CIBC’s Rubin unfazed by recent sell-off

Last week’s falling global markets were little more than a blip, and investors would be wise to pay closer attention to the underlying economic story, according to one of Bay Street’s notorious bulls.

“Global industrial production looks like it’s heading for another banner year of growth,” Jeff Rubin, chief strategist and chief economist at CIBC World Markets. “That’s bullish for a stock market like the TSX, which is more levered to global growth than domestic growth.”

Rubin has been upbeat on the future of industrial commodities and energy since the market started its recovery from the technology crash. So far, the market has proven him right, as rapid growth in China has driven the prices for base metals and oil skyward.

In the latest Canadian Portfolio Strategy Outlook from CIBC World Markets, he points to strong economic indicators not only in Asia, but much of Europe as well.

Despite hitting this recent soft spot, Rubin and his team predict the S&P/TSX Composite Index will continue to rise, hitting 14,250 by year end, up nearly 11% from its Monday opening value of 12,863.

“Global stock market contagion from the recent sell-off in the Chinese market opens up an attractive buying opportunity for those wishing to add to TSX equity holdings,” he says.

The report does sound a cautious note, however, as the Canadian economy remains closely tied to that of the U.S.

“While there is little in our view to warrant fears of a global slowdown, there are legitimate reasons to remain cautious about the U.S. economy and in particular its problematic housing market,” Rubin says. “An ongoing drop in home prices is a poignant reminder to markets that we are still a long way from working out the adjustment in US real estate.”

The report predicts the Federal Reserve will be forced to cut interest rates in the second half of 2007, in an effort to stave off a ripple effect from the crumbling housing market. Rubin expects the Bank of Canada would follow suit to suppress the Canadian dollar.

The CIBC World Markets target portfolio maintains a 10% overweight in equities, at 66%, with 34% of the portfolio allocated to bonds and no allocation to cash. The equity portfolio continues to favour materials and energy, but also maintains its heaviest weighting in the financial services sector.

Within the financials, Rubin’s team has tinkered slightly, shifting 1% of the total portfolio out of banks and into REITs. That shift is expected to pay off as interest rates fall in the second half, making it cheaper for real estate trusts to borrow capital, while making their distributions ever more attractive for yield-hungry investors.

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