the U.S. election, he added.
Financials account for 34 per cent of the S&P/TSX, while energy and materials together make up another 33 per cent. Healthcare represents just 0.5 percent and technology 2.9 per cent.
'There's Nothing'
When asked if there are any Canadian sectors he would invest in, Mr. Reiman said, "No, there's nothing."
"The Canadian equity market can still move modestly higher over the course of this year on decent earnings growth and the upside would be even better if oil prices rise, but that's a really big if," he said.
The S&P/TSX index has gained 3 percent this year, compared with 6.9 per cent for the S&P 500.
Not everyone shares this bearish view. Matt Barasch, equity strategist at RBC Capital Markets, on Tuesday listed seven reasons to buy Canadian equities, including "compelling relative valuation" and potential for strong full-year earnings growth.
First-quarter earnings are expected to soar 40 per cent from a year earlier, but that slips to 17 per cent if you strip out energy stocks. The benchmark index is trading at 17.2 times forward earnings compared with 18.5 times for the S&P 500.
Mr. Reiman sees opportunities in Europe, Japan and Asian emerging markets. BlackRock prefers stocks over bonds but is diversifying into gold and alternative assets such as real estate, private equity and infrastructure, he said.