Commodities are poised to perform well as an economic recovery gets underway, market forecasters said on Thursday.

Speaking at the Investment Industry Association of Canada’s annual conference in Toronto, Martin Barnes, managing editor of The Bank Credit Analyst at BCA Research, and Donald Coxe, strategy advisor at BMO Financial Group and chairman at Coxe Advisors LLC, agreed that commodities are likely to outperform in the near term.

“The place to make money will be in commodity stocks,” said Coxe.

Coxe expects U.S. stock markets to underperform global stock markets, and he sees the U.S. dollar depreciating. This could have a negative impact on Canada, since the loonie will appreciate relative to the greenback, which will impact certain equities in this country. But Coxe said commodity stocks, which comprise a hefty portion of the Toronto Stock Exchange, will perform well.

He also expects to see continued strong growth in Asian economies, which have less debt and fewer financial sector challenges than western economies. As a result, Coxe encourages investors to focus on asset classes with exposure to this region.

“What I believe you should look at is those asset classes that can benefit from extraordinarily strong outperformance in Asia,” he said.

Barnes said as a result of the recent rally in stock markets, equities are no longer considered cheap, but are not overly expensive. With many investors still on the sidelines, he says stock markets have upside potential.

In the long run, Barnes expects investments in emerging markets and commodities to perform especially well.

“China, India, Brazil, we all know these economies are going to be bigger in 10 years, so their markets are going to be bigger and more liquid,” he said. “The commodities story is kind of tied in with that.”

Meanwhile, Barnes says government bonds show little potential for attractive returns in the next few years. But spreads on corporate bonds remain high, leaving potential for strong performance in this asset class, he said.

In terms of the economy, Coxe said he will not be confident that a real recovery is underway until bank stocks begin to outperform the equity markets on a consistent basis.

“The banks that make real loans to real people, real small businesses – they’re the ones that are tied into economic growth,” Coxe said. “Their performance is dreadful.”

IE