TORONTO, Feb. 5 /CNW/ - CIBC (CM: TSX; NYSE) - Aggressive actions by many
OECD governments to cut greenhouse gas (GHG) emissions has resulted in the
first decline in crude oil consumption across those nations in more than 20
years, finds CIBC World Markets latest Canadian Portfolio Strategy Outlook
report.
    "Governments are waging a war on carbon," says Jeff Rubin, Chief
Strategist and Chief Economist at CIBC World Markets. "The decline in crude
consumption in the OECD last year seems further evidence of policy-mandated
demand-destruction aimed at reducing oil consumption in an effort to abate GHG
emissions."
    Mr. Rubin cites the mandating of greater ethanol content in gasoline and
the raising of minimum fuel mileage standards to address public concerns about
global warming as key policy initiatives that have resulted in a reduction in
consumption. He expects the next step in Canada and the United States will be
regulations of GHG emissions along the lines of what was recently introduced
in California. This would see provinces and other states implement a carbon
dioxide emissions cap while at the same time establishing an emissions trading
system that allows larger polluters to buy emissions credits from other firms
whose emissions are less than what is allowed under the cap.
    The report states that the cap and trade system would most adversely
impact utilities and oil sand producers. As a result of this and faltering
demand growth for crude oil in OECD countries, CIBC World Markets is pruning
back its overweight in energy stocks from 4.5 percentage points to 3
percentage points. However, the firm still expects that oil sands
opportunities will continue to be aggressively pursued by global energy
giants.
    "We are realigning our equity portfolio toward a more balanced sectoral
weighting in keeping with the recent breadth of market gains," notes Mr.
Rubin. "Investor disappointment at fading near-term prospects for rate cuts
has been more than offset by growing confidence in the North American
economy."
    That growing confidence drove the TSX to a new record level in January en
route to CIBC World Markets projected year-end mark of 14,250.
    CIBC World Markets remains fundamentally bullish on stocks, maintaining a
10-percentage-point overweight at the expense of both cash and bonds. Its
weighting cut in energy, and a half-point cut in financials on the basis of a
now-delayed timetable for rate cuts, opened up room to reduce underweights in
consumer staples, consumer discretionaries and infotech stocks.
    CIBC World Markets also remains overweight in gold stocks and the rest of
the materials group. It sees a still-strong global economy supporting base
metal prices and central bank diversification out of greenbacks creating
upside for a US$700 per ounce gold price by year-end.
    Within the rest of the materials group, CIBC World Markets also favours
the agricultural fertilizer group, where valuations have soared as increased
government support for ethanol production has bolstered corn acreage and
forecasts of future fertilizer demand.
    The complete CIBC World Markets report is available at:
http://research.cibcwm.com/economic_public/download/psfeb07.pdf.

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