TORONTO, Sept. 10 /CNW/ - CIBC (CM: TSX; NYSE) - The world economy may be
slowing but should perform above levels that sparked earlier commodity
recessions, notes a new CIBC World Markets report.
    "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," notes Jeff Rubin,
CIBC World Markets chief economist and chief strategist, in his latest
Canadian Portfolio Strategy Outlook Report.
    "Our own forecast for 3.7 per cent global GDP growth this year and 3.9
per cent next still implies a stronger performance than the 2-2.5 per cent
increases that sparked the last two protracted commodity recessions in 1998
and 2001," says Mr. 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."
    But dimming global growth prospects and selling pressure on the markets
are significant enough that Mr. Rubin is taking a more cautious stance with
his model investment portfolio. He has lowered his year-end target for the TSX
composite index to 13,000 from 14,300, and is cutting his 2009 target to
14,000 from 15,250. "Our targets imply a slightly negative annual total return
from the TSX this year but a more typical return next year."
    Mr. Rubin remains "index-weight" on overall equity market exposure, but
is trimming his "overweight" position in energy stocks by 2.5 percentage
points. That move "acknowledges that oil prices are likely to lag our earlier
targets in the next year or two" in light of weaker global growth. "Most of
the recent decline in oil prices should be reversed over the next six months,
but we are reducing our 2009 target for crude to US$130 per barrel average
from US$150." This year's oil target has also been lowered to an average
US$115 per barrel this year from US$125.
    Mr. Rubin has also cut his target for natural gas to an average US$9/Mn
Btu this year and $10 in 2009 from US$11 and US$13 respectively. The new
target reflects an eight per cent increase in U.S. domestic production.
    The weighting cut in energy is being moved to financials, which brings
Mr. Rubin's portfolio to full market weight in that sector. "The global
financial system still faces considerable headwinds, but gradually some of the
worst fears are being overcome. 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. 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," says Mr. Rubin.
    The likelihood that inflation in the U.S. will be a greater problem than
generally believed will likely force the U.S. Federal Reserve to be more
hawkish than other central banks in the coming months, says Mr. Rubin. "That
creates appreciable risks for fixed income markets." As a result, the model
portfolio maintains two points "underweight" in bonds with an offsetting cash
"overweight" stance.
    A month ago Mr. Rubin shifted to a neutral stance on base metals, citing
risks to those stocks in a softer global economy. By contrast he remains
"overweight" potash and fertilizer products. "Food is an essential commodity
regardless of growth prospects. Valuations appear to discount a potash price
well below current levels in the wake of the recent correction," he says.
    Mr. Rubin adds that gold producers, along with bullion, should also
benefit from a partial unwinding of the greenback's recent overdone strength.
Consequently, he remains "overweight" in that sector as well.

    The complete CIBC World Markets report is available at:
http://research.cibcwm.com/economic_public/download/pssep08.pdf

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