Canada's TSX set for slow upward grind to eclipse April record high: Reuters poll

By Fergal Smith

TORONTO (Reuters) - Toronto's stock market will nudge higher over the rest of the year, but investors will need to wait until the second half of 2020 for the index to better April's record peak as global trade tensions weigh on company earnings, a Reuters poll found.

The median forecast from a survey of 26 portfolio managers and strategists polled was for the Toronto market to rise 1.3% from last week's close to 16,445 by December.

"It looks like we have moved into a common seasonal soft patch that could run through to October depending on how long it takes to get U.S.-China trade talks and Brexit sorted out," said Colin Cieszynski, chief market strategist at SIA Wealth Management. "The longer uncertainty drags, the more of a negative impact tensions could have on stocks."

No further gains are seen in the first half of next year, but the index is then expected to move above the April 2019 high of 16,673 to reach 17,200 by the end of 2020.

A protracted trade war between the United States and China could hurt the Toronto market because the index has a heavy weighting in energy and mining shares that are sensitive to prospects for global growth. The price of oil, one of Canada's major exports, has fallen well over 10% since April.

"Earnings expectations still remain too high, and estimate revisions have started to move lower in the past several weeks, which should put further pressure on index returns," said Mike Archibald, associate portfolio manager at AGF Investments.

Even after pulling back since April, the TSX has climbed more than 13% since the start of the year, outpacing the S&P 500. It has included a 40% gain for the technology group, led by a near-doubling in the share price of commerce platform company Shopify Inc. The health care sector, which includes cannabis producers, has done even better, up 43%.

But investors say the pace of gains for the TSX so far this year would likely not continue.

"We are defensively positioned favoring sectors with higher visible earnings and lower volatility such as utilities," said Manash Goswami, a portfolio manager at First Asset ETFs. "The biggest risk to the markets in my opinion is a combination of a slowdown in global growth and corporate profits."

Chances of a recession in Canada, where household debt loads are at record levels, in 12 months were 20%, rising to 27.5% in the next two years, a Reuters poll taken in April found.

The Bank of Canada lowered in April its 2019 growth forecast for Canada to 1.2% and abandoned language pointing to further interest rate hikes. Economists see a 40% chance the central bank will cut rates by the end of 2020, a Reuters poll showed last Friday.

Meanwhile, money markets expect a rate cut from the Federal Reserve as early as December. Should central banks ease that could help stocks..

"Central banks will support markets with rate cuts," AGF's Archibald said. "Markets will likely bottom in early 2020 as earnings expectations completely reset and focus turns to year-end elections."

The United States will hold the next presidential election in November 2020.

(To read other stories from the Reuters global stock markets poll)

(Reporting by Fergal Smith, additional polling by Mumal Rathore, Indradip Ghosh and Sumanto Mondal; Editing by Nick Zieminski)