With a weak economy and soft global commodity prices, the Canadian stock market is likely to underperform for some time, suggests a new report from Lévis, Que.-based Desjardins Group.
The Desjardins report looks at the current state of the Canadian economy, and the prospects for recovery. Regardless of whether it has suffered a technical recession, the Canadian economy is undergoing “a period of great difficulty,” the report notes
“The recovery could prove slow … especially considering that some of the traditional levers on which Canada used to count in such circumstances are likely to be less effective,” the Desjardins report warns.
Desjardins expects monetary policies in the U.S. and Canada to continue to diverge, the report says. “From this perspective, the currency appears bound to depreciate further, bettering the fate of Canadian exporters,” it says. “However, Canadian stock market underperformance is likely to prove an enduring theme, especially if global commodity prices maintain their downward trajectory.”
Desjardins also expects Canadian 10-year bond yields to remain around current levels (1.50%), the report notes, followed by a very gradual recovery in 2016. As for stocks, the prospects for a robust recovery appear dim, the report adds.
“Bargain hunters may emerge as the Canadian economy gets out of its difficult position but it is clear that a global context still not conducive to a rebound in commodity prices, will restrain the ability of the S&P/TSX to catch up,” the Desjardins report concludes.