So far this year, the oil and gas sector has helped boost the Canadian market.
That’s because commodities are more scarce and prices have risen due to global political tensions, says Luc de la Durantaye, first vice president of global asset allocation and currency management at CIBC Asset Management. He manages the Renaissance Optimal Inflation Opportunities Portfolio.
And if you look at market trends more broadly, he notes, “the Canadian equity market isn’t necessarily the most undervalued market” in the world.
But he doesn’t predict high oil prices will continue. Instead, political problems will abate gradually over the next 12 months, which will cut domestic oil prices and sales.
Still, de la Durantaye has a positive outlook on the Canadian market. That’s due to “the continued [economic] expansion that we’re forecast[ing],” he says. “With monetary conditions continuing to be accommodative, we expect  growth…to be in the neighbourhood of 3.5%.
“That should lead to 6% to 7% earnings growth, which will be the dominant supporting factor behind equities since, from a valuation perspective, equities can no longer be viewed as relatively cheap.”
On average, de la Durantaye predicts earnings growth and equity demand will remain steady over the next 12 months.
In terms of equity valuations, emerging markets are currently the most attractive, says de la Durantaye. They’re offering “a risk premium in a way because a number of countries [are facing] cyclical challenges right now.”
While China has succeeded in stabilizing its growth activity, many countries in Latin America, such as Chile and Brazil, are struggling and undervalued. Both are “big commodity exporters, ” he adds, “and we don’t see enormous growth in commodities, given that prices are expected to flatten over the next twelve months.”
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In terms of regional preferences, Asia is de la Durantaye’s pick. But he expects emerging market prospects to improve as a whole throughout 2014.