The Canadian equities market will likely shine in 2014, playing catch-up after lagging strong growth recorded last year in other markets, according to a CIBC World Markets report published Tuesday.
"After being trounced by New York (and Europe and Japan for that matter) in 2013, Toronto stocks entered the year with less stretched valuations, and greater potential for earnings gains that will pay off in outperformance in the year ahead," CIBC says.
The bank is calling for earnings growth among the S&P/TSX composite index companies to be about 13 per cent in 2014, compared with 7.5 per cent growth for S&P 500 listings in the United States.
Economists at the bank are calling for global economic growth to run at about four per cent, about a half-point above current consensus or International Monetary Fund expectations.
They also say that, historically, years in which global growth ran at four per cent or better were big winners for Toronto Stock Exchange, producing median returns well above the S&P 500.
CIBC World Markets chief economist Avery Shenfeld says the TSX benchmark index is heavily weighted to commodity-sensitive resource stocks, providing the Toronto market with leverage for growth.
"To this point, sluggish activity has held back demand, in a period in which supply was expanding in such areas as natural gas, oil and base metals," Shenfeld said.
"Little wonder, then, that the resource sector has been largely responsible for a disappointing earnings recovery of late, offsetting steady gains elsewhere in the index."
However, Shenfeld warns that some of the advantage from revived demand for commodities could be eroded by a further slide in the Canadian dollar in the near term.
Shenfeld expects the Canadian dollar will fall below 90 U.S. cents by next summer, but bounce back to current or higher levels by the end of 2014 if the Bank of Canada hints interest rate hikes will rise 2015.