Canadian equities will trudge higher in 2016 before accelerating their gains next year, a Reuters poll showed, but investors fret over the resilience of an oil price rebound and the economy in the United States, Canada's main export market, a Reuters poll showed. By mid-2017, the Toronto Stock Exchange's S&P/TSX composite index is seen rising nearly 7.5 percent from Thursday's close, but even with that progress it will not win back all it has lost since the price of oil began sliding in mid-2014.
The median forecast from a poll of 27 strategists, taken in the past week, was for the index to firm to 13,550 by the end of the year, up less than half a percent from Thursday's close of 13,494.36 and slightly more than 4 percent above the 13,009.95 it ended last year. It is seen rallying to 14,500 by mid-2017.
Responding to an extra question on whether the index's four-year trough of 11,531 in January will be the low for the year, a clear majority of respondents said yes.
"Oil prices retesting their lows are a clear risk for domestic equities this year," said Shailesh Kshatriya, director of Canadian strategies at Russell Investments Canada. "Beyond 2016, the housing market remains a serious concern," he added.
Households in Canada are among the most indebted in the world following years of low borrowing costs and rocketing house prices. The household debt-to-income ratio hit a record 165.4 percent in the fourth quarter.
Meanwhile oil, one of Canada's biggest exports, crashed to trade below $30 a barrel earlier this year compared with above $100 in June 2014, as producers fought for market share in an oversupplied market.
"On the belief that we have also seen the low for oil prices, I believe the TSX has reached its lowest point of the year," said Philip Petursson, chief investment strategist at Manulife Investments.
Energy companies account for 20 percent of the TSX's weight, and the group was expected by many of those polled to be the index's strongest performer this year.
Oil has traded between $36 and $42 a barrel in the last month, and a Reuters poll published on Tuesday suggested the rebound could be capped at $45 for now. Analysts have warned of another sell-off if US crude stockpiles hit record highs again.
And it's not just the price of oil that's falling in Canada. The Canadian dollar fell to a 12-year low earlier this year without significantly boosting export growth as demand from the United States, Canada's biggest trade partner, remained weak.
However, the loonie has recovered some lost ground following the Bank of Canada's recent on-hold monetary policy stance along with fiscal stimulus from the first budget of the recentlyelected Liberal government.
John Stephenson, president of Stephenson & Company Capital Management, said the biggest risk to his outlook, which sits just above the median, is that central banks misjudge where interest rates should be, given the fragility of global growth.