Troubles emanating from the U.S. housing market will prove no match for the global forces driving the recovery of the S&P/TSX composite index, notes a new CIBC World Markets report.

October’s “rebound in the TSX was aided by record oil prices and a turnaround in uranium stocks” reflecting global growth that is “as firm as ever”, says Jeff Rubin, chief strategist and chief economist at CIBC WM in his monthly Canadian Portfolio Strategy Outlook report.

“We expect to see continued market leadership from the energy and materials sectors which together comprise almost half of the TSX’s total market capitalization,” he says. This should “more than offset the drag from the current spillover effects from the U.S. subprime mortgage market on Canadian bank stocks.”

As a result, Rubin is reiterating his call for the benchmark TSX index to reach 16,200 by December 2008, and is sticking to a 12 percentage-point overweight position in equities.

“The TSX is much more a play on the global economy” than U.S. economic growth, says Rubin, pointing to its weighting in energy and materials that have tripled since the start of the decade to 45% of market capitalization. “Outside of the U.S. economy, growth is soaring. Recent estimates from the IMF now point to near-5% growth in real global GDP next year.”

Rubin has raised his short-term forecast on the Canadian dollar, which he expects will reach a record high of US$1.11 by year end, as the stimulus from planned tax cuts and strong resource prices preclude a loonie-cooling interest rate cut. However, he expects the Canadian dollar will settle back to a 5¢ premium over the greenback in 2008.

The prospect of an even stronger loonie has prompted Rubin to cut half a percentage point in his portfolio’s underweight position in industrial stocks, which are highly exposed to the currency.

Rubin is allocating a half percentage point to his portfolio’s overweight position in gold stocks. He’s also adjusting his gold price target, which he expects will reach US$900 in late 2008. The move is predicated on an expected rate cut by the Federal Reserve Board that will further weaken the U.S. dollar.

Within the energy sector, Rubin is maintaining an overweight position as Alberta’s new royalty framework is less onerous than feared and “modest by international standards.”

Within the financial sector, Rubin is moving to a one-percentage-point underweight in bank stocks, and adding that weight to non-bank financials, which represent a better bet against further writedowns associated with the still-imploding U.S. subprime mortgage market.

Rubin expects that the two-month rally for bonds will continue in the near term, but is standing pat on a nine-percentage-point underweighting.

The complete CIBC World Markets report is available at: http://research.cibcwm.com/economic_public/download/psnov07.pdf