Bearish sentiment seeps into Rubin’s view

One of Canada’s most notorious bulls is giving ground in the face of continued market uncertainty. Jeff Rubin, chief strategist for CIBC World Markets, has cut his outlook for the S&P/TSX Composite Index by more than 1,000 points.

Until today, Rubin had a 2008 target of 14,300 for the index, but has now scaled that back to 13,000. The forecast calls for about 850 points of growth, or 7%, based on Tuesday’s close. The year-end target for 2009 has also been cut, from 15,250 to 14,000.

“With Europe in recession and Japan and the U.S. economy in borderline status, world growth outlook is the weakest in years. But it is still nowhere near as weak as plunging resource stocks would suggest,” Rubin writes in his monthly Canadian Portfolio Strategy Outlook Report.

“Our targets imply a slightly negative annual total return from the TSX this year but a more typical return next year.”

He points out that the thirst for oil in Asia and the Middle East remains unquenched, with demand in those heavily subsidized markets outstripping supply. The forecast for the average price of oil has been cut all the same, from $150 per barrel in 2009, to $130.

Growth in the emerging markets is expected to continue, despite the weakness of the developed economies, and this should support positive overall global growth, albeit tempered.

“Our own forecast for 3.7% global GDP growth this year, and 3.9 per cent next, still implies a stronger performance than the 2-2.5% increases that sparked the last two protracted commodity recessions in 1998 and 2001,” says Rubin. “As was the case in the 2001 recession, China has hardly noticed the U.S. downturn, and we shouldn’t expect other emerging giants like Russia, India and Brazil to notice that much either.”

Rubin has trimmed his group’s Strategy Portfolio overweighting in energy by 2.5 percentage points, to 35.3% of the equity portfolio, still five percentage points above the index. The proceeds are being reallocated to financials, with 2% going to banks, and 0.5% going to insurance stocks.

“The [U.S.] Treasury’s confidence-boosting steps to shore up Freddie and Fannie sooner rather than later will help Canadian players with U.S. mortgage assets,” he writes. “Third-quarter results from Canadian banks were also generally encouraging enough to allow them to make subsequent headway in raising much needed long-term debt and preferred share capital.”

The portfolio’s fixed income allocation has been trimmed by three percentage points, to 35%, with the proceeds being added to the cash holding, which now stands at 12%.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com

(09/10/08)