Looking past the short-term economic effects of the Fort McMurray wildfires, on top of the continuing carnage in the oil patch from the energy correction, Canadian stocks look poised to extend this year's winning streak, according to Credit Suisse.
Year to date, Canadian stocks are close to the top of the rankings among developed markets, as the S&P/TSX composite index has risen by 9.4 per cent over the last five months.
"The combination of underlying fundamentals across multiple sectors, prospective [Canadian dollar] movements, index dynamics along with stock specifics, look to create an environment for the Canadian market to deliver some degree of outperformance," Credit Suisse said in a report.
Canadian equity returns this year have closely tracked the price of oil, which, as measured by West Texas Intermediate, rose from a 13-year low of around $26 (U.S.) in TK to about $48.50 on Friday.
Energy fundamentals continue to improve, with global demand for oil continuing to rise and supply trending downward, as U.S. production begins to decline materially, having lagged a sharp decline in the U.S. rig count in response to the crash in oil prices.
Globally, the oil market is on track for a long-awaited rebalancing at some point in the middle of this year, Credit Suisse said.
"As a result of that rebalancing combined with a number of seasonal factors for specific commodities, gold and copper in particular, we believe the Canadian market with a roughly 50 per cent commodity exposed index weight faces positive momentum."
Top picks in the energy sector include Canadian Natural Resources Ltd., Seven Generations Energy Ltd., and TransCanada Corp. TransCanada is also one of just four Canadian names to make the Credit Suisse global focus list, which also includes Agnico-Eagle Mines Ltd., Loblaw Companies Ltd., and Royal Bank of Canada.