Is it time to sell Canada? Stephen Poloz’s outlook may be too rosy, economists say

Bank of Canada Governor Stephen Poloz.

It could be time for you to sell Canada if market watchers are correct that Bank of Canada Governor Stephen Poloz’s upbeat outlook is just a bit too rosy.

\”Despite overt optimism from the government and also the Bank of Canada, we find it difficult to see how things will get significantly better,\” said Pierre Lapointe, head of worldwide strategy and markets for Pavilion Global Markets.

In testimony to Parliament , Poloz said he still expects a recovery by mid-year regardless of the damage completed to the Canadian economy in the collapse in oil prices. He believes exports, spurred by a low Canadian loonie, supportive monetary policy and economic growth in the U.S., will make amends for lower oil prices.

But economists wonder if export growth can definitely pick up the slack brought on by oil’s decline. Economists at J.P. Morgan said that recent data wasn\’t showing the hoped for rebound in exports.

\”Unfortunately, the much anticipated rebalancing isn\’t yet supported by the data and faces several challenging headwinds,\” the economists said in a report.

Lapointe went even further, saying that he believes Canada\’s current economic weakness is much more structural, and will last for a lot longer than the bank is currently forecasting.

\”The notion that the oil shock works itself out in one quarter seems odd to us,” he said. “We see long-lasting effects in the terms of trade shock, and we see many similarities between current Canadian patters and also the underperformance of the 1990s.”

Lapointe is bearish on Canadian stocks and the loonie as a result, saying there\’s more value in \”staying away\” from Canada for investors than buying Canadian assets.

But not all economists are bearish on Canada. Ste?fane Marion and Matthieu Arseneau at National Bank Financial on Tuesday said that they still see plenty of upside for Canadian stocks this year.

They are currently forecasting the S&P/TSX composite will end 2015 at 16,200, up from the current level of roughly 15,346.1. They observe that very weak analyst expectations, specially in the energy sector, leave the door open to have an earnings recovery and surprises.

\”First, Q1 earnings expectations are extremely depressed – the analyst consensus sees earnings declines of 20% from the year earlier for that composite index and 84% for that energy sector,\” they note.

Meanwhile, cheap fuel prices, U.S. economic growth along with a weak loonie should help earnings for non-resource companies this season.

\”For the S&P/TSX ex Energy the vista is less gloomy – earnings growth of 6.3%, with seven from the 10 sectors expected to report net gain up from a year earlier,\” the economists said.

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