TORONTO, Nov. 8 /CNW/ - CIBC (CM: TSX; NYSE) - Troubles emanating from
the US housing market will prove no match for the global forces driving the
TSX's recovery, notes a new CIBC World Markets report.
    October's "rebound in the TSX was aided by record oil prices and a
turnaround in uranium stocks" reflecting global growth that is "as firm as
ever", says Jeff Rubin, Chief Strategist and Chief Economist at CIBC World
Markets in his monthly Canadian Portfolio Strategy Outlook report.
    "We expect to see continued market leadership from the energy and
materials sectors which together comprise almost half of the TSX's total
market capitalization," he says. This should "more than offset the drag from
the current spillover effects from the U.S. subprime mortgage market on
Canadian bank stocks."
    As a result, Mr. Rubin is reiterating his call for the TSX to reach
16,200 by December 2008, and is sticking to a 12 percentage-point overweight
position in equities.
    "The TSX is much more a play on the global economy" than US economic
growth, says Rubin, pointing to its weighting in energy and materials that
have tripled since the start of the decade to 45% of market capitalization.
That compositional change in market cap, driven in part by soaring resource
prices, "couldn't come at a more propitious time, as the US economy has gone
on recession watch while the global economy has seldom been stronger," says
Rubin. "Outside of the US economy, growth is soaring. Recent estimates from
the IMF now point to near-5% growth in real global GDP next year."
    Mr. Rubin has raised his short-term forecast on the loonie, which he
expects will reach a record high of US$1.11 by year end, as the stimulus from
planned tax cuts and strong resource prices preclude a loonie-cooling interest
rate cut. However, he expects the Canadian dollar will settle back to a 5-cent
premium over the greenback in 2008.
    The prospect of an even stronger loonie has prompted Mr. Rubin to cut
half a percentage point in his portfolio's underweight position in industrial
stocks, which are highly exposed to the currency.
    Mr. Rubin is allocating a half percentage point to his portfolio's
overweight position in gold stocks. He's also adjusting his gold price target,
which he expects will reach US$900 in late 2008. The move is predicated on an
expected rate cut by the Federal Reserve Board that will further weaken the
U.S. dollar, and "exploding wealth" in the Middle East and India where "there
is strong predilection for owning (gold)."
    Mr. Rubin adds that "with global (gold) M&A volumes running at quintuple
the level three years ago, when prices began their recent strong rally, an
appetite for producing properties should help to make gold mining shares a
good investment."
    Within the energy sector, Mr. Rubin is maintaining an overweight position
as Alberta's new royalty framework is less onerous than feared and "modest by
international standards."
    "Most importantly to our overweight position, we expect that a strong
global M&A market for oil and gas assets will soon begin to make a major
impact on Canadian oil sands valuations. The takeover premium in global oil
and gas deals has averaged nearly 30% in the last twelve months, nearly double
the premium in the supposedly hot internet/computer sector. As Canadian oil
sands continue to grow in global strategic importance, investors can expect
increased takeover activity in the sector at current, if not greater, premium
than already seen."
    Within the financial sector, Mr. Rubin is moving to a
one-percentage-point underweight in bank stocks, and adding that weight to
non-bank financials which represent a better bet against further write downs
associated with the still-imploding US subprime mortgage market. "We are
already overweight non-bank financials in light of insurers' increasing
participation in emerging markets overseas," adds Mr. Rubin.
    Mr. Rubin expects that the two-month rally for bonds will continue in the
near term, but is standing pat on a nine-percentage-point underweighting.
"While we would normally add weight to our bond position with a further Fed
cut still ahead of us, we have chosen not to" as bond markets will be
contending with "some of the hottest U.S. inflation numbers in years thanks to
soaring energy and food prices". As a result, he expects that U.S. headline
inflation will reach close to four percent over the next 12 months.

    The complete CIBC World Markets report is available at:
    http://research.cibcwm.com/economic_public/download/psnov07.pdf

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