Energy and technology stocks will be the primary beneficiaries of recent moves by the world's central banks to improve credit market conditions and reflate the economy, says UBS strategist George Vasic in his latest note to clients.
"The sectors that could benefit initially would be those that suffered the greatest from extreme risk aversion, fears of a deflationary spiral, and weaker commodity prices since early last September."
"In that regard, energy stands out as having underperformed both the TSX and its S&P 500 peer, and higher oil prices would be part of such a scenario. Technology, the biggest underperformer, should lead due to its high beta, though we would not expect that from telecoms as their decline was exacerbated by an unsuccessful privatization."
Mr. Vasic is less enthusiastic about Canada's materials group under a reflationary scenario, saying they substantially outperformed on the way down, while gold may start to lag as risk aversion in the market declines. Some might suggest the materials, but they substantially outperformed on the way down, and would expect golds to lag as risk aversion declines.
"Also, 7/10 major sectors have outperformed their US peers, and as the quality play generally would likely lag in this type of rebound. Finally, commodity prices are unlikely to jump high enough to make CAD appreciation that substantial."