National Bank Financial is reiterating its call for a drop in Canadian equity markets this year, following a predicted fall in commodity prices.

“Unlike most U.S. indices, the Canadian stock market benchmark is still in positive territory in 2005,” NBF says in a new report Thursday. “But the key question in this volatile commodities prices environment is: for how long?”

Surging commodities prices over the past three years have contributed to upward TSX earnings revision from sell-side analysts, NBF notes. “In 2004, resources sectors represented no less than 37% of overall TSX earnings (23.9% for Energy and 13.5% for Materials).”

“However, commodity prices might be running out of steam if Chinese imports continue to decelerate given its leader status on many commodities’ demand. It is worth noting that the latest International Energy report which pointed out a slowdown in Chinese oil imports have triggered a huge sell-off on crude oil prices earlier this week,” it says.

As a result, the 2005 S&P/TSX earnings growth expectations may be too high in the current environment, it suggests. It’s reiterating its 8600 yearend target on the S&P/TSX, from about 9440 currently. It is also maintaining an underweighting recommendation on Canadian stocks.