FYI | Jul 11 2006
By Rudi Filapek-Vandyck
Investors in global equities can take heart from Citigroup’s latest update on the matter: Citigroup now expects equities in both the US and Europe to generate a return between 9% and 13% over the next six to twelve months. The broker is not so positive about Japan and the emerging markets.
Supporting the broker’s view on US equities is the so-called US Presidential Cycle, with Citigroup strategists pointing out US equities gain on average 24% from the September month in the mid-term election year (which starts this September) until the end of the pre-selection year.
To add to the broker’s confidence is the fact that US share market returns have been positive over the period in 21 out of 23 such periods since 1913.
Very impressive, indeed.
Citigroup has a year end target for the S&P500 of 1400.
With regards to share markets in Asia Pacific ex-Japan, the strategists point out the summer period (from a Northern Hemisphere perspective) tends to be negative for Asian returns. Only Hong Kong and India have been consistently generating positive returns over the July-September period since 1990. Worst performers, Citigroup reports, tend to be Thailand, Taiwan and Indonesia.
The region is more dependent on exports than ever before, Citigroup finds, and with economic growth expected to slow down in the US from now on, this doesn’t bode well. Earnings revisions are already negative for the region. Citigroup concludes: now is not the time to take on risk.
The advice is therefore for investors in the region to go "long" telecoms and banks, and to avoid technology, industrials and base commodities.