TORONTO, Dec. 19 /CNW/ - CIBC (CM: TSX; NYSE) - Despite a steady stream
of bad economic and financial news, 2009 could prove to be a happier new year
for investors, notes a new CIBC World Markets report.
    "A winter of our discontent is in store, and spring may not yet see any
improvement," says Avery Shenfeld, senior economist in a note to clients
today. However, financial markets "are starting to look ahead to a better, if
not yet glorious, summer."
    Mr. Shenfeld's optimism is based in part on the S&P 500 index which is
"essentially no worse off than it was back in mid-October." He also points to
a cooling U.S. dollar, and the energy-laden TSX, which has managed a sideways
trend despite cheaper oil prices. "The North American equity market has become
an oasis of relative calm in recent weeks," he notes.
    Stock valuations also support a stronger picture for the back half of
2009, according to senior economists Peter Buchanan and Meny Grauman in the
same report. "While the near-term picture for the economy and profits isn't
pretty, our analysis of underlying fundamentals suggests stock valuations have
already discounted a good deal of bad news.
    "Valuations point to (the) upside for stocks over the medium-term. That's
particularly likely if the world economy begins to emerge from the doldrums
beyond mid 2009, rekindling resource demand, and as actions by the Bank of
Canada and the (U.S. Federal Reserve) help ease stresses closer to home."
    But the economists caution that any equity rebound is likely to be
restrained by "ugly" economic news that is eroding near-term profit outlook.
Accordingly, CIBC World Markets expects 2009 earnings among TSX composite
firms to decline by 15% on the basis of continuing difficult economic
conditions and resource prices.
    Another drag on confidence and the economy in early 2009 will be the
reluctance of consumers on both sides of the border to spend money, despite
the best efforts of government to make that happen. Instead, consumers will be
putting cash away to cover their losses in home valuations and investment
portfolios.
    "If fiscal policy is going to boost overall spending, the government will
have to do the first round of buying itself," say Mr. Shenfeld and senior
economist Benjamin Tal. "Efforts to line consumers' pockets through temporary
tax relief could simply see the funds diverted to savings, as we saw with much
of the rebate given to Americans in the second quarter of 2008."
    In Canada, where equities fell sharply in Q4, and house prices are in
retreat, savings rates will push higher in the months ahead, the economists
say. But the overall drag on retail activity should be cushioned somewhat as
Canadians have not borrowed against home equity as aggressively as Americans
have, and therefore the decline in asset values will represent a smaller hit
to their net worth.
    Yet with North American consumers reluctant to borrow and spend, East
Asian consumers will likely be carrying the ball in world growth, say Mr.
Shenfeld and Mr. Tal.
    "Currency appreciations should improve the global buying power of Chinese
and Japanese wages, while the high existing savings rate gives monetary easing
a better chance of sparking Chinese consumer demand," says Mr. Shenfeld. "That
suggests that commodities demand to feed into Chinese manufacturing for its
domestic and regional market could rebound before we see American consumers
return to their former vigour."

    The complete CIBC World Markets report is available at:
    http://research.cibcwm.com/economic_public/download/sdec08.pdf

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