Lower returns for Canada

TORONTO - Canadian stock and bond investors are likely to see low returns this year, hurt by the dampening effect of rising interest rates and a stronger currency, Merrill Lynch says.

Canadian equity investors have seen strong returns in recent years as surging global growth spurred demands for natural resources.

The Toronto Stock Exchange's S&P/TSX composite index rose more than 12 per cent last year and about 24 per cent in 2003.

But Merrill forecast on Monday that the corporate profit growth behind the rally could stall this year.

After rising about 30 per cent in 2003 and 2004, corporate profits are predicted to grow by less than 10 per cent this year.

"We're expecting global growth to slow. Already the leading indicators are flagging a slowing in the global economy which will affect topline growth," economist Claudia Lokody said.

The Canadian dollar rose about 7.5 per cent last year, adding to its 21 per cent advance in 2003.

Even though a rising dollar is expected to dampen corporate profit growth, Merrill forecast the Bank of Canada will raise interest rates modestly in the second half of 2005.

- REUTERS