With crisis conditions easing, the investment landscape is increasingly becoming a stock picker’s market, suggests CIBC World Markets.
In a new report, the firm says that when markets are preoccupied by a crisis, macroeconomic views are all important. However, it says investors are now realizing that the worst is probably over, and that it’s time to assess which assets are most likely to benefit. In short, it’s a stock picker’s time to shine.
“Individual stocks are increasingly dancing to their own tune,” it says, noting that the CBOE’s measure of implied correlation among the 60 largest members of the S&P 500 is “down significantly from where it stood in 2011.”
Additionally, commodity indexes are no longer as correlated with global equities, it says. “The divergence between stocks and resource prices adds diversification value to commodities and related equities,” it says.
Moreover, CIBC says there’s also increasing divergence among commodities, as supply and demand fundamentals in each resource market are driving their fortunes. “For example, we’ve seen considerable strength in oil … and gains in nickel, alongside a softening in metallurgical coal, iron ore and lumber,” it says.
“For resource equities, or those hedging commodity price swings, it’s a matter of being on the right side of these fundamentals,” it says.
The report suggests that energy stocks still have upside if oil prices don’t retreat, as it expects. It also says that forestry equities could have value, “albeit for more patient investors, as it’s likely that the US homebuilding recovery is simply delayed rather than denied.” Whereas, in the gold sector, “M&A deals will be critical in determining the winners”, it says.