North American equities will continue climbing in the year ahead, and commodities – especially gold – will also enjoy generous gains, market forecasters said on Thursday.

At the Toronto CFA Society’s annual forecast dinner in Toronto, Patricia Croft, chief economist at RBC Global Asset Management, and Bob Doll, vice chairman and chief equity strategist at BlackRock, Inc., painted a fairly rosy picture of financial markets in 2011. While the forecasters cautioned that the economic recovery continues to face considerable risks, they pointed out that economic indicators appear to be gradually improving.

“In the last month, we’ve had a decent rally in equities, and I think it’s on the back of not good news, but less bad news,” Doll said. “The economic recovery is becoming self-sustained.”

He expects equities to continue to climb in the year ahead, as more positive news emerges. Specifically, he calls for the S&P 500 to reach 1,199 by the end of 2010, and to be at 1,249 a year from now.

Within the developed world, Doll calls for North American stocks to outperform those in Europe and Japan. Croft expects Canadian stocks to perform particularly well, benefiting from strength in commodity prices.

“I’m a cautious strategist by nature, and yet I have to say that I’m bullish on the Canadian stock market,” Croft said. She expects the S&P/TSX composite index to be at 13,500 in the fourth quarter of 2011.

Both Doll and Croft are also particularly bullish on emerging market stocks.

“The emerging markets will continue to outperform the developed ones,” Doll said. “When you look at the opportunity for growth, when you look at the debt problems, or lack thereof, when you look at, in many of those countries, the growth of the population, the growth of the middle class, the growth of the consumption class, it’s hard to shy away from that.”

Given the strong growth prospects for equities, Doll said investors should position their portfolios accordingly. He said many investors are still holding too much cash.

“I think it’s a great time to be dollar-cost-averaging out of cash and treasuries,” he said, “into risk assets, led by equities.”

Croft agreed that investors should take advantage of the current opportunities. But she warned that equities will likely be volatile, and so it’s important for investors to keep a closer eye on their portfolios.

“Tactical asset allocation becomes key, and buy and hold strategies, much less so,” she said.

Commodities will thrive in the year ahead as the global economy continues to recover, the forecasters said. They agreed that the price of gold, in particular, will keep climbing with strong momentum.

“I think gold indeed is going a lot higher, but it’s not about inflation,” Croft said, “it has everything to do with the desire to hold hard assets in this brave new world.”

This strength in commodities, along with tighter monetary policy in Canada, will help bolster the Canadian dollar in the year ahead, according to Croft. A year from now, she expects the loonie to be worth US$1.15.

The forecasters agreed that the U.S. dollar would show weakness in 2011 and beyond. They expect that in the decades ahead, the greenback will lose its position as the world’s reserve currency.

“I think we have begun a 40-year process that will take us from the U.S. dollar to the Chinese Yuan,” Croft said.

Croft expects the Bank of Canada to continue raising interest rates in the months ahead. She calls for the overnight rate to be around 2.5% by late next year.

IE